UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

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

 

For the Fiscal Year Ended December 31, 2019

 

OR

 

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

 

For the Transition Period From ____________ to ____________

 

Commission File Number: 000-54933

 

IMMUNE THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

Florida   59-3226705

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

2431 Aloma Ave., Suite 124,

Winter Park, Florida 32792

(Address of principal executive offices)

 

(888) 613-8802

Registrant’s telephone number, including area code:

 

None

 

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

 

Title of each class   Trading Symbol   Name of Exchange on which registered
Common stock   IMUN   OTC Markets

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ] No [X]

 

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

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

 

Indicate by 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. (Check one):

 

Large accelerated filer [  ] Accelerated filer [  ]
       
Non-accelerated filer [  ] (Do not check if a smaller reporting company) Smaller reporting company [X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [  ]

 

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

 

The aggregate market value of voting stock held by non-affiliates of the registrant on June 30, 2019, the last business day of the registrant’s most recently completed second quarter, was $2,850,484, based on the last reported sale price of the registrant’s Common Stock on the OTC Markets on that date.

 

As of May 14, 2020, the registrant had outstanding 457,578 shares of common stock, $0.0001 par value per share.

 

 

 

 

 

 

IMMUNE THERAPEUTICS, INC.

2019 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

 

Item No.   Description   Page
         
Cautionary Note Regarding Forward-Looking Statements   3
         
    PART I    
Item 1.   Business.   5
Item 1A.   Risk Factors.   18
Item 1B.   Unresolved Staff Comments.   47
Item 2.   Properties.   48
Item 3.   Legal Proceedings.   48
Item 4.   Mine Safety Disclosures.   48
         
    PART II    
Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.   48
Item 6.   Selected Financial Data.   49
Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.   49
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk.   57
Item 8.   Financial Statements and Supplementary Data.   57
Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.   58
Item 9A.   Controls and Procedures.   58
Item 9B.   Other Information.   58
         
    PART III    
Item 10.   Directors, Executive Officers and Corporate Governance.   59
Item 11.   Executive Compensation.   61
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.   64
Item 13.   Certain Relationships and Related Transactions, and Director Independence.   66
Item 14.   Principal Accounting Fees and Services.   66
         
    PART IV    
Item 15.   Exhibits, Financial Statement Schedules.   67
         
Signatures   70

 

2  | P a g e    
 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain statements contained or incorporated by reference in this Annual Report on Form 10-K 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.

 

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 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;

 

3  | P a g e    
 

 

  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, 2019, the last day of our last fiscal year. We are electing to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.

 

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

 

  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  | P a g e    
 

 

PART I

 

Item 1. Business

 

Company Overview

 

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 December 2013, the Company formed a 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 to its shareholders. As part of the transaction (“Original Agreement”), the Company transferred to Cytocom certain of its rights, title and interest in or relating to intellectual property (i) patents, patent applications, and all divisional, continuations and continuations-in-part thereof, together with all reissues, reexaminations, renewals and extensions thereof and all rights to obtain such divisionals, continuations and continuations-in-part, reissues, reexaminations, renewals and extensions, and all utility models and statutory invention registrations and any other such analogous rights, (ii) trademarks, service marks, Internet domain names, trade dress, trade styles, logos, trade names, services names, brand names, corporate names, assumed business names and general intangibles and other source identifiers of a like nature, together with the goodwill associated with any of the foregoing, and all registrations and applications for registrations thereof, together with all renewals and extensions thereof and all rights to obtain such renewals and extensions, (iii) copyrights, mask work rights, database and design rights, moral rights and rights in Internet websites, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof and all applications in connection therewith, together with all renewals, continuations, reversions and extensions thereof and all rights to obtain such renewals, continuations, reversions and extensions, and (iv) confidential and proprietary information, including, trade secrets and know-how.

 

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

 

On 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 Original Agreement, Cytocom issued an additional 140,100,000 shares of its common stock to the Company, which gave the Company a 55.3% stake 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.

 

5  | P a g e    
 

 

On May 1, 2018, the Company entered into an amended and restated licensing agreement (the “Restated Agreement”) with Cytocom. The Restated Agreement restates the licensing arrangement between the Company and Cytocom as provided by the Original Agreement. The Restated Agreement grants the Company distribution and marketing rights for Lodonal™ and MENK for humans in Emerging Markets. In addition, the Company has been granted the rights to distribute and market Lodonal™ and MENK for animal use in the United States. The royalty due to Cytocom has been reduced from 5% to 1% of sales and the Company no longer has any ongoing obligations to pay for costs in connection with the assets of Cytocom. While the Company formalized the agreement to deconsolidate on May 1, 2018, Cato Research Ltd and Penn State University, both vendors of the Company, did not consent to assign the payables to Cytocom.

 

On June 4, 2018, the Company and Cytocom entered into a Stock Purchase Agreement (the “Stock Agreement. Pursuant to the Stock Agreement, the Company cancelled approximately $4,000,000 of debt owed to it by Cytocom in exchange for ten percent (10%) of the issued and outstanding common stock of Cytocom, as calculated on a fully diluted basis. The Restated Agreement was a condition of the Stock Agreement.

 

On April 8, 2019, the Company signed a second amendment to its licensing agreement (the “Second Amendment”) with Cytocom. The Second Amendment confirmed that, as of its effective date (December 31, 2018) the Company owned 15.57% of the common shares issued and outstanding on that date. The Company agreed to assume the obligation to repay all accounts payable obligations and accrued liabilities owed by Cytocom as of the effective date, except those accounts’ payable obligations and accrued liabilities as specified in the Second Amendment. The Company also assumed the obligation to repay all notes payable, together with any interest or fees payable thereon, owed by Cytocom as of the effective date, except those notes’ payable obligations, together with any interest or fees payable thereon, as specified by the Second Amendment. The parties further agreed that in the event of a change of control of Cytocom, and at the option of Cytocom, the Company would have the right to purchase outright the Company’s licensing rights to Emerging Markets for humans under the License Agreement at a price equal to value of those licensing rights as determined by and independent valuator acceptable to the Company and Cytocom.

 

At December 31, 2019, the Company’s equity interest in Cytocom stood at 14.6% of Cytocom’s issued and outstanding common stock. The Company’s policies with respect to accounting for its equity interest in Cytocom is described in Note 2 to the “Notes to the Condensed Consolidated Financial Statements” below (“Summary of Significant Accounting Policies: Non-Controlling Interest in Consolidated Subsidiaries”).

 

On February 27, 2020, the Company approved and entered into a license agreement (the “License Agreement”) with Forte Biotechnology International Corp. (“Forte”). Under the License Agreement, the Company granted Forte an exclusive license to develop and commercialize pharmaceutical products consisting of Lodonal and MENK for use in veterinary applications for all indications world-wide.

 

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

 

Current Business Strategy

 

We are currently focused on developing safe and effective treatments for diseases caused by immune disfunction, inflammation or viral infections for humans in Emerging Markets. We seek to identify drugs for indications already demonstrated safe and effective in humans in order to develop therapeutics, based on these drugs. We believe our development approach enables us to reduce risks associated with obtaining regulatory approval for unproven product candidates while shortening development times to bring our product candidates to market.

 

We have an active in-licensing effort focused on identifying human therapeutics for development. We are seeking to identify compounds that have demonstrated safety and effectiveness in at least two species and are in, or have completed, Phase I or Phase II clinical trials in humans, with well-developed active pharmaceutical ingredients (“API”), process chemistry and a well-defined manufacturing process.

 

6  | P a g e    
 

 

The Company’s licensed technology platform is based on two interrelated cytokine drug therapies—Lodonal™ (low dose Naltrexone (“LDN”)) and Methionine Enkephalin (“MENK”)—which work by triggering a number of receptors, such as opioid and T Cell receptors on immune cells and activate or balance various cells of the immune system. Lodonal™ is a novel, immunodulator agent which has a basic normalizing effect locally on the gut, and activating and rebalancing the immune system this mechanism of action has the potential to benefit multiple disorders. Lodonal™ is in development for multiple possible follow-on indications, including cancer therapy-related toxic side effects to increase safety and improve efficacy. Our therapies also trigger the tolling receptors to shift Th1 (pro-inflammatory) to Th2 (anti- inflammatory), which is critical when dealing with autoimmune and inflammatory disease in humans. Lodonal™ is approved in the Republic of Nigeria as an immune system regulator in the management of HIV patients. The Republic of Malawi has approved Lodonal™ as an adjunct treatment in cancer patients, and in the Dominican Republic Lodonal™ has been approved in the treatment of HIV/AIDS, Fibromyalgia, Crohn’s Disease, Inflammatory Disease, cancer and adjunct to standard of care in the treatment of cancer. Finally, Lodonal is approved in the Republic of Equatorial New Guinea for treatment of cancer, infection with human immunodeficiency virus (HIV), multiple sclerosis.

 

There is need for immune-modulatory therapies that act via a mechanism distinct from the current therapies and hence offer an alternate treatment option to patients non-responsive to standard of care, while also providing an option to patients responsive to standard of care but with unacceptable levels of adverse effects. Both drug candidates have more than 15 years of clinical trials in the treatment of various diseases based on published reports in peer-reviewed journals.

 

We believe there are significant unmet medical needs for pets, and that the pet therapeutics and diagnostics segments of the animal health industry are likely to grow substantially as new treatments and diagnostic processes are identified, developed and marketed specifically for companion animals. By licensing veterinary applications to Forte, we are able to focus on the development and commercialization of Lodonal and MENK in developing markets for humans while still in parallel receiving milestones and royalties.

 

During the past year, the Company has added new members to both its Board of Directors as well its Scientific Advisory Board to guide it in the sale of follow-on indications currently planned for Lodonal. The Scientific Advisory Board will focus primarily on physician education, and community and global awareness regarding the importance and availability of solutions for neglected comorbidities, such as the first-in-class immunodulator for Lodonal for its currently approved indication in Emerging Markets. The Company has developed relationships with more than 20 physicians, pharmacists and patient advocates around the world who are recognized specialists and key opinion leaders in the planned Lodonal follow-on indications, and is seeking their membership on the Scientific Advisory Board. As announced on August 7, 2018, Dr. Roscoe Moore Jr, a nationally-recognized medical Epidemiologist and veterinarian, joined Company as both a director and a member of the Scientific Advisory Board. In addition to Dr. Moore Jr., we added Dr. Gary Blick, a leading Key Opinion Leader and HIV advocate, to the Scientific Advisory Board.

 

Therapeutics Industry for Humans

 

The Company is focused on its lead therapies designed for the treatment in Emerging Markets of cancer, HIV/AIDS, Crohn’s disease, fibromyalgia and Multiple Sclerosis. Management believes the pharmaceutical industry is eager to acquire advanced clinical-phase and approved products. However, despite the strong demand for advanced clinical-phase products worldwide, nearly 4,000 known compounds have had their development suspended in Phase II or earlier. Many of these are promising therapeutic drug candidates, but their development was discontinued because of strategic or financial constraints rather than for clinical reasons. Therefore, management believes there are clear market opportunities with a significant amount of unmet needs and a robust potential for partnering activities.

 

As described more fully above, Cytocom has granted the Company distribution and marketing rights for Lodonal™ and MENK for humans in Emerging Markets.

 

7  | P a g e    
 

 

Lodonal™

 

Naltrexone hydrochloride (Naltrexone) is an oral opioid receptor antagonist that was initially approved by the United States (US) Food & Drug Administration (FDA) in 1984 (NDA 018932) for opiate addiction and in 1994 for alcohol dependency. Naltrexone has also been approved in Europe since at least 1989 for the treatment of opiate addiction and more recently alcohol dependency. The standard regimen for these conditions is one 50 mg tablet per day. Multiple generic versions of naltrexone have been approved by FDA over the last three decades. FDA approval of all naltrexone products is for use in the management of opioid addiction and alcohol dependence.

 

At lower doses (approximately 1/10 for the approved dose [4.5 mg/day]), naltrexone has been reported to exhibit immune modulatory functions that have potential therapeutic benefits in the treatment of autoimmune and/or inflammatory conditions. Low dose naltrexone therapy has shown promise in placebo-controlled clinical trials for use in the treatment of diseases with compromised immune system such as acquired immunodeficiency syndrome (AIDS) caused by infection with human immunodeficiency virus (HIV), cancer, Crohn’s disease and other inflammatory diseases. Immune Therapeutics, Inc. (Immune Therapeutics) has developed a Low Dose Naltrexone (LDN) formulation, known as LDN and trade name Lodonal™ for use as an active immunotherapy drug containing 4.5 mg naltrexone. Lodonal™ is available as tablets, capsules, and liquid formulations for oral administration.

 

Lodonal™ acts primarily by blocking of the opiate receptors on immune cells for a short time period which results in a reactive increase in the production of opioid receptors on the cells, and an increase in circulating levels of beta-endorphins and enkephalins. Increased levels of beta- endorphin and enkephalins have been shown to stimulate the immune system, promoting an increase in the number and functions of T lymphocytes and natural killer (NK) cells. The increase in the T-cell and NK cell numbers and functions, in turn, appears to restore a more normal balance of the immune cells such that effects of inflammatory diseases are significantly reduced. In controlled clinical trials, treatment with LDN led to up to 300% increases in the numbers of T- cells, both CD4+ helper T cells and CD8+ cytotoxic T cells in patients with Crohn’s Disease, HIV/AIDS, Fibromyalgia, Multiple Sclerosis (MS), autism or cancer. In addition to the antagonist effect on μ-opioid receptors (opioid receptors with a high affinity for enkaphalins and beta-endorphin) and other opioid receptors, LDN also exhibited an antagonist effect on non- opioid receptors [Toll-like receptor 4 (TLR4) or TLR-9 as well as the TLR-p receptors) that are found on macrophages such as microglia, which led to shift in Th1 to Th2 resulting in reduced inflammation.

 

Lodonal™ is believed to have other biological effects as well. The opioid growth factor (OGF), chemically termed [Met(5)]-enkephalin, is an endogenous opioid peptide that interacts with the OGF receptor (OGFr) which delays the cell cycle by modulating cyclin-dependent inhibitory kinase pathways. The OGF-OGFr axis is an inhibitory pathway that plays a role in the onset and progression of autoimmune diseases and cancer. Studies have shown that the modulation of the OGF-OGFr axis can be accomplished by the use of low doses of naltrexone. By regulating the OGF-OGFr pathway with LDN, this can have an immune modulation and anti-inflammatory effect. Endogenous opioids (enkephalins and endorphins) and opioid receptors are found not only in the central nervous system but also on other cells including immune-mediating cells, and epithelial cells (including those in the gastrointestinal tract) where they play a role in regulation of inflammation, growth, and mucosal repair. Opioid receptors have been associated with most types of immune cells and chemokine receptors, where their interaction involves changes in cell proliferation, alteration of functions, and release of inflammatory cytokines. Due to its ability to block the opioid receptors on a variety of cells, LDN may have effects in a broad range of immune system disorders.

 

Extensive pharmacokinetic (PK) and metabolism data in humans at doses of 50 mg/day (Wall et al., 1981, Meyer at el., 1984) is available for naltrexone. Additionally, multiple single and repeat dose non-clinical studies have been conducted with naltrexone to evaluate its toxicity profile at a wide range of doses including doses lower than the marketed dose of 50mg/day. Naltrexone has a good safety profile at daily doses of up to 50-100 mg. Based on the available information, LDN is also considered to have a safe profile, accordingly, no additional major non-clinical toxicity studies are deemed necessary for market approval in the US and other regions of the World. The drug product for Lodonal™ does not include any new excipients.

 

The product may be manufactured as a tablet, capsule and a liquid formulation. All of the ingredients in Lodonal™ are used in similar formulations, and are used in amounts below the maximum daily limit established by FDA for the oral route of administration. The excipients are pregelatinized starch, silicified microcrystalline cellulose, carboxymethy cellulose, crospovidone and stearic acid.

 

8  | P a g e    
 

 

The opioid growth factor (OGF), chemically termed [Met(5)]-enkephalin (MENK), is an endogenous opioid peptide that interacts with the OGF receptor (OGFr) which delays the cell cycle by modulating cyclin-dependent inhibitory kinase pathways. The OGF-OGFr axis is an inhibitory pathway that plays a role in the onset and progression of autoimmune diseases and cancer. Studies have shown that the modulation of the OGF-OGFr axis can be accomplished by the use of low doses of naltrexone (Zagon et al., 2013-A, McLaughlin PJ et al., 2012-A). This effect is credited with the biological response seen with treatment of low dose naltrexone in multiple disease model studies.

 

Major studies have been conducted with low doses of naltrexone into the treatment of HIV/AIDS, Cancer and Crohn’s Disease. Other studies have been conducted for the treatment of fibromyalgia, chronic pain, Haley-Haley Disease, hypothyroidism, and Lichen Planopilaris.

 

HIV/AIDS

 

In an in vitro setting, activated CD4+ lymphocytes were infected with a HIV-1 isolate. Naltrexone was used at a concentration of 10−12–10−10 M in cell culture. At this dose, naltrexone did not affect HIV-1 expression; however, naltrexone was able to increase the antiviral activity of Azidothymidine (AZT) and indinavir 2- to 3-fold. The results of this in vitro study suggested that the use of LDN in HIV-1-infected patients is most likely to cause a synergistic activity with adjunctive therapy, specifically anti-viral drugs used to treat HIV-1 infection (Gekker G, et al., 2001).

 

Cancer

 

Significant nonclinical studies have been conducted to evaluate the potency of treatment with naltrexone in cancer disease models. The OGF-OGFr peptide and receptor have been detected in a wide variety of cancers, including thyroid cancer (e.g. follicular-derived thyroid cancers), ovarian cancer, triple negative breast cancer, Hepatocellular carcinoma, squamous cell carcinoma of the head and neck, pancreatic cancer, renal cancer, neuroblastoma, and colon cancer (Zagon et al., 2013-A&B, McLaughlin PG et al., 2009, Meng J et al., 2013, Avella DM et al., 2010, McLaughlin et al., 2012-B, Zagon et al., 2000, Bisignani GJ et al., 1999, Zagon et al., 1996, McLaughlin et al., 1999). It has been shown in a number of animal studies that the OGF- OGFr axis can be directly targeted by the administration of LDN for treatment of a number of cancers. LDN has been shown to stimulate the production of OGF and OGFr for subsequent interaction following blockade of the receptor, thus having a direct impact on this biological pathway, stopping the cell cycle, and therefore having the ability to stop cancerous cell growth. Preclinical data from Zagon et al (2013-A) support the above findings and the use of LDN for the treatment of cancer.

 

It has also been demonstrated that immune cell activation and proliferation are sensitive to the effects of LDN. The use of LDN on both phenotypic and functional maturation of Bone Marrow- derived Dendritic Cells (BMDCs) was tested (Meng J et al., 2013). This study showed that LDN enhanced maturation of BMDCs by 1) up-regulating the expression of major histocompatibility complex (MHC) II, CD40, CD83, CD80 and CD86 molecules; 2) down-regulating the rates of pinocytosis and phagocytosis; 3) mounting potential of BMDCs to drive T cell; and 4) inducing higher levels of Interleukin (IL)-12 and Tumor Necrosis Factor-alpha (TNF-α). Based upon these data, it was concluded that LDN can efficiently promote the maturation of BMDCs suggesting LDN’s ability for enhancing host immunity, specifically in cancer therapy.

 

Female nude mice were transplanted intraperitoneally (i.p.) with SKOV-3 human ovarian cancer cells. These mice were then treated daily with OGF (10 mg/kg), LDN (0.1 mg/kg), or an equivalent volume of vehicle (saline, control arm). Tumor burden, as well as DNA synthesis, apoptosis, and angiogenesis were assessed in tumor tissue after completion of 40 days of treatment. Low doses of naltrexone blocked the endogenous opioids from opioid receptors for about 4-6 hours post treatment. Both OGF and LDN markedly reduced ovarian tumor burden by a decrease in tumor nodule numbers and tumor weight (Donahue RN et al., 2011-A).

 

In another study, nude mice were transplanted with BxPC-3 human pancreatic cancer cells and then were administered 5 mg/kg of OGF three times daily. The treated mice exhibited a marked retardation in tumorigenicity compared to animals injected with only sterile water (controls). OGF-treated animals had a delay of 43% in initial tumor appearance compared to control subjects at 10.6 days post inoculation. While all of the control mice had tumors, 62% of the mice in the OGF group had no signs of neoplasia. Tumor tissue excised from mice after 30 days was assayed for levels of OGF and zeta opioid receptors. Tumor tissue levels of OGF were 24-fold greater in OGF-treated mice than controls, but plasma levels of OGF were 8.6-fold lower in animals receiving OGF (Zagon et al., 1997).

 

9  | P a g e    
 

 

Zagon and team transplanted nude mice with HT-29 human colon cancer cells. On the same day, mice were administered OGF at dosages of 0.5, 5, or 25 mg/kg/day. More than 80% of the mice receiving OGF once daily beginning at the time of tumor cell transplantation did not exhibit neoplasia at 3 weeks post-transplantation, compared with a tumor incidence rate of 93% in control mice. At 7 weeks post-transplantation, 57% of the mice given OGF did not display a tumor. OGF delayed both tumor appearance and growth in animals developing colon cancer in a xenograft model (Zagon et al., 1996).

 

Mice with established ovarian tumors were treated with LDN and cisplatin. The combination treatment resulted in an additive inhibitory effect on tumorigenesis. LDN alleviated the toxicity associated with cisplatin (e.g. weight loss). LDN had also upregulated the expression of OGF and OGFr, showing its benefits as a stand-alone or combination therapy in the treatment of cancer (Donahue et al., 2011-B). These animal studies support the use of LDN as a non-toxic therapy for the treatment of ovarian, pancreatic, colon and other forms of cancers.

 

Crohn’s Disease

 

Crohn’s disease is another indication where significant nonclinical and clinical research has been conducted using LDN. The nonclinical studies are described below, while the clinical studies in Crohn’s disease are described in the following sections. All the studies point towards promising results in Crohn’s disease with LDN

 

A study in mice was conducted to determine if low dose naltrexone could reduce inflammation of the bowel in a chemically-induced mouse model of Inflammatory Bowel Disease (IBD). To establish the model, C57BL/6J mice were given either untreated drinking water or water containing 2% dextran sulfate sodium (DSS) in two parallel regimens to establish moderate and severe colitis. After colitis was established, animals with moderate colitis were administered either saline (control) or naltrexone (8 µg/kg or 400 µg/kg) daily, while those with severe colitis received 0.1 or 10 mg/kg of naltrexone. DSS-treated animals had significant weight loss (p = 0.006) and higher disease activity index (DAI) scores (p < 0.001) compared to water controls. Mice that had moderate colitis and were administered naltrexone at doses of 8 µg/kg or 400µg/kg exhibited less weight loss, lower DAI scores, and less histologic evidence of inflammation compared to positive controls (DSS + saline). Mice with severe colitis did not significantly respond to treatment with naltrexone at either dose (Matters et al., 2008).

 

In addition to monitoring weight loss, DAI score, and histology, the expression of several genes of interest, including cytokines and downstream mediators, was examined by real-time reverse transcription polymerase chain reaction. Expression of Interleukin 5 (IL-5), IL-6, IL-12, and signal transducer and activator of transcription 3 (STAT3) and STAT4 were assessed. IL-5 levels were not significantly changed treated and control mice populations. The levels of mRNA encoding the cytokines IL-6 and IL-12, known to be up-regulated in IBD, were reduced in naltrexone treated mice compared to the untreated controls to almost normal levels. There was no effect on the mRNA levels for cytokine signaling intermediate STAT3 but that for STAT4 were improved in the naltrexone-treated mice. There was no significant effect on the levels of inflammatory cytokine markers (Matters et al., 2008).

 

Other Diseases

 

Although LDN has been evaluated in several additional indications in clinical trials including fibromyalgia, chronic pain, Haley-Haley Disease, hypothyroidism, Lichen Planopilaris, and autoimmune diseases, there are few non-clinical studies in these indications.

 

The long term effects of OGF and LDN on expression of myelin oligodendrocyte glycoprotein (MOG)-induced autoimmune encephalomyelitis (EAE) were examined in a C57BL/6 mouse model. The mice were administered daily injections of 10 mg/kg OGF, 0.1 mg/kg LDN or saline at the time of EAE induction. This treatment regimen continued for 60 days. One hundred percent (100%) of the saline control group had behavioral symptoms of EAE, in comparison to 63% and 68% of the OGF and LDN mice, respectively. Both severity and disease indices of the OGF- and LDN-treated mice were notably decreased from saline control cohorts. By the end of the study (day 60), 6- and 3-fold more animals in the OGF and LDN treated groups, respectively, had remission compared to the saline control mice. The results of this study indicate that treatment with OGF or LDN has no long-term repercussions and did not exacerbate EAE, but rather halted progression of the disease, reversed neurological deficits, and prevented the onset of neurological dysfunction (Rahn KA et al., 2011).

 

10  | P a g e    
 

 

The Company has licensed the following intellectual property from Cytocom for sale in Emerging Markets

 

Cytocom has licensed to the Company the right to use the intellectual property discussed in this section in the following countries (“Emerging Markets”):

 

Argentina Ecuador Peru
Angola Gabon Rwanda
Antigua and Barbuda Gambia São Tomé and Príncipe
Benin Ghana Senegal
Bhutan Guatemala Seychelles
Bolivia Guinea Sierra Leone
Botswana Guinea-Bissau Solomon Islands
Burkina Faso Guyana Somalia
Burundi Haiti South Africa
Brazil Honduras South Sudan
Cameroon Kenya Sri Lanka
Cape Verde Kiribati St Vincent and the Grenadines
Central African Republic Lesotho Sudan
Chad Liberia Swaziland
Chile Madagascar Tajikistan
Congo, Rep Malawi Tanzania
Congo, Dem Mali Togo
Côte d'Ivoire Mauritania Uruguay
Columbia Mauritius Tonga
Coro Mozambique Uganda
Cuba Namibia Uzbekistan
Djibouti Nicaragua Vanuatu
Dominica Niger Venezuela
Eritrea Nigeria Zambia
Ethiopia Pakistan Zimbabwe
Equatorial Guinea Peoples Republic of China  

 

For LDN/LodonalTM for Crohn’s disease, Patent Number 7879870, filed April 16, 2007, issued February 1, 2011, Methods for the treatment of inflammatory and ulcerative diseases of the bowel (e.g., Crohn’s disease and ulcerative colitis) with low dose opioid antagonists (e.g., naltrexone, nalmefene or naloxone), pharmaceutical compositions for use in such methods, and methods for the manufacture of such pharmaceutical compositions.

 

For the development of MENK for pancreatic cancer, US Patent Numbers 6,737,397, CA 2,557,504, US 20010046968, US 6737397, US 6136780, US 20080015211, US 20070053838, US 8003630, US 20110123437, US 7807368, US 7576180, US 7517649, US 20080146512, US 7122651, US 20060073565, US 20050191241, Patent No 8,003,630 issued between 2001 and 2011.

 

The license permits any use in products covered by the license that is consistent with the label approved by the FDA or applicable foreign regulatory authority in the country of sale, including the use of product for the treatment of immune dysfunction and immune dysfunction. As it relates to use of a product in animals, the license permits any use that is consistent with the label approved by the Office of Minor Use and Minor Species or applicable foreign regulatory authority in the country of sale for the use of such product.

 

In addition to the above patent family the Company has rights under the following intellectual property:

 

Name   Patent or App   Status   Patent/Pub Number   Country
                 
An Enkephalin Peptide Composition.pdf   Patent   Approved   PTC220265 GER32746503.8 UK02746509.8 FR02746503.8   Germany;#UK;#France;#PCT
Combinatorial Therapies for the Treatment of Neoplasias Using the Opioid Growth Factor Receptor(A).pdf   Application   Continued   20110123437   US
Combinatorial Therapies for the Treatment of Neoplasias Using the Opioid Growth Factor Receptor (A2).pdf   Application   Pending;#Continued   2005-091241 A1   US
Combinatorial Therapies for the Treatment of Neoplasias Using the Opioid Growth Factor Receptor (A3).pdf   Application   Pending   US 2016/0256517   US
Combinatorial Therapies for The Treatment of Neoplasias Using the Opioid Growth Factor Receptor.Pdf   Patent   Continued   PTC/US2005/005268   PCT

 

11  | P a g e    
 

 

Combinatorial Therapies for the Treatment of Neoplasias Using the Opioid Growth Factor.pdf   Patent   Approved   8,003,630   US
Combinatorial Therapies for the Treatment of Neoplasias Using the Opioid Growth.pdf   Patent   Approved   9,375,458   US
Control of Cancer Growth Through the Interaction of [MET] Enkephalin and Zeta Receptor.pdf   Patent   Approved   6,737,397   US
Control of Cancer Growth Through the Interaction of [MET] Enkephalin and the zeta receptor.pdf   Patent   Continued   6,136,780   US
Method for Inducing a Sustained Immune Response (cancer) 15437386 (A).pdf   Application   Pending   20170239239   US
Method for Inducing Sustained Immune Response (HIV).pdf   Patent   Approved   10,111,870   US / EU/ PTC
Method for Treating and Preventing Protozoal Infections (Malaria) (A).pdf   Application   Pending   US20180055835 A1   US
Method of treating cancer of the prostate.pdf   Patent   Approved   6,384,044   US
Method of Treating Lymphoproliferative Syndrome.pdf   Patent   Approved   6,288,074   US
Method of Treating Multiple Sclerosis.pdf   Patent   Approved   6,586,443   US
Methods for Inducing Sustained Immune Response (US).pdf   Patent   Approved   8,633,150   US
Methods for inducing sustained immune response.pdf   Patent   Approved   Germany DE60216458Europe (German, French, UK, Ireland) 1401474Australia AU2002031622   Germany;#UK;#Europe;
#France;#Ireland;#Australia
Methods of Detecting Opioid Growth Factor Receptor (OGFR) in Tissue.pdf   Patent   Approved   7,517,649   US

 

12  | P a g e    
 

 

Methods of Reducing Side Effects in Cancer Therapy.pdf   Patent   Approved   WO2007067753A2   PCT
Methods of Reducing side Effects in Cancer Therapy (A).pdf   Application   Continued;   US 2010/0016209   US
Novel Nucleic Acid Molecules Encoding Opioid Growth Factor Receptors (A).pdf   Application   Approved   20060073565   US
Opioid Growth Factor Receptors.pdf   Patent   Approved   7,576,180   US
Treatment of Inflammatory and Ulcerative Diseases of the Bowel (A).pdf   Application   Pending;#Provisional   Provisional   US
Treatment of Inflammatory and Ulcerative Diseases of the Bowel with Opioid (A).pdf   Application   Approved   US 20080015211   US
Treatment of Inflammatory and Ulcerative Diseases of the Bowel with Opioid Antagonists.pdf   Patent   Approved   7,879,870   US
Met-enkephalin, its application in in treating leukemia and other blood cancer   patent   Approved   CN 200710158742.7   China
Met-enkephalin, its application in preparation of human and animal vaccine;   Patent   Approved   CN 200710158742.7   China
A nasal spray formulation containing Met enkephalin;   Patent   Approved   CN 200610046249.1   China
Low dose naltrexone, combined with MENK, its application in preparation of anticancer drug   Patent   Approved   CN 201210290150.1   China
Low dose naltrexone, combined with MENK, its application in preparation of leukapheresis for anticancer;               China
Compound met-enkephalin as a drug for colon cancer and pancreatic cancer using a method of by isolating and enriching a patient’s own immune cells and following an enriching external incubation are transfused back into the patient thereby providing the patient with a passive immunity containing large amounts of auto-amplified immune cells that combat cancer cells           CN 200810229085.5   China

 

13  | P a g e    
 

 

Low Dose Naltrexone, application in treating autoimmune disease   Patent   Approved   CN 200910011030.1   China
Application of combination of low-dose naltrexone and methionine-enkephalin to preparation of anti-cancer drug   Patent   Approved   CN 201210302259   China
    Patent   Approved   NG/P/2017/602 a   Nigeria
Treatment of Inflammatory and Ulcerative Diseases of the Bowel with Opioid Antagonists   Patent   Approved   194734   Israel
Cyclin-dependent kinase inhibitors as targets for opioid growth factor   Patent   Pending  

US 7,807,368

(US PgPub 2008-

0146512 A1)

  US
Novel nucleic acid molecules encoding opioid growth factor receptors.   Patent   Granted   US 7,122,651   US

 

Approvals for sale for human therapies

 

Lodonal™ has been approved for sale in the following countries:

 

Republic of Equatorial Guinea

  Drug Approval: Dated 6 December 2013 (4.5mg) Tablet
  Indications approved for: Immune system stimulator for Cancer, HIV infection and MS

 

Nigeria

  Drug approval: Dated 19 April 2016
  Indications approved for: an immune system regulator in the management of HIV patients

 

Malawi

  Drug approval: Dated 16 April 2014
  Indications approved for: Adjunct treatment in cancer

 

Dominican Republic

  Approval for sale: October 2018
  Indications approved for: Immune system regulator in the management of HIV, adjunct to cancer therapy, fibromyalgia, Crohn’s disease, malaria, inflammatory bowel disease, multiple sclerosis and cancer as a mon-therapy.

 

Since the Company received approval from the National Agency for Food & Drug Administration & Control of Nigeria (“NAFDAC”) to sell LodonalTM in Nigeria, the Company has reached agreements with distributors to sell the product in Nigeria and some surrounding countries. In October 2013, the Company announced the signing of a Distribution Agreement with AHAR Pharma, a Nigerian company, to market Lodonal™, in Nigeria for the treatment of autoimmune diseases and cancer. Due to the fact that AHAR Pharma failed to meet its contractual purchase obligations, in April 2018, AHAR Pharma transferred its rights under the distribution agreement to Fidson Healthcare Plc (“Fidson”), and Fidson signed an exclusive distribution agreement with the Company to distribute Lodonal™. In October 2018, the Company shipped 250,000 pills to Fidson. There were no discussions with Fidson regarding the Distribution Agreement in 2019.

 

14  | P a g e    
 

 

On August 22, 2017, the Company entered into a Distribution Agreement with TNI BioTech International Ltd. (“TNI”), a wholly-owned subsidiary, and Omaera Pharmaceuticals Ltd. (“Omaera”). Pursuant to the Agreement, Omaera will be the sole distributor of the Company’s Products, as listed in Section 2 of the Agreement, for sale in Kenya. The Products to be distributed by Omaera will be manufactured by Acromax Dominicana, SA (“Acromax”) in the Dominican Republic. The term of the Agreement began on August 22, 2017 and is to continue for a period of three (3) years, unless earlier terminated. There were no discussions with Omaera regarding the Distribution Agreement in 2019.

 

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

 

On October 18, 2012, the Company and Hubei Qianjiang Pharmaceutical Co., Ltd. (“Qianjiang Pharmaceutical”), signed a Venture Cooperation Agreement on New Drug Methionine Enkephalin (the “Venture Agreement”) pursuant to which Qianjiang Pharmaceutical acquired an exclusive license for the production of MENK in China. The Venture Agreement requires that Qianjiang Pharmaceutical conduct drug research and pilot testing for MENK, organize pre-clinical studies, and apply for clinical trials for MENK with the Chinese State Food and Drug Administration. The Venture Agreement was amended on February 24, 2013 to expand the clinical trials from pancreatic to both pancreatic and liver cancer and amended on March 6, 2014 to require Qianjiang Pharmaceutical to commence studies and clinical trials in China and place funds in the co-administration account.

 

On August 6, 2014, the Company entered into a Supplementary Agreement on New Drug Methionine – Enkephalin Cooperation (the “Amendment”) with Qianjiang Pharmaceutical, amending the Venture Agreement, as amended. The Company and Qianjiang Pharmaceutical executed the Amendment to accelerate clinical trials in both the United States and China, and agreed to immediately initiate three month Good Laboratory Practice (“GLP”) Toxicology Studies (rat and dog) within 30 days of signing the Amendment. The Amendment requires that the GLP Toxicology Studies Trials are conducted in China in accordance with international standards and standards acceptable to the FDA.

 

China

 

In February 2013, the Company signed a Strategic Framework Agreement for Cooperation with Qianjiang Pharmaceutical. Under the agreement, the parties will work together to further the development of new products and conduct research and development on the Company’s licensed patented technology. Specifically, the parties aim to co-invest to develop and market products focusing on HIV, cancer and related autoimmune system therapies, develop co-ventured manufacturing facilities in China, and develop co-ventured distribution of the developed products in China and Africa. The agreement does not have a definitive term, as each new agreement resulting from the cooperation will set forth the material terms, including, but not limited to, fees, duration and termination therein.

 

In December of 2016 Qianjiang Pharmaceutical delivered various documents under the agreements related to its studies of Exploratory Toxicology (nGLP) and Definitive Toxicology (GLP). In addition to the pharmacology and toxicology studies, Qianjiang Pharmaceutical and China Peptide completed the formulation and CMC necessary to scale up manufacturing of MENK.

 

There has been no progress under the agreements in the past 12 months, since a change of ownership of Qianjiang Pharmaceutical in 2017.

 

15  | P a g e    
 

 

Production

 

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

 

In January 2017, Acromax obtained from the Ministry of Public Health and Social Assistance a Medications and Specialized Pharmaceuticals Registration Certification for LodonalTM, which allows for the manufacture and sale of LodonalTM in the Dominican Republic and for export. The Ministry also issued a Certificate of Pharmaceutical Product for Nigeria, Kenya, Senegal and Malawi, which will allow for the export of LodonalTM to those countries where the Company has drug and marketing approval.

 

In February 2018, the Company shipped the first Lodonal products made by Acromax to Nigeria.

 

Raw Materials and Principal Suppliers

 

The Company relies on third parties for raw materials for the clinical production of its products and product candidates for use in humans.

 

In prior years, American Peptide Company has been the Company’s supplier of the API in MENK, and S.A.L.A.R.S SpA has supplied the API in LDN. The Company may seek additional sources of the API in the future.

 

Competition

 

The industry for treatment of humans is highly competitive and subject to rapid and significant technological change. While we believe that our technology, knowledge, experience and scientific resources provide us with competitive advantages, we face potential competition from many different sources including large pharmaceutical and biotechnology companies, specialty pharmaceutical and generic drug companies, academic institutions, government agencies and research institutions. We believe that key competitive factors that will affect the development and commercial success of our product candidates are efficacy, safety, tolerability, reliability, and price and reimbursement level.

 

Many of our potential competitors, including many of the organizations named below, have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products and the commercialization of those products. Accordingly, our competitors may be more successful than we may be in obtaining FDA approval for drugs and achieving widespread market acceptance. Our competitors’ drugs may be more effective, or more effectively marketed and sold, than any drug we may commercialize and may render our product candidates obsolete or non-competitive before we can recover the expenses of developing and commercializing any of our product candidates. We anticipate that we will face intense and increasing competition as new drugs enter the market and advanced technologies become available. Further, the development of new treatment methods for the conditions we are targeting could render our drugs non-competitive or obsolete.

 

Lodonal™/LDN

 

The key competitive factors affecting the success of Lodonal™, if approved, are likely to be efficacy, safety, tolerability, frequency and route administration, convenience and price, the level of branded and generic competition and the availability of coverage and reimbursement from government and other third-party payors.

 

The markets for medicines to treat Crohn’s disease, fibromyalgia, MS, HIV and other autoimmune diseases are well developed and populated with established drugs marketed by large and small pharmaceutical, biotechnology and generic drug companies. Pfizer (Lyrica), Eli Lilly (Cymbalta) and Forest Laboratories/Cyprus Biosciences (Savella) market FDA approved drugs for fibromyalgia. We are aware of several companies pursuing treatments for fibromyalgia, including Chelsea Therapeutics, Johnson and Johnson, Meda, Pfizer, Synthetic Biologics, Teva Pharmaceutical Industries Ltd., and Theravance. Clinical trials in the U.S. are registered with the FDA and reported on the FDA’s website at www.clinicaltrials.gov.

 

16  | P a g e    
 

 

Large pharmaceutical companies have extensive experience in clinical testing and obtaining regulatory approval for drugs. In addition, many universities and private and public research institutes are active in cancer research, some in direct competition with us. We also may compete with these organizations to recruit scientists and clinical development personnel. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

 

We expect Lodonal™, if approved for the treatment of Crohn’s disease, to compete directly with Centocor Ortho Biotech Inc.’s Remicade (infliximab), UCB S.A.’s Cimzia (certolizumab pegol) and Abbott Laboratories’ Humira (adalimumab), each of which is currently approved for the treatment of various diseases, including inflammatory bowel disease, ulcerative colitis and Crohn’s disease, and several other products. Lodonal, if developed and approved for the treatment of MS, would compete with Biogen Idec’s Avonex (interferon beta-1a), Bayer Healthcare Pharmaceuticals’ Betaseron (interferon beta-1b) and Teva Pharmaceuticals Industries Ltd.’s Copaxone (Glatiramer Acetate) and several other products. New developments, including the development of other pharmaceutical technologies and methods of treating disease, occur in the pharmaceutical and life sciences industries at a rapid pace.

 

The Company believes that LodonalTM will provide the first affordable, non-toxic approach for treatment of immune dysfunction, cancer and chronic inflammatory state in Emerging Markets. Competitive advantages and benefits of LodonalTM in Emerging Markets include:

 

  Lower production costs and sales price of treatments.
  LodonalTM can be manufactured and delivered in Emerging Markets for under $.90 cents a day
  Lodonal™ should be able to substantially reduce health care costs for a number of reasons, including:

 

  Lodonal™ can provide a new, non-toxic inexpensive method of medical treatment by mobilizing the natural defenses of one’s own immune system.
  It can be used as a stand-alone therapy or an adjunct to existing immunosuppressive therapies by reducing the toxic side effects of immunosuppressive drugs.
  Lodonal™ does not require the medical supervision of antiretroviral or immunosuppressive therapies.
  Lodonal™ has not been found to have any no toxic side effects as it is an immunomodulator and activates and re-balances the immune system.
  Lodonal™ as an immunomodulator has a way of helping what is now referred to as “non-AIDS morbidity”, and, in the popular press, “premature aging”.
  Lodonal™ studies show it enhances maturation of bone marrow dendritic cells (BMDCs).
  Lodonal™ has been shown to be a safe as placebo in clinical trials between .03mg and 50mg.
  Lodonal™ studies show it does not compromise the immune system.
  Lodonal™ has been shown to reduce the number of opportunistic infections with HIV/AIDS.

 

  Lodonal™ may provide a new, non-toxic inexpensive method of medical treatment by mobilizing the natural defenses of one’s own immune system. It can be used as a stand-alone therapy or an adjunct to existing immunosuppressive therapies by reducing the toxic side effects of immunosuppressive drugs.
  Lodonal™ may can improve compliance. When used correctly, antiretroviral therapy (ART) is effective. However, according to recent studies, ART regimens require 70–90% adherence in order to be effective. Sustaining adherence to ART over the long term requires accurate and consistent monitoring, and this is a particular challenge for countries in sub-Saharan Africa.

 

MENK/MENK

 

The key competitive factors affecting the success of MENK, if approved, are likely to be efficacy, safety, tolerability, frequency and route administration, convenience and price, the level of branded and generic competition and the availability of coverage and reimbursement from government and other third-party payors.

 

17  | P a g e    
 

 

Each cancer indication for which we are developing products has a number of established therapies with which our candidates will compete. Most major pharmaceutical companies and many biotechnology companies are aggressively pursuing new cancer development programs, including both therapies with traditional, as well as novel, mechanisms of action. Some of the anticipated competitor treatments for acute myelogenous leukemia include Genzyme Corporation’s Clolar (clofarabine), currently approved as a treatment for acute lymphoblastic leukemia, Eisai Corporation’s Dacogen (decitabine), currently approved as a treatment for myelodysplastic syndrome, Celgene Corporation’s Vidaza (azacitidine), currently approved as a treatment for myelodysplastic syndrome, and Vion Pharmaceuticals, Inc.’s Onrigin (laromustine) currently being developed as a treatment for acute myelogenous leukemia, any or all of which could change the treatment paradigm of acute leukemia. Each of these compounds is further along in clinical development than is MENK activated NK cell product.

 

Customers

 

The Company reported no sales in 2019. In 2018, there were Lodonal™ sales totaling $113,500 to a distributor in Nigeria.

 

Available Information

 

Our Current Reports on Form 8-K, and Quarterly Reports are electronically filed with or furnished to the Securities and Exchange Commission (SEC), and all such reports and amendments to such reports have been and will be made available, free of charge, through our website (http://www.immunetherapeutics.com) as soon as reasonably practicable after such submission to the SEC. Such reports will remain available on our website for at least 12 months. The contents of our website are not incorporated by reference into this Annual Report on Form 10-K. The public may read and copy any materials filed by us with the SEC at the SEC’s Public Reference Room at 100 F Street, NW, Washington, D.C. 20549.

 

Item 1A. Risk Factors

 

You should carefully consider the following factors and other information in this Annual Report and our other SEC filings before making a decision to invest in our common stock. Additional risks and uncertainties that we are unaware of may become important factors that affect us. If any of the following events occur, our business, financial conditions and operating results may be materially and adversely affected. In that event, the trading price of our common stock may decline, and you could lose all or part of your investment.

 

Risks Related to our Business

 

We have a limited operating history and are expected to incur significant operating losses during the early stage of our corporate development.

 

We have a limited operating history. Our historical financial information consists only of an audit of our financial results at and for the years ended December 31, 2019, 2018, 2017, 2016, 2015, 2014, 2013 and 2012. There is limited historical financial information upon which to base an evaluation of our performance. We are an emerging company, and thus our prospects must be considered in light of the uncertainties, risks, expenses, and difficulties frequently encountered by companies in their early stages of operation, particularly in the pharmaceutical industry.

 

Since inception, we have invested a substantial portion of our time and financial resources in the acquisition and development of our most advanced drug candidate, LDN. We have generated cumulative losses of approximately $385 million and $14.1 million stockholders’ deficit since inception, and we expect to continue to incur losses until LDN is approved by the FDA and foreign regulatory authorities for sale for our therapies. Even if regulatory approval is obtained, there is a risk that we will not be able to generate material sales of LDN, which would cause us to continue to incur losses.

 

18  | P a g e    
 

 

We may never generate revenue, are not profitable and may never become profitable.

 

We expect to incur substantial losses and negative operating cash flow for the foreseeable future, and we may never achieve or maintain profitability. Even if we are able to launch LDN we expect to incur substantial losses for the foreseeable future and may never become profitable.

 

We may not generate significant revenue from the sale of our products for the foreseeable future. In addition, if approved, we expect to incur significant costs to commercialize our drug candidates and our drugs may never gain market acceptance. If our drug candidates fail to demonstrate safety and efficacy in clinical trials, do not gain regulatory approval, or do not achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. If we are unable to achieve and sustain profitability, the market value of our common stock will likely decline. Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or whether we will become profitable.

 

We will see losses from our clinical trials conducted either directly or through our licensors for the foreseeable future, and if we or they fail at one or more of our clinical trials, it could affect the value of the Company’s stock.

 

We rely on financings to fund and conduct clinical trials directly or through our licensors needed for NDA submission with respect to LDN. Any of the following events or factors could have a material adverse effect on our ability to generate revenue from the commercialization of LDN:

 

  The Company or its licensor may be unable to successfully complete the clinical development of LDN;
  The Company or its licensor must comply with any possible additional requests and recommendations from the FDA, including additional clinical trials;
  The Company or its licensor may not obtain all necessary approvals from the FDA and similar foreign regulatory agencies;
  The Company or its licensor may not commit sufficient resources to the development, regulatory approval, marketing and distribution of LDN;
  LDN must be manufactured in compliance with requirements of the FDA and similar foreign regulatory agencies and in commercial quantities sufficient to meet market demand;
  LDN may not achieve market acceptance by physicians, patients, veterinarians and third party payers;
  LDN may not successfully compete against alternative products and therapies; and
  The Company or any other pharmaceutical organization may independently develop products that compete with LDN.

 

To obtain approval from the FDA of an NDA for LDN for treatment of humans, The Company or its licensor will need to demonstrate through evidence of adequate and well-controlled clinical trials that LDN is safe and effective for each proposed indication. However, LDN may not be approved even though it achieved its specified endpoints in future Phase III clinical trials intended to support an NDA, which may be conducted by the Company or its licensor. The FDA may disagree with the trial design and the interpretation of data from clinical trials, may ask the Company or licensor to conduct additional costly and time consuming clinical trials in order to obtain marketing approval or approval to enter into an advanced phase of development, or may change the requirements for approval even after it has reviewed and commented on the design for our future clinical trials. The FDA may also approve LDN for fewer or more limited indications than the Company or its licensor may request, or may grant approval contingent on the performance of costly post-approval clinical trials. In addition, the FDA may not approve the labeling claims that we believe are necessary or desirable for the successful commercialization of LDN.

 

The Company anticipates that to initiate a clinical trial for humans in the next 12 months, it would need approximately $2-$5 million to fully develop products and for clinical trials. The trials would focus the use of MENK for treatment of cancer in Africa.

 

19  | P a g e    
 

 

The development of new drugs is a highly risky undertaking which involves a lengthy process, and therefore our drug discovery and development activities may not result in products that are approved by the applicable regulatory authorities on the time schedule we have planned, or at all.

 

Our drug candidates for treatment of humans are in early stages of drug discovery or clinical trials and are prone to the risks of failure inherent in drug development. As of the date of this Form 10-K, both of our current drug candidates, MENK and LDN have been tested on human beings. We or our licensor will need to conduct additional clinical trials before we can demonstrate that our drug candidates are safe and effective to the satisfaction of the FDA and other regulatory authorities. Clinical trials are expensive and uncertain processes that can take multiple years to complete. We cannot assure you that our ongoing clinical trials or any future clinical trial of any of our other drug candidates, will be completed on schedule, or at all, or whether our planned clinical trials will start in a timely manner. The commencement of our planned clinical trials could be substantially delayed or prevented by a number of factors, including:

 

  delays or failures in obtaining sufficient quantities of the API and/or drug product;
  delays or failures in reaching an agreement on acceptable clinical trial agreement terms or clinical trial protocols with prospective sites and with the FDA or other foreign regulatory bodies;
  delays or failures in obtaining approvals to conduct a clinical trial at a prospective site;
  the need to successfully complete, on a timely basis, preclinical safety pharmacology studies (for MENK);
  the limited number of, and competition for, suitable sites to conduct the clinical trials;
  the limited number of, and competition for, suitable patients for enrollment in the clinical trials; and
  delays or failures in obtaining regulatory approval to commence a clinical trial.

 

The completion of clinical trials by us or its licensor could also be substantially delayed or prevented by a number of factors, including:

 

  slower than expected rates of patient recruitment and enrollment;
  failure of patients to complete the clinical trials;
  failure of our third party vendors to timely or adequately perform their contractual obligations relating to the clinical trials;
  inability or unwillingness of patients or medical investigators to follow our clinical trial protocols;
  inability to monitor patients adequately during or after treatment;
  termination of the clinical trials by one or more clinical trial sites;
  unforeseen safety issues;
  lack of efficacy demonstrated during clinical trial results;
  lack of adequate funding to continue the clinical trials;
  the need for unexpected discussions with the regulatory agencies regarding the scope or design of our clinical trials or the need to conduct additional trials;
  unforeseen delays by the regulatory agencies after submission of our results;
  an unfavorable FDA inspection of our contract manufacturers of APIs or drug products; and/or
  inspection of the clinical trial operations or trial sites by regulatory authorities resulting in the imposition of a clinical hold.

 

Any failure or significant delay in completing clinical trials for our licensor’s or our drug candidates will harm the commercial prospects for our drug candidates and adversely affect our financial results.

 

Additionally, changes in regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit our clinical trial protocols to regulatory agencies for reexamination, which may impact the costs, timing or successful completion of a clinical trial. If we experience delays in completion of a clinical trial, or if we terminate any of our clinical trials, the commercial prospects for our drug candidates may be harmed and our ability to generate product revenues will be delayed. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of a drug candidate.

 

If we or our licensor are required to suspend or discontinue clinical trials due to side effects or other safety risks, or if we are required to conduct studies on the long-term effects associated with the use of our drug candidates, our efforts to commercialize our products could be delayed or halted.

 

Our or our licensor’s clinical trials may be suspended or terminated at any time for a number of safety-related reasons. For example, administering any drug candidate to humans may produce undesirable side effects. We may voluntarily suspend or terminate our clinical trials if at any time we believe that our drug candidates present an unacceptable safety risk to the clinical trial patients. In addition, agencies may order the temporary discontinuation or termination of our clinical trials at any time if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements, including if they present an unacceptable safety risk to patients. The existence of undesirable side effects resulting from our drug candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials of our drug candidates and could result in the regulatory agencies denying further development or approval of our drug candidates for any or all targeted indications.

 

20  | P a g e    
 

 

Further, cytokine receptors and opiate growth factor receptors are a novel class of targets. As a result, we may experience unforeseen adverse side effects with our existing and future drug candidates, including MENK and LDN. As of the date of this registration statement, although we have not observed harmful side effects in prior studies of LDN or MENK, later trials could reveal such side effects. The pharmacokinetic profile and results of preclinical studies may not be indicative of results in any clinical trial.

 

Neither we nor or our licensor have not conducted studies on the long-term effects associated with the use of our drug candidates. Studies of long-term effects and chronic dosing (approximately 1 year of dosing); will be required for regulatory approval and may delay introduction of our therapies or our other drug candidates into the market. Additional studies could also be required at any time after regulatory approval of any of our drug candidates. Some or all of our drug candidates may prove to be unsafe for human use.

 

Even if our or our licensor’s drug candidates do obtain regulatory approval, they may never achieve market acceptance or commercial success.

 

Even if we or our licensor obtain regulatory approval, our drug candidates may not achieve market acceptance among physicians, veterinarians, patients and/or third-party payers or they may be used only in applications more restricted than we anticipate, and ultimately, may not be commercially successful. Our treatments, if successfully developed, will compete with a number of traditional products manufactured and marketed by major pharmaceutical and biotechnology companies. Our treatments may also compete with new products currently under development by such companies and others. Physicians or veterinarians will prescribe a product only if they determine, based on experience, clinical data, side effect profiles and other factors, that it is beneficial as compared to other products currently available and in use. Physicians or veterinarians also will prescribe a product based on their traditional preferences. Market acceptance of our drug candidates for which we receive approval depend on a number of factors, including:

 

  the efficacy and safety of our drug candidates as demonstrated in clinical trials;
  the clinical indications for which the drug is approved;
  acceptance by physicians or veterinarians, major operators of clinics and patients of the drug as a safe and effective treatment;
  the potential and perceived advantages of our drug candidates over alternative treatments;
  the safety of drug candidates seen in a broader patient group, including its use outside the approved indications;
  the cost of treatment in relation to alternative treatments;
  the availability of adequate reimbursement and pricing by third parties and government authorities;
  relative convenience and ease of administration;
  the prevalence and severity of adverse side effects; and
  the effectiveness of our sales and marketing efforts.

 

If our drug candidates that obtain regulatory approval fail to achieve market acceptance or commercial success, the Company’s financial results will be adversely affected.

 

The commercial success of LDN depends, in part, on Cytocom’s ability to develop and market the drug in North America, and if it fails in its initiatives, our ability to generate future revenue in Emerging Markets could be reduced.

 

Any of the following events or factors could have a material adverse effect on our ability to generate revenue in Emerging Markets from the commercialization of LDN:

 

  Cytocom may be unable to successfully complete the clinical development of LDN;

 

21  | P a g e    
 

 

  our lack of experience in commercializing and marketing drug products in Emerging Markets;
  we may not have or be able to obtain sufficient financial resources to develop and commercialize LDN in Emerging Markets;
  we may not be able to identify a suitable co-development partner in Emerging Markets;
  we, or any of our future partners, may fail to fulfill our responsibilities in a timely manner or fail to commit sufficient resources to the development, regulatory approval, and commercialization efforts related to LDN in Emerging Markets;
  we, or any of our future partners, must comply with additional requests and recommendations from regulatory agencies in Emerging Markets, including additional clinical trials;
  we, or any of our future partners, may not obtain all necessary approvals from foreign regulatory agencies;
  LDN must be manufactured in compliance with requirements of foreign regulatory agencies and in commercial quantities sufficient to meet market demand;
  LDN may not achieve market acceptance by physicians, veterinarians, patients and third party payers in our markets;
  LDN may not compete successfully against alternative products and therapies; and
  we, or any pharmaceutical company, may independently develop products that compete with LDN.

 

Changes in pharmaceutical and biotechnology industry trends could adversely affect the Company’s operating results.

 

Industry trends, economic and political factors that affect pharmaceutical, biotechnology, medical device companies and academic/government entities sponsoring clinical research directly affect the Company’s business. For example, many companies in such industries and government organizations have been hiring companies to conduct large development projects. The Company’s operations, financial condition and growth rate could be materially and adversely affected if these industries reduce outsourcing of such projects. In the past, mergers, product withdrawals, liability lawsuits and other factors in the pharmaceutical industry have slowed decision making by pharmaceutical companies and correlating government bodies significantly delaying and/or halting drug development projects. Continuation or increases in such trends could have an adverse effect on the Company’s business. Additionally, numerous government agencies have undertaken efforts to control growing healthcare costs through legislation, regulation and voluntary agreements with medical care providers and pharmaceutical companies. If future regulatory cost-containment efforts limit potential profits derived from new drugs, the Company’s clients may reduce their drug discovery and development spending. A reduction in drug discovery and development spending could have a material adverse effect on the Company’s results and operations creating a significant reduction of the Company’s revenue.

 

We currently rely on our licensor and third parties to conduct all our clinical trials. If they do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize any of our drug candidates.

 

We currently do not have the ability to independently conduct clinical trials. We rely on medical institutions, clinical investigators, contract laboratories, collaborative partners and other third parties, such as contract research organizations, to conduct clinical trials on our drug candidates. The third parties with whom we contract for execution of our clinical trials play a significant role in the conduct of these trials and the subsequent collection and analysis of data. These third parties are not our employees, and except for contractual duties and obligations, we have limited ability to control the amount or timing of resources that they devote to our programs. Although we rely on these third parties to conduct our clinical trials, we remain responsible for ensuring that each of our preclinical studies and clinical trials is conducted in accordance with its investigational plan and protocol. Moreover, foreign regulatory authorities require us to comply with regulations and standards, commonly referred to as current Good Clinical Practices (“cGCPs”) for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate and that the trial subjects are adequately informed of the potential risks of participating in clinical trials.

 

22  | P a g e    
 

 

In addition, the execution of preclinical studies and clinical trials, and the subsequent compilation and analysis of the data produced, requires coordination among various parties. In order for these functions to be carried out effectively and efficiently, it is imperative that these parties communicate and coordinate with one another. Moreover, these third parties may also have relationships with other commercial entities, some of which may compete with us. In most cases, these third parties may terminate their agreements upon a material breach by us that is not cured within 30 days by providing us with 30 days’ prior written notice. Many of these agreements may also be terminated by such third parties under certain other circumstances, including our insolvency or our failure to comply with applicable laws. In general, these agreements require such third parties to reasonably cooperate with us at our expense for an orderly winding down of services of such third parties under the agreements. If the third parties conducting our clinical trials do not perform their contractual duties or obligations, experience work stoppages, do not meet expected deadlines, terminate their agreements with us or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical trial protocols or cGCPs, or for any other reason, we may need to enter into new arrangements with alternative third parties, which could be costly, and our clinical trials may be extended, delayed or terminated or may need to be repeated, and we may not be able to obtain regulatory approval for or commercialize the drug candidate being tested in such trials.

 

If any of our drug candidates receive marketing approval, and the Company or others later identify undesirable side effects caused by the drug candidate, our ability to market and derive revenue from the drugs could be compromised.

 

If the Company or others identify undesirable side effects caused by one of our drug candidates, any of the following adverse events could occur:

 

  regulatory authorities may withdraw approval of the drug or seize the drug;
  we may be required to recall the drug or change the way the drug is administered;
  additional restrictions may be imposed on the marketing or the manufacturing processes of the particular drug;
  we may be subject to fines, injunctions or the imposition of civil or criminal penalties;
  regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication;
  we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;
  we could be sued and held liable for harm caused to patients;
  the drug may become less competitive; and
  our reputation may suffer.

 

Any of these could result in the loss of significant revenues, which would materially and adversely affect our results of operations and business.

 

We may need additional financing and may be unable to raise capital on acceptable terms, or at all, when needed, which could force us to delay, reduce or eliminate our research and development programs and other operations or commercialization efforts.

 

We are advancing multiple drug candidates through discovery and development and will require substantial funds to conduct development, including preclinical studies and clinical trials, of our drug candidates. Commercialization of any drug candidate will also require substantial expenditures. To further the development and commercialization efforts of our drug candidates, we may need additional financing to hire additional employees to co-promote drug candidates or to commercialize drug candidates that may not be covered by our current collaboration agreements.

 

At December 31, 2019, we had $4,925 in cash and cash equivalents. We do not believe that our available cash and cash equivalents will be sufficient to fund our anticipated level of operations for the next 12 months and we will likely need to seek outside sources of funding. Assuming that anticipated investment and revenue does not materialize, business operations would not be able to continue more than 30 days. We believe we require at least $5 million for our operations over the next 12 months. Our future financing requirements will depend on many factors, some of which are beyond our control, including:

 

  the rate of progress and cost of our clinical trials, preclinical studies and other discovery and research and development activities;
  the timing of, and costs involved in, seeking and obtaining regulatory approvals;
  the continuation and success of our strategic alliances and future collaboration partners;

 

23  | P a g e    
 

 

  the exercise of remaining options under current collaborative agreements;
  the costs of preparing, filing, prosecuting, maintaining and enforcing any patent claims and other intellectual property rights, including litigation costs and the results of such litigation;
  our ability to enter into additional collaboration, licensing, government or other arrangements and the terms and timing of such arrangements;
  potential acquisition or in-licensing of other products or technologies; and
  the technologies or other adverse market developments.

 

Future capital requirements will also depend on the extent to which we acquire or invest in additional complementary businesses, products and technologies. We currently have no understandings, commitments or agreements relating to any of these types of transactions.

 

Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never do, we expect to finance future cash needs primarily through public or private equity offerings, debt financings, government grants and contracts and/or strategic collaborations. Additional financing may not be available to us when we need it or it may not be available on favorable terms, if at all. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of or eliminate one or more of our clinical trials or research and development programs or our commercialization efforts. We may be required to enter into collaborative partnerships for one or more of our drug candidate programs at an earlier stage of development or on less favorable terms, which may require us to relinquish rights to some of our drug candidates that we would otherwise have pursued on our own. We may also be required to pursue strategic alternatives that may affect our business or corporate structure in order to make ourselves more attractive to investors.

 

In addition, if the Company or any of its future collaboration partners does not perform in the manner we expect or fulfill its responsibilities in a timely manner, or at all, the clinical development, regulatory approval, and commercialization efforts related to LDN could be delayed or terminated. It may be necessary for us to assume the responsibility at our own expense for the development of LDN. In that event, we would likely be required to seek additional funding.

 

We may form additional strategic alliances in the future with respect to our independent programs, and we may not realize any benefits of such alliances.

 

We may form strategic alliances, create joint ventures or collaborations or enter into licensing arrangements with third parties with respect to our independent programs that we believe will complement or augment our existing business. For example, we plan to find a partner to co-develop and commercialize MENK and LDN outside North America upon completion of clinical development of LDN for the treatment of pediatric and adult patients with Crohn’s disease. We face significant competition in seeking appropriate strategic partners. The negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for any future product candidates and programs because our research and development pipeline may be insufficient, our product candidates and programs may be deemed to be at too early a stage of development for collaborative effort and/or third parties may not view our product candidates and programs as having the requisite potential to demonstrate safety and efficacy. We cannot be certain that, following a strategic transaction or license, we will achieve the revenues or specific net income that justifies such transactions. Any delays in entering into new strategic partnership agreements related to our product candidates could also delay the development and commercialization of our product candidates and reduce their competitiveness even if they reach the market.

 

24  | P a g e    
 

 

We do not currently manufacture Low Dose Naltrexone (LDN) and therefore must rely on third-party manufacturing to supply the drug for clinical trials. If one of our suppliers or manufacturers fails to perform adequately or fulfill our needs, we may be required to incur significant costs and devote significant efforts to find new suppliers or manufacturers, which would cause delays in the development and commercialization of our drug candidates.

 

The manufacture of pharmaceutical products in compliance with cGMPs requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, including difficulties with production costs and yields, quality control, including stability of the drug candidate and quality assurance testing, shortages of qualified personnel, as well as compliance with strictly enforced regulatory and cGMP requirements, other regulatory requirements, and foreign regulations. If our manufacturers were to encounter any of these difficulties or otherwise fail to comply with their obligations to us or under applicable regulations, our ability to provide study drugs in our preclinical studies and clinical trials would be jeopardized. Any delay or interruption in the supply of preclinical study or clinical trial materials could delay the completion of our preclinical studies and clinical trials, increase the costs associated with maintaining our preclinical study and clinical trial programs and, depending upon the period of delay, require us to commence new trials at significant additional expense or terminate the studies and trials completely.

 

All manufacturers of our drug candidates must comply with cGMP requirements. These requirements include, among other things, quality control, quality assurance and the maintenance of records and documentation. Manufacturers of our component materials may be unable to comply with these cGMP requirements and with other regulatory requirements. Regulatory agencies at any time may also implement new standards, or change their interpretation and enforcement of existing standards for manufacture, packaging or testing of products. We have little control over our manufacturers’ compliance with these regulations and standards. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. If the safety of any product supplied is compromised due to our manufacturers’ failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize our products, and we may be held liable for any injuries sustained as a result. Any of these factors could cause a delay of clinical trials, regulatory submissions, approvals or commercialization of our drug candidates or entail higher costs or impair our reputation.

 

We source the API for LDN from third-party vendors. Another pharmaceutical company manufactures the API for MENK. Our current agreements with our suppliers provide for the entire supply of the API necessary for additional clinical trials or for full-scale commercialization. In the event that we and our suppliers cannot agree to the terms and conditions for them to continue to provide some or all of our API clinical and commercial supply needs, or if any single source supplier terminates the agreement in response to a breach by us, we would not be able to manufacture the API on a commercial scale until a qualified alternative supplier is identified, which could also delay the development of, and impair our ability to commercialize, our drug candidates.

 

Although alternative sources of supplies exist, the number of third-party suppliers with the necessary manufacturing and regulatory expertise and facilities are limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers, which could have a material adverse effect on our business. New suppliers of any API would be required to qualify under applicable regulatory requirements and would need to have sufficient rights to the method of manufacturing such ingredients under applicable intellectual property laws. Obtaining the necessary regulatory approvals or other qualifications under applicable regulatory requirements and ensuring non-infringement of third-party intellectual property rights could result in a significant interruption of supply and could require the new manufacturer to bear significant additional costs which may be passed on to us.

 

We currently have only a limited distribution organization with no direct sales and marketing staff. If we are unable to develop sales and marketing and expand distribution capability on our own or through collaborations with marketing partners, we will not be successful in commercializing our future products.

 

We currently have only a limited distribution organization with no sales or marketing staff. If our products are approved for sale in the United States, we will need to execute a number of sales and marketing agreements, but there can be no assurance that the Company will be able to sign an agreement to market and distribute our products. To the extent we rely on third parties for marketing and distributing our approved products, any revenue we receive will depend upon the efforts of third parties, which may not be successful, and are only partially within our control. Our reliance on third parties makes it likely that our product revenue is likely to be lower than if we directly marketed or sold our products. If we are unable to enter into arrangements with third parties to commercialize the approved products on acceptable terms or at all, we may not be able to successfully commercialize our future products or we will have to market these products ourselves, which will be expensive and require us to build our own sales force, which we do not have experience doing. We cannot assure you we will be successful in any of these initiatives. If we are not successful in commercializing our future products, either on our own or through collaborations with one or more third parties, our future product revenue will be materially adversely affected.

 

25  | P a g e    
 

 

We are dependent on market acceptance of compounding pharmacies and compounded formulations, and physicians may be unwilling to prescribe, and patients may be unwilling to use, our proprietary LDN compounded formulation.

 

We are currently distributing our proprietary LDN formulation for human use through third-party compounding pharmacies and distributors in Emerging Markets. Our formulation has not undergone the FDA approval process and only limited data, if any, may be available with respect to the safety and efficiency of our formulation for any particular indication. Some physicians may be hesitant to prescribe, and some patients may be hesitant to purchase and use, this non-FDA approved compounded formulation. In addition, certain compounding pharmacies have been the subject of widespread negative media coverage in recent years, and the actions of these pharmacies have resulted in increased scrutiny of compounding pharmacy activities from regulatory agencies. As a result, physicians may be unwilling to prescribe a compounded formulation when an FDA-approved alternative is available, even if they believe the compounded formulation to be superior and less expensive. Other reasons physicians may be unwilling to prescribe or patients may be unwilling to use our proprietary LDN compounded formulation could include the following, among others: our proprietary formulation is not required to be, and has not been, approved for marketing and sale by the FDA; there may be limited or no data available with respect to the clinical efficacy or safety of our compounded formulation the physician is prescribing; and to the extent there is such data available, we are limited in our ability to discuss the efficacy or safety of our formulation with potential purchasers of our formulation.

 

We aim to generate revenue from our proprietary LDN formulation through agreements with compounding pharmacies outside of the United States, but we may not be successful in our efforts to generate revenue from such formulation.

 

One aspect of our business strategy is to enter into other sub-licensing arrangements with compounding pharmacies outside of the U.S., through which we can generate revenue from the sale of our proprietary LDN formulation. We have limited experience commercializing our formulation through licensing arrangements with compounding pharmacies. Even if we are successful, we may be unable to generate sufficient revenue to recover our costs.

 

We have minimal experience sub-licensing products to pharmacies and outsourcing facilities and we may not be successful in our efforts to develop our licensing arrangements. If we elect to sub-license our proprietary LDN formulation to one or more pharmacies or outsourcing facilities outside of the U.S., we may not be able to enter into licensing agreements when desired, on acceptable terms, or at all. Establishing licensing or other relationships with pharmacies and outsourcing facilities could be expensive and time consuming, disrupt our other operations, require significant capital expenditures and distract management and our other employees from other aspects of our business.

 

Failure to achieve and maintain effective internal controls could have a material adverse effect on our business.

 

Effective internal controls are necessary for us to safeguard our assets and provide reliable financial reports. If we cannot provide reliable financial reports, our operating results could be harmed. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

 

While we continue to evaluate and improve our internal controls, we are a small company with limited staff, and we cannot be certain that the measures we implement will ensure that we design, undertake and maintain adequate controls over our financial processes and reporting in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations.

 

Failure to achieve and maintain an effective internal control environment could cause investors to lose confidence in our reported financial information, which could have a material adverse effect on our stock price. In addition, if our efforts to comply with new or changed laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

 

26  | P a g e    
 

 

Our independent registered public accounting firm has identified material weaknesses in our financial reporting process.

 

At December 31, 2019, our independent registered public accounting firm has identified two material weaknesses in our financial reporting process. Specifically, our independent registered public accounting firm identified material weaknesses with respect to:

 

  currently inadequate segregation of duties by management in the financial reporting area; and
  the lack of an audit committee to oversee the financial reporting process.

 

In April 2020, the full Board constituted itself as the audit committee and has met subsequently to oversee the Company’s financial reporting. We intend to remediate this weakness by increasing the size of our accounting staff when we have the financial resources to do so, and by appointing a separate audit committee with membership that is qualified to oversee the Company’s financial reporting. However, there can be no assurance that we will be able to successfully implement our plans to remediate the material weaknesses in our financial reporting process. Our failure to successfully implement our plans to remediate these material weaknesses could cause us to fail to meet our reporting obligations, to produce timely and reliable financial information, and to effectively prevent fraud. Additionally, such failure, or other weaknesses that we may experience in our financial reporting process or other internal controls, could cause investors to lose confidence in our reported financial information, which could have a negative impact on our financial condition and stock price.

 

We will need to increase the size of our organization, but we may experience difficulties in managing growth.

 

We will need to continue to expand our managerial, operational, financial and other resources in order to manage our operations and clinical trials, continue our development activities and commercialize our drug candidates. Our current management, personnel systems and facilities may not be adequate to support this future growth. Our need to effectively execute our growth strategy requires that we:

 

  manage our clinical trials effectively, including our clinical trials for LDN which will be conducted at numerous trial sites throughout the world;
  manage our internal development efforts effectively while carrying out our contractual obligations to licensors, contractors, collaborators, government agencies and other third parties;
  manage operations in both regulated and unregulated businesses;
  continue to improve our operational, financial and management controls and reporting systems and procedures; and
  identify, recruit, maintain, motivate and integrate additional employees.

 

If we are unable to expand our managerial, operational, financial and other resources to the extent required to manage our development and commercialization activities, our business will be materially adversely affected.

 

We face substantial competition. Our competitors may discover, develop or commercialize products faster or more successfully than us.

 

The biotechnology and pharmaceutical industries are highly competitive. We face significant competition from companies in the pharmaceutical, biotechnology and other related markets that are researching and marketing products designed to address inflammatory disorders, HIV/AIDS and cancer in Emerging Markets. Established pharmaceutical companies that currently sell or are developing drugs in our markets of interest include, for example; Abbott Laboratories, Glaxo Smith Kline, Pfizer, and ViiV in the field of cancer treatment. Johnson & Johnson, Merck, Merck Serono, Takeda, Novartis, Pfizer, Reata, Sanofi-Aventis and Teva compete with us in all fields. Many or all of these established competitors are also involved in research and drug development regarding various OGF receptors. Pharmaceutical and biotechnology companies which are known to be involved in immunotherapy research and related drug development include Pfizer, Bristol-Myers Squibb, Merck, Takeda, Sanofi-Aventis, Incyte, and UCB Pharma among others.

 

27  | P a g e    
 

 

Many of our competitors have greater name recognition and financial, manufacturing, marketing, research and drug development resources than we do. Additional mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. Large pharmaceutical companies in particular have extensive expertise in preclinical and clinical testing and in obtaining regulatory approvals for drugs. In addition, academic institutions, government agencies, and other public and private organizations conducting research may seek patent protection with respect to potentially competitive products or technologies. These organizations may also establish exclusive collaborative or licensing relationships with our competitors, thus giving our competitors a significant advantage. We may be unable to respond to competitive forces presently in the marketplace, which would severely impact our business.

 

In addition, in terms of the sub-licensing of LDN formulation to Acromax in the Dominican Republic, we compete against branded drug companies, generic drug companies, outsourcing facilities and other compounding pharmacies. We expect to continue our efforts on making available our proprietary compounded formulation through Acromax and other compounding pharmacies outside of the U.S. The drug products available through branded and generic drug companies with which our formulation competes have been approved for marketing and sale by the FDA and are required to be manufactured in facilities compliant with cGMP standards. As a result, some physicians may be unwilling to prescribe them. Because our proprietary LDN formulation is not required to be, and has not been, approved for marketing and sale by the FDA, our business may be subject to limitations our competitors with FDA-approved drugs may not face.

 

We may be subject to costly product liability claims related to our clinical trials and drug candidates and, if we are unable to obtain adequate insurance or are required to pay for liabilities resulting from a claim excluded from, or beyond the limits of, our insurance coverage, a material liability claim could adversely affect our financial condition.

 

Because we conduct clinical trials in Emerging Markets with human patients, we face the risk that the use of our drug candidates may result in adverse side effects to patients and to otherwise healthy volunteers in our clinical trials. We face even greater risks upon any commercialization of our drug candidates. Although we will maintain product liability insurance for clinical trials, our insurance may be insufficient to reimburse us for any expenses or losses we may suffer, and we will be required to increase our product liability insurance coverage for the advanced clinical trials that we plan to initiate. We do not know whether we will be able to continue to obtain product liability coverage and obtain expanded coverage on acceptable terms, or at all. We may not have sufficient resources to pay for any liabilities resulting from a claim excluded from, or beyond the limits of, our insurance coverage. There is also a risk that third parties that we have agreed to indemnify could incur liability. An individual may bring a product liability claim against us if one of our drug candidates, products or compounded formulations cause, or is claimed to have caused, an injury or is found to be unsuitable for consumer use. Any product liability claim brought against us, with or without merit, could result in:

 

  withdrawal of clinical trial volunteers, investigators, patients or trial sites;
  the inability to commercialize our drug candidates;
  decreased demand for our drug candidates;
  regulatory investigations that could require costly recalls or product modifications;
  loss of revenues;
  substantial costs of litigation;
  liabilities that substantially exceed our product liability insurance, which we would then be required to pay ourselves;
  an increase in our product liability insurance rates or the inability to maintain insurance coverage in the future on acceptable terms, if at all;
  the diversion of management’s attention from our business; and
  damage to our reputation and the reputation of our products.

 

28  | P a g e    
 

 

Our business involves the use of hazardous materials. As a result, we, including our third-party manufacturers, must comply with environmental laws and regulations, which may be expensive and restrict how we do business.

 

Our third-party manufacturers’ activities involve the controlled storage, use and disposal of hazardous materials, including the components of our pharmaceutical products, test samples and reagents, biological materials and other hazardous compounds. We and our manufacturers are subject to foreign laws and regulations governing the use, generation, manufacture, storage, handling and disposal of these hazardous materials. We currently carry no insurance specifically covering environmental claims relating to the use of hazardous materials. Although we believe that our safety procedures for handling and disposing of these materials and waste products comply with the standards prescribed by these laws and regulations, we cannot eliminate the risk of accidental injury or contamination from the use, storage, handling or disposal of hazardous materials. In the event of an accident, applicable authorities may curtail our use of these materials and/or interrupt our business operations. In addition, if an accident or environmental discharge occurs, or if we discover contamination caused by prior operations, including by prior owners and operators of properties we acquire, we could be liable for cleanup obligations, damages and fines. The substantial unexpected costs we may incur could significantly harm our financial condition and results of operations.

 

Future financings may adversely affect our stockholders or impose restrictions on our assets or operations, which may harm our business.

 

If we raise additional capital by issuing equity securities or convertible debt securities, our existing stockholders’ ownership will be diluted and the terms of any new equity securities may have preferences over our common stock. If we raise additional capital through the issuance of debt securities, the debt will have rights senior to the holders of our common stock and may contain covenants that restrict our operational flexibility or impose liens or other restrictions on our assets. In addition, the terms of future financings may restrict our ability to raise additional capital, which would delay or prevent the further development or commercialization of our drug candidates.

 

If we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish potentially valuable rights to our current drug candidates, potential products or proprietary technologies, or grant licenses on terms that are not favorable to us. Additionally, we may consider pursuing strategic opportunity for our business and corporate structure that may make us a more attractive investment candidate. If adequate funds are not available, our ability to achieve profitability or to respond to competitive pressures would be significantly limited and we may be required to delay, significantly curtail or eliminate the development of one or more of our drug candidates.

 

We may be adversely affected by the current economic environment.

 

Our ability to attract and retain collaboration partners or customers, invest in and grow our business and meet our financial obligations depends on our operating and financial performance, which, in turn, is subject to numerous factors, including the prevailing economic conditions and financial, business and other factors beyond our control, such as the rate of unemployment, the number of uninsured persons in the United States and inflationary pressures. We cannot anticipate all the ways in which the current economic climate and financial market conditions could adversely impact our business.

 

We are exposed to risks associated with reduced profitability and potential financial instability of our collaboration partners or customers, many of which may be adversely affected by volatile conditions in the financial markets. For example, unemployment and underemployment, and the resultant loss of insurance, may decrease the demand for healthcare services and pharmaceuticals. If fewer patients are seeking medical care because they do not have insurance coverage, our collaboration partners or customers may experience reductions in revenues, profitability and/or cash flow that could lead them to reduce their support of our programs or financing activities. If collaboration partners or customers are not successful in generating sufficient revenue or are precluded from securing financing, they may not be able to pay, or may delay payment of, accounts receivable that are owed to us. This, in turn, could adversely affect our financial condition and liquidity. To the extent economic challenges result in fewer individuals pursuing or being able to afford our products once commercialized, our business, results of operations, financial condition and cash flows could be adversely affected.

 

29  | P a g e    
 

 

A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, may materially and adversely affect our business and operations.

 

We intend to conduct a number of clinical trials for product candidates in the fields of cancer and other indications in geographies which are affected by the coronavirus pandemic. We believe that the coronavirus pandemic will have an impact on various aspects of our clinical trials. For example, investigators may not want to take the risk of exposing cancer patients to COVID-19 since the dosing of patients is conducted within an in-patient setting. Other potential impacts of the coronavirus pandemic on our various clinical trials include patient dosing and study monitoring, which may be paused or delayed due to changes in policies at various clinical sites, federal, state, local or foreign laws, rules and regulations, including quarantines or other travel restrictions, prioritization of healthcare resources toward pandemic efforts, including diminished attention of physicians serving as our clinical trial investigators and reduced availability of site staff supporting the conduct of our clinical trials, interruption or delays in the operations of the government regulators, or other reasons related to the coronavirus pandemic. If the coronavirus pandemic continues, other aspects of our clinical trials may be adversely affected, delayed or interrupted, including, for example, site initiation, patient recruitment and enrollment, availability of clinical trial materials, and data analysis. Some patients and clinical investigators may not be able to comply with clinical trial protocols and patients may choose to withdraw from our studies or we may have to pause enrollment or we may choose to or be required to pause enrollment and or patient dosing in our ongoing clinical trials in order to preserve health resources and protect trial participants. It is unknown how long these pauses or disruptions could continue.

 

Our internal computer systems, or the computer systems of our contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our drug development programs.

 

Despite the implementation of security measures, our internal computer systems and the computer systems of our contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from completed or ongoing clinical trials for any of our drug candidates could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of our drug candidates could be delayed.

 

30  | P a g e    
 

 

Our current and future operations substantially depend on our management team and our ability to have or recruit other key personnel, the loss of any of whom could disrupt our business operations.

 

The Company’s future success depends on the efforts and abilities of principal members of its senior management and scientific staff to provide strategic direction, business development, operations management and maintenance of a cohesive and stable work environment. If we are unable to recruit qualified personnel, or if we lose their services or the services of any other key member of management, it could be impossible to replace them.

 

Additionally, the Company’s ability to maintain, expand and renew existing business with its clients and maximize potential business opportunities from new clients (in both the drug development and the drug discovery areas) depends on its ability to hire and retain scientists with necessary skills. The scientists working for the Company must have the ability to lead ahead of continuing changes and trends in drug discovery and development technologies to create the most innovative products on the market in order to remain competitive within the drug development industry. The Company faces risks, challenges and competition attracting and retaining experienced scientists and healthcare providers.

 

The Company’s inability to hire qualified personnel may increase the workload for both existing and new personnel. The Company may not be successful in attracting new healthcare providers, scientists and management or in retaining/motivating existing personnel. The shortage of experienced healthcare providers and scientists or other factors may lead to increased recruiting, relocation and compensation costs for the Company. Such increased costs may reduce profit margins or make hiring necessary experts (i.e. healthcare providers or scientists) impracticable. If the Company is unable to attract or retain any of its key personnel its ability to execute a competitive and profitable business plan will be adversely affected. Services and products will be less competitive if not obsolete. If competing companies introduce superior technologies that compete with the Company’s services and products, the Company may not be able to make the necessary enhancements to its services and products that will maintain a competitive position in the marketplace. The Company’s competitive position, business, revenues and financial condition will be materially and adversely affected.

 

Any failure by the Company to comply with existing health care and drug regulations could harm its reputation, operating results, the quality of the Company’s business strategy and the quality of the Company’s products.

 

The Company has not experienced any failure to comply and has not received any notice or violation of either good clinical practices, laboratory practices or good manufacturing practices. Any future failure by the Company to comply with existing health care and drug regulations could result in the termination of ongoing research and/or the disqualification of data for submission to regulatory authorities. Failure to comply with existing regulations will harm the Company’s reputation, brand name, its prospects for immediate and future work and its operating results. For example, if the Company fails to verify that informed consent is obtained from patient participants in connection with a particular clinical trial or grant deviations from the inclusion/exclusion criteria in a study protocol, the data collected from that trial could be disqualified at which point the Company may be required to conduct the trial again at no further cost to its client. Furthermore, the issuance of an FDA notice based on a finding of a material violation of good clinical practice, good laboratory practice or good manufacturing practice requirements could materially and adversely affect the Company.

 

Proposed and future legislation or regulation may increase the cost of the Company’s business or limit its service and product offerings.

 

Authorities in Emerging Markets may adopt healthcare legislation or regulations that are more burdensome than existing regulations. Possible changes in regulation could increase the Company’s expenses or limit its ability to offer some of its services or products. For example, the confidentiality of patient-specific information and the circumstances under which it may be released for inclusion in the Company’s databases or used in other aspects of business are subject to substantial government regulation. Additional legislation or regulation governing the possession, use and dissemination of medical record information or other personal health information may require the Company to implement new security measures requiring substantial expenditures or limiting the ability to offer services and products. These regulations might also increase costs by creating new privacy requirements for the Company’s business mandating additional privacy procedures for its clinical research business.

 

31  | P a g e    
 

 

Requirements associated with being a public company will increase our costs significantly, as well as divert significant company resources and management attention.

 

We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We are working with our legal, independent accounting and financial advisors to identify those areas in which changes should be made to our financial and management control systems to manage our growth and our obligations as a public company. These areas include corporate governance, corporate control, internal audit, disclosure controls and procedures and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas. However, the expenses that will be required in order to adequately prepare for being a public company could be material.

 

Compliance with the various reporting and other requirements applicable to public companies will also require considerable time and attention of management. As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and U.S. stock exchanges, have imposed various requirements on public companies. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. In addition, the changes we make may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis.

 

Moreover, we anticipate that compliance with these rules and regulations will increase our legal, accounting and financial compliance costs substantially. In addition, these rules and regulations may make our activities related to legal, accounting and financial compliance more difficult, time-consuming and costly and may also place undue strain on our personnel, systems and resources. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations.

 

In addition, being a public company could make it more difficult or more costly for us to obtain certain types of insurance, including directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

 

We estimate the additional costs we may incur to respond to these requirements to range from $100 to $500 thousand annually, although unforeseen circumstances could increase actual costs.

 

As an “emerging growth company” under applicable law, we will be subject to lessened disclosure requirements, which could leave our stockholders without information or rights available to stockholders of more mature companies.

 

For as long as we remain an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (which we refer to herein as the JOBS Act), we have elected to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to:

 

not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;
taking advantage of an extension of time to comply with new or revised financial accounting standards;
reduced disclosure obligations regarding executive compensation in our periodic reports and proxy 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.

 

32  | P a g e    
 

 

We expect to take advantage of these reporting exemptions until we are no longer an “emerging growth company.” Because of these lessened regulatory requirements, our stockholders would be left without information or rights available to stockholders of more mature companies.

 

If we are unable to attract suitable and willing investigators and volunteers for clinical trials and product development, business may suffer.

 

Our clinical research studies rely on the accessibility and participation of physician investigators and volunteer subjects. Investigators are typically located at hospitals, clinics or other sites and supervise administration of the study drug to patients during the course of a clinical trial. Volunteer subjects generally include individuals from the locale where the studies are conducted. Our clinical research development business could be adversely affected if it is unable to attract suitable and willing investigators or volunteers on a consistent basis.

 

We may not obtain government approval for our products and/or uses.

 

The development and commercialization of pharmaceutical products are subject to extensive governmental regulation in the United States and Emerging Markets. Government approvals are required to develop, market and sell potential drug candidates. Obtaining government approval to develop, market and sell drug candidates is time-consuming and expensive. The clinical trial results for a particular drug candidate might not satisfy necessary requirements to obtain government approvals. Even if we are successful in obtaining all required approvals to market and sell a drug candidate, post-approval requirements and the failure to comply with other regulations could result in suspension or limitation of government approvals.

 

In connection with drug discovery activities in Emerging Markets, we and our licensors will be subject to foreign regulatory requirements governing testing, approval, manufacturing, labeling, marketing and sale of pharmaceutical products. These requirements vary with location. Even if approval has been obtained by a licensor for a product in the United States, approval in a foreign country must be obtained prior to marketing the product. The approval process in foreign countries may be more or less rigorous than the United States and the time required for approval may be longer or shorter. Clinical studies conducted outside of a specific country may not be acceptable. The approval of a pharmaceutical product in one country does not guarantee approval in another.

 

Even if approved, the products that we may develop and market may be later withdrawn from the market or subject to promotional limitations.

 

We may not be able to obtain the labeling claims necessary or desirable for the promotion of our treatments if approved. We may also be required to undertake post-marketing clinical trials. If the results of such post-marketing studies are not satisfactory or if adverse events or other safety issues arise after approval, regulatory agency in Emerging Markets may withdraw marketing authorization or may condition continued marketing on commitments from us that may be expensive and/or time consuming to complete. In addition, if we or others identify adverse side effects after any of our products are on the market, or if manufacturing problems occur, regulatory approval may be withdrawn and reformulation of our products, additional clinical trials, changes in labeling of our products and additional marketing applications may be required. Any reformulation or labeling changes may limit the marketability of our products if approved.

 

Florida Law and our Articles of Incorporation may protect our Directors and Officers from certain types of lawsuits.

 

Florida law provides that our officers and directors will not be liable to us or our stockholders for monetary damages for all but certain types of conduct as officers and directors. Our Bylaws permit us broad indemnification powers to all persons against all damages incurred in connection with our business to the fullest extent provided or allowed by law. The exculpation provisions may have the effect of preventing stockholders from recovering damages against our officers and directors caused by their negligence, poor judgment or other circumstances. The indemnification provisions may require us to use our limited assets to defend our officers and directors against claims, including claims arising out of their negligence, poor judgment or other circumstances.

 

33  | P a g e    
 

 

We may seek to grow our business through acquisitions of or investments in new or complementary businesses, products or technologies, and the failure to manage acquisitions or investments, or the failure to integrate them with our existing business, could have a material adverse effect on us.

 

From time to time we expect to consider opportunities to acquire or make investments in other technologies, products and businesses that may enhance our capabilities, complement our current products or expand the breadth of our markets or customer base. Potential and completed acquisitions and strategic investments involve numerous risks, including:

 

  problems assimilating the purchased technologies, products or business operations;
  issues maintaining uniform standards, procedures, controls and policies;
  unanticipated costs associated with acquisitions;
  diversion of management’s attention from our core business;
  adverse effects on existing business relationships with suppliers and customers;
  risks associated with entering new markets in which we have limited or no experience;
  potential loss of key employees of acquired businesses; and
  increased legal and accounting compliance costs.

 

We have no current commitments with respect to any acquisition or investment. We do not know if we will be able to identify acquisitions we deem suitable, whether we will be able to successfully complete any such acquisitions on favorable terms or at all, or whether we will be able to successfully integrate any acquired business, product or technology into our business or retain any key personnel, suppliers or distributors. Our ability to successfully grow through acquisitions depends upon our ability to identify, negotiate, complete and integrate suitable target businesses and to obtain any necessary financing. These efforts could be expensive and time-consuming, and may disrupt our ongoing business and prevent management from focusing on our operations. If we are unable to integrate any acquired businesses, products or technologies effectively, our business, results of operations and financial condition will be materially adversely affected.

 

We may expend our limited resources to pursue a particular opportunity and fail to capitalize on current research and products that may be more profitable or for which there is a greater likelihood of success.

 

Because we have limited financial and managerial resources, we have focused on specific research programs, treatments, and products. As a result, we may forego or delay pursuit of opportunities with other products or research that later may prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial treatments or profitable market opportunities. Our spending on current and future research and development programs may not yield any commercially viable treatments.

 

We are subject to risks associated with our operations in Emerging Markets.

 

The Foreign Corrupt Practices Act (“FCPA”) and similar worldwide anti-bribery laws in non-U.S. jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. The FCPA also imposes accounting standards and requirements on publicly traded U.S. corporations and their foreign affiliates which are intended to prevent the diversion of corporate funds to the payment of bribes and other improper payments, and to prevent the establishment of “off books” slush funds from which such improper payments can be made. Because of the predominance of government-sponsored healthcare systems around the world, many of our customer or regulatory relationships outside of the United States are with governmental entities and are therefore subject to such anti-bribery laws. Our internal control policies and procedures may not always protect us from reckless or criminal acts committed by our employees or agents. Violations of these laws, or allegations of such violations, could disrupt our operations, involve significant management distraction and result in a material adverse effect on our business, results of operations and financial condition. We also could suffer severe penalties, including criminal and civil penalties, disgorgement and other remedial measures, including further changes or enhancements to our procedures, policies and controls, as well as potential personnel changes and disciplinary actions.

 

34  | P a g e    
 

 

Furthermore, we are subject to the export controls and economic embargo rules and regulations of the United States, including, but not limited to, the Export Administration Regulations and trade sanctions against embargoed countries, which are administered by the Office of Foreign Assets Control within the Department of the Treasury, as well as the laws and regulations administered by the Department of Commerce. These regulations limit our ability to market, sell, distribute or otherwise transfer our products or technology to prohibited countries or persons. A determination that we have failed to comply, whether knowingly or inadvertently, may result in substantial penalties, including fines and enforcement actions and civil and/or criminal sanctions, the disgorgement of profits, the imposition of a court-appointed monitor, the denial of export privileges and/or an adverse effect on our reputation.

 

These and other factors may have a material adverse effect on our international operations or on our business, results of operations and financial condition generally.

 

Our independent auditors have expressed substantial doubt about our ability to continue as a going concern.

 

Due to our net losses, negative cash flow and negative working capital, in their report on our audited financial statements for the years ended December 31, 2019 and 2018, our independent auditors included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern.

 

We have incurred substantial losses since inception. Because of these losses, we will require additional working capital to develop our business operations. We intend to raise additional working capital through private placements, public offerings, bank financing and/or advances from related parties or shareholder loans.

 

There are no assurances that we will be able to achieve a level of revenues adequate to generate sufficient cash flow from operations. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available, or, if available, will be on terms acceptable to us. If adequate working capital is not available, we may not increase our operations.

 

These conditions raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should we be unable to continue as a going concern.

 

Risks Related to Intellectual Property

 

Our inability to adequately protect our intellectual property rights could hurt business.

 

Our commercial success will depend in part on obtaining and maintaining intellectual property protection for our products, formulations, processes, methods and other technologies. We will only be able to protect these technologies and products from unauthorized use by third parties to the extent that our licensor maintains valid and enforceable intellectual property rights, including patents or other market exclusionary rights.

 

The patent positions of pharmaceutical companies, like those of our licensor, can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in such companies’ patents has emerged to date in the United States. The general environment for pharmaceutical patents outside the United States also involves significant uncertainty. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced, or that the scope of these patent rights could provide a sufficient degree of future protection that could permit us to gain or keep our competitive advantage with respect to these products and technologies. For example, we cannot predict:

 

  the degree and range of protection any patents will afford us against competitors, including whether third parties will find ways to make, use, sell, offer to sell or import competitive products without infringing our patents;
  if and when patents will issue;

 

35  | P a g e    
 

 

  whether or not others will obtain patents claiming inventions similar to those covered by our patents and patent applications; or
  whether we or our licensor will need to initiate litigation or administrative proceedings in connection with patent rights, which may be costly whether we or the licensor win or lose.

 

Some of the patents we have licensed may be subject to challenge and possibly invalidated or rendered unenforceable by third parties. Changes in either the patent laws or in the interpretations of patent laws in the United States or other countries may diminish the value of our intellectual property.

 

In addition, others may independently develop similar or alternative products and technologies that may be outside the scope of our intellectual property. Furthermore, others may have invented technology claimed by our patents before our licensors or we did so, and they may have filed patents claiming such technology before we did so, weakening our ability to obtain and maintain patent protection for such technology. Should third parties obtain patent rights to similar products or technology, this may have an adverse effect on our business.

 

We may also rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or obtainable. Trade secrets, however, are difficult to protect. While we believe that we will use reasonable efforts to protect our trade secrets, our own or our strategic partners’ employees, consultants, contractors or advisors may unintentionally or willfully disclose our information to competitors. We seek to protect this information, in part, through the use of non-disclosure and confidentiality agreements with employees, consultants, advisors and others. These agreements may be breached, and we may not have adequate remedies for a breach. In addition, we cannot ensure that those agreements will provide adequate protection for our trade secrets, know-how or other proprietary information or prevent their unauthorized use or disclosure.

 

If competitors that have greater experience and financial resources learn our trade secrets, the competitors may copy or use our trade secrets and other proprietary information in the advancement of their products, methods or technologies. If we were to prosecute a claim that a third party had illegally obtained and was using our trade secrets, it could be expensive and time consuming and the outcome could be unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets than courts in the United States. Moreover, if our competitors independently develop equivalent knowledge, we would lack any legal or contractual claim to prevent them from using such information, and our business could be harmed.

 

The Company’s most important licenses for intellectual property include:

 

 

For LDN for Treatment for Immune Dysfunction application number 15/437,365 issued 10/30/2018 Patent No 10111870HIV/AIDs and Crohn’s disease, we license from Cytocom Patent Number 7879870, filed April 16, 2007, issued February 1, 2011, Methods for the treatment of as both a mon-therapy and adjunct therapy consisting of molluscum contagiosum infection, HTLV infection, HTLV-1 infection, hepatitis-A, HCV, HBV, HIV/AIDS infection, human papilloma virus infection, viral dysentery, flu, measles, rubella, chickenpox, mumps, polio, rabies, mononucleosis, Ebola, respiratory syncytial virus, dengue fever, yellow fever, lassa fever, arena virus, bunyavirus, filovirus, flavivirus, hantavirus, rotavirus, viral meningitis, west Nile fever, arbovirus, parainfluenza, smallpox, Epstein-Barr virus, dengue hemorrhagic fever, cytomegalovirus, infant cytomegalic virus, progressive multifocal leukoencephalopathy, viral gastroenteritis, a hepatitis, meningitis, encephalitis, shingles, encephalitis, california serogroup viral, St. Louis encephalitis, rift valley fever, hand, foot, and mouth disease, hendra virus, enteroviruses, astrovirus, adenoviruses, Japanese encephalitis, lymphocytic choriomeningitis, roseola infantum, sandfly fever, SARS, warts, cat scratch disease, slap-cheek syndrome, orf, pityriasis rosea and lyssavirus.

 

The Company intends to use the pre-clinical and clinical data and country approvals to fast track our development in Emerging Markets. The Company plans to use the data from pre-clinical and clinical work done in the United States by Cytocom to support our drug approval for companion pets with the FDA and Regulatory Authorities in Emerging Markets to fast track our approvals.

 

36  | P a g e    
 

 

  For the development of MENK for pancreatic cancer, we depend extensively on our sub-license of Cytocom’s license agreement with Pennsylvania State University covered by patents US Patent Numbers 6,737,397, CA 2,557,504, US 20010046968, US 6737397, US 6136780, US 20080015211, US 20070053838, US 8003630, US 20110123437, US 7807368, US 7576180, US 7517649, US 20080146512, US 7122651, US 20060073565, US 20050191241, Patent No 8,003,630 issued between 2001 and 2011. Our sub-license agreement with Pennsylvania State University may be terminated if we or Cytocom materially breach the agreement and fail to cure our breach during an applicable cure period. Our failure to use commercially reasonable efforts to develop and commercialize MENK in Emerging Markets or to perform our other diligence obligations under the sub-license would constitute a material breach of the license agreement. In the event that Cytocom’s license agreement with Pennsylvania State University is terminated, we will lose all of our rights to develop and commercialize the drug candidates covered by such license, which would harm our business and future prospects. We have rights to a number of other patents having to do with the development of MENK which would allow us to continue our development of those indications.

 

We may become subject to intellectual property suits that could cause us to incur significant costs or pay significant damages or that could prohibit us from selling its products.

 

The Company’s competitors also seek to obtain patents or other protection of their proprietary rights. Third parties may claim in the future that the Company’s products infringe upon their proprietary rights. To date, there have been no claims of infringement. However, in the future, intellectual property claims could force the Company or Cytocom to alter its existing products or withdraw them from the market or could delay the introduction of new products.

 

Various patents have been issued to the Company’s competitors and these competitors may assert that Cytocom’s or the Company’s products infringe their patent or other proprietary rights. If those products are found to infringe third-party intellectual property rights, the Company may be unable to maintain its sub-license to use such technology, and it could incur substantial costs to redesign its products or to defend legal actions.

 

The drug discovery and development industry has a history of patent and other intellectual property litigation; thus, we may be involved in costly intellectual property lawsuits.

 

There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and biotechnology industries. We or Cytocom may be subject to third party claims in the future that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages, including treble damages and attorney’s fees if we are found to be willfully infringing a third party’s patents. Further, if a patent infringement suit were brought against us or Cytocom, we could be forced to stop or delay research, development, manufacturing or sales of the product or drug candidate that is the subject of the suit. As a result of patent infringement claims, or in order to avoid potential claims, we or Cytocom may choose to seek, or be required to seek, a license from the third party and would most likely be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we or Cytocom were able to obtain a license, the rights may be nonexclusive, which would give our competitors access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or forced to redesign it, or to cease some aspect of our business operations if, as a result of actual or threatened patent infringement claims, we or Cytocom are unable to enter into licenses on acceptable terms. This could harm our business significantly.

 

In addition to infringement claims against us, if third parties prepare and file patent applications in the United States that also claim technology to which we have rights, we may have to participate in interference proceedings with the United States Patent and Trademark Office (“USPTO”) to determine the priority of invention. We may also become involved in similar opposition proceedings in the European Patent Office regarding our intellectual property rights with respect to our products and technology.

 

The failure to obtain or maintain patents, licensing agreements and other intellectual property could impact our ability to compete effectively.

 

Our success will depend, in part, on our ability to obtain and maintain patent protection for our drug candidates, preserve our trade secrets, prevent third parties from infringing upon our licenses proprietary rights and operate without infringing upon the proprietary rights of others. While the patents we license have been issued, pending patent applications we have filed may not result in issued patents or may take longer than we expect to result in issued patents. We cannot be certain that patents will be issued as a result of any of our pending applications, and we cannot be certain that any of our issued patents, whether issued pursuant to our pending applications or licensed from third parties, will give us adequate protection from competing products.

 

37  | P a g e    
 

 

Composition of Matter patents on APIs are generally considered to be the strongest form of intellectual property protection for pharmaceutical products, as they apply without regard to any method of use. Entirely new individual chemical compounds, often referred to as new chemical entities, are typically entitled to Composition of Matter coverage. However, we cannot be certain that the current law will remain the same, or that our drug candidates will be considered novel and non-obvious by patent regulators and courts.

 

In addition to Composition of Matter patents and patent applications, we also have licensed Method of Use patent applications. This type of patent protects the use of the product only for the specified method. However, this type of patent does not prevent a competitor from making and marketing a product that is identical to our product for an indication that is outside the scope of the patented method. Moreover, even if these competitors do not actively promote their product for our targeted indication, physicians may prescribe these products “off-label.” Although off-label prescriptions may infringe or contribute to the infringement of Method of Use patents, the practice is common and such infringement is difficult to prevent or prosecute.

 

Patent applications in the United States and most other countries are confidential for a period of time until they are published. The publication of discoveries in scientific or patent literature typically lags actual discoveries by several months or more. As a result, we cannot be certain whether the Company or another inventor were the inventors of the issued patents and applications or that the Company or another inventor were the first to conceive of the inventions covered by such patents and pending patent applications or that the Company or another inventor were the first to file patent applications covering such inventions.

 

Others may obtain issued patents that could prevent us from commercializing our product candidates or require us to obtain licenses requiring the payment of considerable fees or royalties in order to enable us to conduct our business. As to those patents that we have licensed, our rights depend on maintaining our obligations to the licensor under the applicable license agreement, and we may be unable to do so.

 

We have numerous issued patents and some patent applications pending before the USPTO. The protection may lapse before we manage to obtain commercial value from the patents, which might result in increased competition and materially affect our position in the market.

 

We may be subject to claims that we or our employees or consultants have wrongfully used or disclosed alleged trade secrets of our employees’ or consultants’ former employers or their clients. These claims may be costly to defend and if we do not successfully do so, we may be required to pay monetary damages and may lose valuable intellectual property rights or personnel.

 

Many of our employees were previously employed at universities, biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of key research personnel or their work product could hamper our ability to commercialize, or prevent us from commercializing our drug candidates, which could severely harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

 

38  | P a g e    
 

 

Some of our intellectual property that was discovered through government funded programs may be subject to federal regulation such as “march-in” rights, certain reporting requirements, and a preference for United States industry. Compliance with such regulations may limit our exclusive rights, subject us to expenditure of resources with respect to reporting requirements, and limit our ability to contract with foreign manufacturers.

 

Some of our existing drug candidates, including LDN and MENK, and some of the research and development work conducted before we had licensing rights may have been funded, at least in part, by the U.S. government and therefore would be subject to certain federal regulations. Under the “march-in” provisions of the Bayh-Dole Act, the government may have the right under limited circumstances to require the patent owners to grant exclusive, partially exclusive or non-exclusive rights to third parties for intellectual property discovered through the government-funded program. The government can exercise its march-in rights if it determines that action is necessary because the patent owner fails to achieve practical application of the new invention or because action is necessary to alleviate health concerns or address the safety needs of the public. Intellectual property discovered under the government-funded program is also subject to certain reporting requirements, compliance with which may require us to expend substantial resources. Such intellectual property is also subject to a preference for U.S. industry, which may limit our ability to contract with foreign product manufacturers for products covered by such intellectual property. We may apply for additional U.S. government funding, and it is possible that we may discover compounds or drug candidates as a result of such funding. Intellectual property under such discoveries would be subject to the applicable provisions of the Bayh-Dole Act.

 

Risks Related to Government Regulation

 

The regulatory approval process is expensive, time consuming and uncertain and may prevent us or our collaboration partners from obtaining approvals for the commercialization of some or all of our drug candidates.

 

The research, testing, manufacturing, labeling, approval, selling, import, export, marketing and distribution of drug products are subject to extensive regulation by regulatory authorities in the United States and other countries. Regulations differ from country to country. Neither we nor our licensor are permitted to market our drug candidates until we receive approval of an NDA from the applicable regulatory agency. Neither we nor our licensor have submitted an application for or received marketing approval for any of our drug candidates. Obtaining approval of an NDA can be a lengthy, expensive and uncertain process. In addition, failure to comply with applicable U.S. and foreign regulatory requirements may subject us to administrative or judicially imposed sanctions, including:

 

  warning letters;
  civil and criminal penalties;
  injunctions;
  withdrawal of approved products;
  product seizure or detention;
  product recalls;
  total or partial suspension of production; and
  refusal to approve pending NDAs or supplements to approved NDAs.

 

Regulatory approval of an NDA or NDA supplement is not guaranteed, and the approval process is expensive and may take several years. Regulatory agencies have substantial discretion in the approval process. Despite the time and expense exerted, failure can occur at any stage, and we could encounter problems that cause us to abandon or repeat clinical trials, or perform additional preclinical studies and clinical trials. The number of preclinical studies and clinical trials that will be required for approval varies depending on the drug candidate, the disease or condition that the drug candidate is designed to address, and the regulations applicable to any particular drug candidate. The regulatory agencies can delay, limit or deny approval of a drug candidate for many reasons, including, but not limited to, the following:

 

  a drug candidate may not be deemed safe or effective;
  regulatory agency officials may not find the data from preclinical studies and clinical trials sufficient;
  regulatory agencies might not approve our or our third party manufacturer’s processes or facilities; or
  regulatory agencies may change their approval policies or adopt new regulations.

 

If any of our drug candidates fail to demonstrate safety and efficacy in clinical trials or do not gain regulatory approval, our business and results of operations will be materially and adversely harmed.

 

39  | P a g e    
 

 

Even if we receive regulatory approval for a drug candidate, we will be subject to ongoing regulatory obligations and continued regulatory review which may result in considerable additional expense and subject us to penalties if we fail to comply with applicable regulatory requirements.

 

Once regulatory approval has been granted for us to sell our products, the approved product and its manufacturer are subject to continual review by regulatory agencies. Any regulatory approval that we or our licensors or our distributors receive for our drug candidates may be subject to limitations on the indicated uses for which the product may be marketed or contain requirements for potentially costly post-marketing follow-up studies to monitor the safety and efficacy of the product. In addition, if the regulatory agencies approve any of our drug candidates, we will be subject to extensive and ongoing regulatory requirements by regulatory agencies with regard to the labeling, packaging, adverse event reporting, storage, advertising, promotion and recordkeeping for our products. In addition, manufacturers of our drug products are required to comply with current cGMP regulations which include requirements related to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Further, regulatory authorities must approve these manufacturing facilities before they can be used to manufacture our drug products, and these facilities are subject to continual review and periodic inspections by the regulatory agencies for compliance with cGMP regulations. If we or a regulatory authority discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory authority may impose restrictions on that product, the manufacturer or us, including requiring withdrawal of the product from the market or suspension of manufacturing. If we, our drug candidates or the manufacturing facilities for our drug candidates fail to comply with regulatory requirements of the regulatory agencies, we could be subject to administrative or judicially imposed sanctions, including:

 

  warning letters;
  civil or criminal penalties;
  injunctions;
  suspension of or withdrawal of regulatory approval;
  suspension of any ongoing clinical trials;
  voluntary or mandatory product recalls and publicity requirements;
  refusal to approve pending applications for marketing approval of new drugs or supplements to approved applications filed by us;
  restrictions on operations, including costly new manufacturing requirements; or
  seizure or detention of our products or import bans.

 

The regulatory requirements and policies may change and additional government regulations may be enacted for which we may also be required to comply. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or in other countries. If we are not able to maintain regulatory compliance, we will not be permitted to market our future products and our business will suffer.

 

The availability of adequate third-party coverage and reimbursement for newly approved drugs is uncertain, and failure to obtain adequate coverage and reimbursement from third-party payers could impede our ability to market any future products we may develop and could limit our ability to generate revenue.

 

There is significant uncertainty related to the third-party payor coverage and reimbursement of newly approved drugs. The commercial success of our future products in both domestic and international markets depends on whether such third-party coverage and reimbursement is available for our future products. Governmental payers, health maintenance organizations and other third-party payers are increasingly attempting to manage their healthcare expenditures by limiting both coverage and the level of reimbursement of new drugs and, as a result, they may not cover or provide adequate reimbursement for our future products. These payers may not view our future products as cost-effective, and coverage and reimbursement may not be available to our customers or may not be sufficient to allow our future products to be marketed on a competitive basis. Third-party payers are exerting increasing influence on decisions regarding the use of, and coverage and reimbursement levels for, particular treatments. Such third-party payers are challenging the prices charged for medical products and services, and many third-party payers limit or delay coverage and reimbursement for newly approved healthcare products. In particular, third-party payers may limit the covered indications. Cost-control initiatives could cause us to decrease the price we might establish for products, which could result in lower than anticipated product revenues. If the prices for our drug candidates decrease or if governmental and other third-party payers do not provide adequate coverage or reimbursement, our prospects for revenue and profitability will suffer.

 

40  | P a g e    
 

 

Even if Cytocom obtains FDA approval of any product candidate it may develop or acquire in the future, we may never obtain approval or commercialize those products we license for sale outside of the U.S., which would limit our ability to realize their full market potential. If foreign approval is obtained, there are risks in conducting business in international markets.

 

We have and continue to seek other distribution and marketing partners for MENK and LDN outside North America that will and may market future products in Emerging Markets. In order to market any of our products we may license, develop or acquire outside of the U.S., we must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approvals could result in significant delays, difficulties and costs for us and require additional preclinical studies or clinical trials which would be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. Satisfying these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. In addition, our failure to obtain regulatory approval in the U.S. or any foreign country may delay or have negative effects on the process for regulatory approval in other countries. If we fail to comply with regulatory requirements in a foreign country or to obtain and maintain required approvals, our potential market for our products will be reduced and our ability to realize the full market potential of our products will be harmed.

 

The Company, either directly or through its collaborating partners, is working with drug regulatory authorities in Emerging Markets where an FDA equivalent exists. The Company is working with the agencies to obtain local approval for the therapies for each modality that we intend to market for. We believe this will reduce our risk due to The Agreement on Trade Related Aspects of Intellectual Property Rights (“TRIPS”) which is an international agreement administered by the World Trade Organization (“WTO”). TRIPS allows emerging nations to manufacture drugs around existing patents.

 

If our licensed products are approved for commercialization in a foreign country, we intend to enter into agreements with third parties to market our products whenever they may be approved and wherever we have the right to market them. Consequently, we expect that we will be subject to additional risks relating to entering into international business relationships, including:

 

  lack of adequate protection from intellectual property rights in foreign countries, which could occur if we do not have issued patents in force in such foreign countries covering our products, their methods of use and methods of manufacture;
  the potential for so-called parallel importing, which is what happens when a local seller, faced with high or higher local prices (for instance, because the goods have patent protection in such country), opts to import goods from a foreign market (with low or lower prices) rather than buy them locally;
  unexpected changes in tariffs, trade barriers and regulatory requirements
  economic weakness, including inflation, or political instability in particular foreign economies and markets;
  compliance with laws for employees traveling abroad;
  foreign taxes, including withholding of payroll taxes;
  foreign currency fluctuations, which could result in increased operating expenses and reduced revenues;
  workforce uncertainty in countries where labor unrest is more common than in the U.S.;
  production shortages resulting from any events affecting the API and/or finished drug product supply or manufacturing capabilities abroad;
  business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires; and
  failure to comply with Office of Foreign Asset Control rules and regulations and the Foreign Corrupt Practices Act

 

These and other risks may materially adversely affect our ability to attain or sustain revenue from international markets.

 

41  | P a g e    
 

 

Healthcare policy changes may have a material adverse effect on us.

 

Our business may be affected by the efforts of government and third-party payers to contain or reduce the cost of healthcare through various means. With regard to pharmaceutical products, among other things, legislation in Emerging Markets is expected to expand and increase industry rebates for drugs covered and make changes to the coverage requirements under that legislation. This adds to the uncertainty of the legislative changes enacted, and we cannot predict the impact that legislative or regulatory proposals will have on our business, in particular our access to licensed products for sale.

 

If we fail to comply with healthcare regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.

 

Even though we do not and will not control referrals of healthcare services or bill directly to government or other third-party payers, certain healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. We could be subject to healthcare fraud and abuse and patient privacy regulation by governments and regulators where we conduct our business. The regulations that may affect our ability to operate include, without limitation:

 

  healthcare anti-kickback statutes in our markets, which prohibit, among other things, any person from knowingly and willfully offering, soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual for an item or service or the purchasing or ordering of a good or service, for which payment may be made under healthcare programs;
  false claims statutes, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, false claims, or knowingly using false statements to obtain payment from the federal government, and which may apply to entities like us which may provide coding and billing advice to customers;
  criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; and
  statutes that govern the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information.

 

If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert Management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.

 

Regulators may not accept the results of clinical trials conducted outside of the United States.

 

It is possible that regulators in our markets may not accept the results of our clinical trials. We would also need to ensure that trials are conducted in accordance with local legal and regulatory requirements and all applicable International Conference on Harmonisation of Good Clinical Practice guidelines and any other applicable regulatory requirements for the overall conduct of the clinical investigation.

 

Risks Related to our Common Stock

 

If our chief executive officer, our other executive officers, and our directors and principal stockholders acquire significant stock ownership, they may be able to exert control over us and our significant corporate decisions. Our other stockholders will have limited ability to influence corporate actions or decisions.

 

This concentration of ownership may harm the value of our common stock by, among other things:

 

  delaying, deferring or preventing a change in control of our company;
  impeding a merger, consolidation, takeover or other business combination involving our company; or
  causing us to enter into transactions or agreements that are not in the best interests of all stockholders

 

42  | P a g e    
 

 

As a group, at March 31, 2020, our officers, directors and certain related parties owned 13.89% of the outstanding common stock of the Company. Our other stockholders will have limited ability to influence corporate actions or decisions.

 

The price of our common stock may be volatile, and you may not be able to resell your shares.

 

An active and liquid trading market for our common stock may not develop or be sustainable. Shareholders may be unable to sell shares of common stock at or above their purchase price due to fluctuations in the market price of our common stock. The market price of our common stock may fluctuate significantly in response to factors, some of which are beyond our control. Factors that could cause volatility in the market price of our common stock include, but are not limited to:

 

  results from, and delays in, clinical trial programs relating to LDN, MENK and other drug candidates;
  announcements of regulatory approvals or disapprovals of our drug candidates including LDN and MENK or delays in any regulatory agency review or approval processes;
  failure or discontinuation of any of our research programs;
  loss of significant clients or customers;
  loss of significant strategic relationships;
  announcements relating to future collaborations or our existing collaborations;
  our failure to achieve and maintain profitability;
  changes in earnings estimates and recommendations by financial analysts;
  changes in market valuations of similar companies;
  wholesalers’ buying patterns;
  addition or termination of clinical trials or funding support;
  regulatory developments affecting our drug candidates or those of our competitors;
  the Company’s sales decrease internationally;
  variations in the level of expenses related to our drug candidates or future development programs;
  ability to secure new government contracts and allocation of our resources to or away from performing work under government contracts;
  general economic conditions in the United States and our markets;
  acquisitions and sales of new products, technologies or business;
  market conditions in the pharmaceutical, biopharmaceutical and biotechnology sectors;
  the issuance of new or changed securities analysts’ reports or recommendations regarding us, our competitors or our industry in general;
  actual and anticipated fluctuations in our quarterly operating results;
  disputes concerning our intellectual property or other proprietary rights;
  introduction of technological innovations or new products by us or our competitors;
  manufacturing issues related to our drug candidates for clinical trials or future products for commercialization;
  market acceptance of our future products;
  deviations in our operating results from the estimates of analysts;
  third party payor coverage and reimbursement policies;
  new legislation relating to the sale or pricing of pharmaceuticals;
  regulatory actions affecting us or our industry;
  product liability claims or other litigation or public concern about the safety of our drug candidates or future drugs;
  our ability to obtain and maintain necessary intellectual property licenses including, those relating to LDN, MENK and other drug candidates;
  the outcome of any future legal actions to which we are a party;
  sales of our common stock by our officers, directors or significant stockholders;
  frequent, irregular, under market, or large sales of shares of our common stock by any shareholder;
  additions or departures of key personnel; and
  external factors, including natural disasters and other crises.

 

43  | P a g e    
 

 

In addition, the stock markets in general, and the markets for pharmaceutical, biopharmaceutical and biotechnology stocks in particular, have experienced extreme volatility that has often been unrelated to the operating performance of the issuer. These broad market fluctuations may adversely affect the trading price or liquidity of our common stock. In the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation suits against the issuer. If any of our stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention of our management would be diverted from the operation of our business.

 

Future sales of our common stock or securities convertible or exchangeable for our common stock may depress our stock price.

 

If our existing stockholders or holders of our convertible notes, options or warrants sell, or indicate an intention to sell substantial amounts of our common stock in the public market, the trading price of our common stock could decline. The perception in the market place that these sales may occur could also cause the trading price of our common stock to decline.

 

Certain holders of shares of our common stock, warrants to purchase our common stock, and shares of common stock issuable upon exercise of warrants will be entitled to rights with respect to the registration of their shares under the Securities Act. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates. In addition, our directors may, and we expect that our executive officers will establish programmed selling plans under Rule 10b5-1 of the Exchange Act, for the purpose of effecting sales of our common stock. Any sales of securities by these stockholders, or the perception that those sales may occur, including the entry into such programmed selling plans, could have a material adverse effect on the trading price of our common stock.

 

If we sell shares of our common stock in future financings, common stockholders may experience immediate dilution and, as a result, our stock price may decline.

 

We may from time to time issue additional shares of common stock at a discount from the current trading price of our common stock. As a result, our common stockholders would experience immediate dilution upon the purchase of any shares of our common stock sold at such a discount. In addition, as opportunities present themselves, we may enter into financing or similar arrangements in the future, including the issuance of debt securities, preferred stock or common stock.

 

Provisions of our charter documents or Florida law could delay or prevent an acquisition of the Company, even if the acquisition would be beneficial to our stockholders, and could make it more difficult for stockholders to change management.

 

Provisions of our amended and restated articles of incorporation, as amended, and amended and restated bylaws may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. In addition, these provisions may frustrate or prevent any attempt by our stockholders to replace or remove our current management by making it more difficult to replace or remove our board of directors.

 

We do not anticipate paying any cash dividends on our capital stock in the foreseeable future, therefore capital appreciation, if any, of our common stock will be our shareholders sole source of gain for the foreseeable future.

 

We have never declared or paid cash dividends on our capital stock. We do not anticipate paying any cash dividends on our capital stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of the common stock will be our shareholders sole source of gain for the foreseeable future.

 

44  | P a g e    
 

 

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

 

The trading market for our common stock will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our Company. If no securities or industry analysts commence coverage of our Company, the trading price for our stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. In addition, if our operating results fail to meet the forecast of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of our Company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

 

Our board of directors is authorized to issue and designate shares of our preferred stock in additional series without stockholder approval.

 

Our amended and restated articles of incorporation, as amended, authorize our board of directors, without the approval of our stockholders, to issue shares of our preferred stock, subject to limitations prescribed by applicable law, rules and regulations and the provisions of our amended and restated articles of incorporation, as amended, as shares of preferred stock in series, and to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The powers, preferences and rights of these additional series of preferred stock may be senior to or on parity with our common stock, which may reduce its value. We do not currently have any class of preferred stock authorized.

 

Our shares may be subject to the “penny stock” rules, which may subject you to restrictions on marketability and limit your ability to sell your shares.

 

Broker-dealer practices in connection with transactions in “Penny Stocks” are regulated by certain penny stock rules adopted by the SEC. Penny stocks generally are equity securities with a price of less than $5.00 per share (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risk associated with the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer must make a written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. The Company’s securities may be subject to the penny stock rules, and investors may find it more difficult to sell their securities.

 

An active and visible trading market for our common stock may not develop.

 

We cannot predict whether an active market for our common stock will develop in the future. In the absence of an active trading market:

 

  Investors may have difficulty buying and selling or obtaining market quotations;
  Market visibility for our common stock may be limited; and
  A lack of visibility for our common stock may have a depressive effect on the market price for our common stock

 

Our common stock is currently quoted on the OTC Market under the trading symbol “IMUN”. The OTC Market is unorganized, inter-dealers, over-the-counter markets that provides significantly less liquidity than the New York Stock Exchange or NASDAQ. No assurances can be given that we will ever obtain a listing for our securities on a senior exchange. The trading price of our common stock is therefore expected to be subject to significant fluctuations in response to variations in quarterly operating results, changes in analysts’ earnings estimates, announcements of innovations by us or our competitors, general conditions in the industry in which we operate and other factors. These fluctuations, as well as general economic and market conditions, may have a material or adverse effect on the market price of our common stock.

 

45  | P a g e    
 

 

Because we have elected to use the extended transition period for complying with new or revised accounting standards for an “emerging growth company” our financial statements may not be comparable to companies that comply with public company effective dates.

 

We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates, and thus investors may have difficulty evaluating or comparing our business, performance or prospects in comparison to other public companies, which may have a negative impact on the value and liquidity of our common stock.

 

We may not register or qualify our securities with any state agency pursuant to blue sky regulations.

 

The holders of our shares of common stock and persons who desire to purchase them in the future should be aware that there may be significant state law restrictions upon the ability of investors to resell our shares. We currently do not intend to and may not be able to qualify securities for resale in other states which require shares to be qualified before they can be resold by our shareholders.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain statements contained or incorporated by reference in this Form 10-K 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.

 

46  | P a g e    
 

 

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.

 

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 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 registration statement. 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 registration statement.

 

Item 1B. Unresolved Staff Comments

 

Not applicable.

 

47  | P a g e    
 

 

Item 2. Properties

 

We maintain our headquarters at 2431 Aloma Ave., Suite 124, Winter Park, Florida 32792. The monthly lease cost is approximately $60. The lease is cancelable upon one month’s notice.

 

Item 3. Legal Proceedings

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Market Information

 

Our common stock is listed for quotation on the OTCQB marketplace under the symbol IMUN. Our common stock began trading in November 1999 on OTC under the name Galliano International Ltd. Trading under the name of TNI BioTech, Inc. commenced in March 2012 under the symbol TNIB. The symbol was changed to IMUN on December 11, 2014. The following table sets forth the high and low sales prices per share of our common stock (presented on the basis of a 1:1,000 reverse stock split) for the periods indicated as reported by the OTC Markets Group, Inc.

 

Period

 

    Price Range  
    High     Low  
Quarter Ended:            
             
December 31, 2019   $ 10     $ 4  
September 30, 2019   $ 10     $ 4  
June 30, 2019   $ 9     $ 4  
March 31, 2019   $ 20     $ 4  
                 
Quarter Ended:                
                 
December 31, 2018   $ 20     $ 4  
September 30, 2018   $ 30     $ 20  
June 30, 2018   $ 40     $ 30  
March 31, 2018   $ 60     $ 20  

 

Record Holders

 

As of May 14, 2020, we have approximately 457,578 stockholders of record of our common stock.

 

Dividends

 

The Company paid no dividends in 2019 or 2018.

 

We do not anticipate paying any cash dividends in the foreseeable future.

 

48  | P a g e    
 

 

The payment of dividends is within the discretion of our Board of Directors and will depend on our earnings, capital requirements, financial condition, and other relevant factors. There are no restrictions that currently limit our ability to pay dividends on its common stock other than those generally imposed by applicable state law.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

On September 4, 2014, the Company’s shareholders approved the Company’s 2014 Stock Incentive Plan (“2014 Plan). The 2014 Plan is an important incentive for our employees and is critical to the Company’s ongoing effort to build shareholder value and align the interests of employees and directors with those of the Company’s shareholders. Equity awards are a significant part of the Company’s ability to attract, retain, and motivate our executives and employees whose skills and performance are critical to our success.

 

A total of 5,000 shares of the Company’s common stock has been approved, but not yet reserved, for issuance under the 2014 Plan. Awards under the 2014 Plan may be made to employees, directors, consultants and advisors of the Company and any successor entity that adopts the 2014 Plan. Awards under the 2014 Plan may be made in the form of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards and restricted stock unit awards. Vesting of awards will be determined by our Board. No more than 500 shares may be issued to a single participant pursuant to stock options and stock appreciation rights in a calendar year. Re-pricing of outstanding stock awards is not permitted under the 2014 Plan. The 2014 Plan will terminate upon the earlier of the adoption of a resolution of the Board terminating the 2014 Plan, or September 3, 2024.

 

Item 6. Selected Financial Data

 

Not required for smaller reporting companies.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

 

General

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our discussion of cautionary statements and significant risks to the company’s business under Item 1A. Risk Factors of this Annual report on Form 10-K.

 

Overview

 

Revenue

 

The Company had no revenues during the year ended December 31, 2019. The Company had revenues of $113,500 during the year ended December 31, 2018. In February and October 2018, the Company reported the first shipments of LodonalTM to Nigeria.

 

Direct Expenses and Gross Margin

 

The Company incurred direct expenses of $0 in 2019 ($47,673 in 2018). Direct expenses include the cost of finished product sold from the Company’s contract manufacturers, sales incentives, associated travel, and inventory return charges.

 

Research and Development

 

The Company’s research and development (“R&D”) activities commenced in the third quarter of 2012, after the Company had 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, the Company continued to build an 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.

 

49  | P a g e    
 

 

R&D expenses consist of salaries and benefits paid to employees directly engaged in research, payments made in cash or in kind to contractors for services directly related to research and product development, product development costs, payments made for patents and licenses to which the Company has acquired rights to use, and travel, telecommunications, facilities and external legal costs incurred in relation to research activities. Since 2014, the Company’s spending on R&D has been primarily to maintain patents and licenses acquired earlier, on trials in Africa, and prior to May 2018, to support patent discussions with the FDA in the USA outsourced contractors. In 2019, Company was not able to raise the cash required to resume its planned research program.

 

We do not collect costs on a product basis or for any category of product involved in carrying out research projects. While we do perform cost calculations to facilitate our internal evaluation of individual products, these calculations include significant estimations and allocations that are not relevant to, or included in, our external financial reporting mechanisms. As a consequence, we do not report research and development costs at the product level.

 

Operating Expenses

 

Selling, general and administrative expenses primarily include salary and benefit costs for employees and contractors included in our sales, marketing, finance, legal and administrative organizations, professional services, insurance, unallocated travel expenses, telecommunications, impairment of intangibles, and office expenses. Professional services consist principally of external legal, audit, tax and other consulting services.

 

Other Expenses, Net

 

Other expenses, net consists primarily of interest income on cash balances, and interest expense on borrowings. Interest expense will vary periodically depending on prevailing short-term interest rates.

 

Loss on settlement of debt

 

Loss on settlement of debt comprises the cost of issuance of common stock for the retirement of principal and accrued interest on promissory notes.

 

Critical Accounting Policies

 

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”) and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions, and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. Note 1, “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K describes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

 

We have identified the policies below as critical to our business operations and the understanding of its results of operations. The Company’s senior management has reviewed these critical accounting policies and related disclosures with the Company’s Board of Directors. The impact and any associated risks related to these policies on our business operations are discussed throughout this section where such policies affect our reported and expected financial results. Our preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenues and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates and such differences may be material.

 

Revenue Recognition

 

We recognize revenue on sales to customers and distributors upon satisfaction of our performance obligations when the goods are shipped. For consignment sales, we recognize revenue when the goods are pulled from consignment inventory.

 

50  | P a g e    
 

 

On January 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers (ASC 606),” using the modified retrospective method. Adoption of the new revenue standard had no impact on the Company’s consolidated balance sheet, results of operations, equity or cash flows as of the adoption date.

 

Sales of LodonalTM pills or capsules product are included in revenue when production is sold to a customer in fulfillment of performance obligations under the terms of agreed contracts. Performance obligations primarily comprise delivery of product at a delivery point, as negotiated within each contract. Each quantity of product sold is separately identifiable and represents a distinct performance obligation to which the transaction price is allocated. Performance obligations are satisfied at a point in time once control of the product has been transferred to the customer. The Company considers a variety of facts and circumstances in assessing the point of control transfer, including but not limited to: whether the purchaser can direct the use of the product, the transfer of significant risks and rewards, the Company’s right to payment, and transfer of legal title. In each case, the time between delivery and when payments are due is not significant.

 

Leases

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard requires all leases that have a term of over 12 months to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use asset initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term. Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use asset) and interest expense (for interest on the lease liability). This standard will be effective for our interim and annual periods beginning January 1, 2018, and must be applied on a modified retrospective basis to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. At December 31, 2019, we had no leases that fall within the scope of this standard. Accordingly, the standard has no impact on our consolidated financial position or our results of operations.

 

Use of Estimates

 

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

 

Cash, Cash Equivalents, and Short-Term Investments

 

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

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. The Company is exposed to credit risk, subject to federal deposit insurance, in the event of a default by the financial institutions holding its cash and cash equivalents to the extent of amounts recorded on the condensed consolidated balance sheets. The cash accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. At December 31, 2019, the Company has no cash balances in excess of insured limits.

 

Segment and Geographic Information

 

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

 

51  | P a g e    
 

 

Fair Value of Financial Instruments

 

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

 

Fair Value Measurements

 

The ASC Topic 820, Fair Value Measurement, 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.

 

Inventory

 

Inventories comprise finished product, raw materials and materials used for packaging. Inventories are stated at the lower of cost or market with cost based on the first-in, first-out (FIFO) method. Inventory that can be used in either the production of clinical or commercial products is expensed as research and development costs when identified for use in a clinical trials or clinical manufacturing campaigns. Inventory used in marketing activities is charged to selling, general and administrative expense.

 

Fixed Assets

 

Fixed assets are stated at cost, less accumulated depreciation. Depreciation is determined on a straight-line basis over the estimated useful lives of the assets, which generally range from three to five years. Maintenance and repairs are charged against expense as incurred. Depreciation expense for the years ended December 31, 2019 and December 31, 2018 was $2,074 and $1,733, respectively.

 

Impairment of Long-Lived Assets

 

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

 

Research and Development Costs

 

Research and development costs are charged to expense as incurred and are typically comprised of salaries and benefits, pre-clinical studies, clinical trial activities, drug development and manufacturing, fees paid to consultants and other entities that conduct certain research and development activities on the Company’s behalf and third-party service fees, including patent prosecution expenses, 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.

 

52  | P a g e    
 

 

Income Taxes

 

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

 

The standard addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC Topic 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC Topic 740 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. At the date of adoption, and as of December 31, 2019 and 2018, the Company does not have a liability for unrecognized tax uncertainties.

 

The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. As of December 31, 2019, and 2018, the Company has not accrued any interest or penalties related to uncertain tax positions.

 

In February 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which amends ASC Topic 220, Income Statement - Reporting Comprehensive Income. This ASU allows for tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act to be reclassified as retained earnings. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. The Company adopted this policy on January 1, 2019, noting no material impact.

 

Stock-Based Compensation and Issuance of Stock for Non-Cash Consideration

 

The Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors, including employee stock options, based on estimated fair values equaling either the market value of the shares issued or the value of consideration received, whichever is more readily determinable. The majority of the non-cash consideration pertains to services rendered by consultants and others and has been valued at the fair value of the Company’s common stock at the date of the agreement.

 

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

 

Non-controlling Interest

 

In accordance with ASC Topic 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.

 

53  | P a g e    
 

 

Net Loss per Share of Common Stock

 

The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per share gives effect to all dilutive potential common shares outstanding during the period using the “as if converted” basis.

 

Uncertainty in Income Taxes

 

Management considers the likelihood of changes by taxing authorities in its filed income tax returns, and recognizes a liability for or discloses potential changes that management believes are more likely than not to occur upon examination by tax authorities. Management has not identified any uncertain tax positions in filed income tax returns that require recognition or disclosure. The Company’s income tax returns for the past three years are subject to examination by tax authorities, and may change upon examination.

 

We follow Accounting Standards Codification (“ASC”) 740-10, Accounting for Uncertainty in Income Taxes (“ASC 740-10”). This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. ASC 740-10 is effective for fiscal years beginning after December 15, 2006. The Company has adopted ASC 740-10 and evaluates its tax positions on an annual basis.

 

Results of Operations

 

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

 

Revenues (dollar amounts in thousands):

 

We had no revenues from operations for the year ended December 31, 2019, compared to revenues of $114 for the year ended December 31, 2018. All 2018 revenues were earned from shipments of LodonalTM to Nigeria.

 

Operating Expenses

 

Selling, general and administrative (dollar amounts in thousands):

 

Selling, general and administrative expenses and related percentages for the years ended December 31, 2019 and 2018 were as follows (dollar amounts in thousands):

 

    2019     2018  
Selling, general and administrative   $ 2,368     $ 3,232  
Increase / (decrease) from prior year   $ (864 )   $ 400  
Percent increase / (decrease) from prior year     (27 )%     14 %

 

In 2019, selling, general and administrative expense was $2,368, compared to $3,232 for 2018, a decrease of $864 or 27%. For the years ended December 31, 2019 and 2018, selling, general and administrative expenses were made up as follows (dollar amounts in thousands):

 

    2019     2018  
Stock listing and investor relations expenses   $ 50     $ 43  
Consulting and contractors     93       1,041  
Payroll     1,543       1,417  
Professional fees     123       142  
Travel     6       51  
Other expenses     553       538  
    $ 2,368     $ 3,232  

 

54  | P a g e    
 

 

The decrease year over year in selling, general and administrative expense was attributable primarily to a $948 decrease year over year in consulting expenses.

 

Significant expenses included:

 

  consulting services obtained to assist the Company in raising capital, manage investor relations, and develop business in new markets, in the amount of $93 in 2019, a decrease of $948 or 91% over the $1,041 spent in 2018. The decrease was primarily due to reductions in consulting services directed towards obtaining regulatory approvals for the development and sale of licensed products in the USA and in Emerging Markets throughout the year, and also consulting services incurred by Cytocom in 2018 prior to its deconsolidation from the Company;
  professional fees for legal, tax and accounting services in the amount of $123 in 2019, a decrease of $19 or 13% over the $142 spent in 2018.  The decrease was primarily due to the deconsolidation of Cytocom in 2018;
  payroll in the amount of $1,543 in 2019, an increase of $126 or 34% over the $1,417 spent in 2018. The difference was due to an adjustment to payroll accruals of $605, offset by the deconsolidation of Cytocom in 2018;
  travel in the amount of $6 in 2019, a decrease of $45 or 88% from the $51 spent in 2018, the result of a reduction in travel to market the Company’s products and to obtain regulatory approvals for their sale, and to meet with contract manufacturers and their government regulatory agencies.

 

Research and development

 

R&D expenses and related percentages for the years ended December 31, 2019 and 2018 were as follows (dollar amounts in thousands):

 

    2019     2018  
Research and development   $ 336     $ 144  
Increase/ (decrease) from prior year   $ 192     $ (255 )
Percent increase/ (decrease) from prior year     133 %     (64 )%

 

R&D is overseen and managed internally, working with individuals, universities, and CROs in order to utilize patents that we have sub-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.

 

For the years ended December 31, 2019 and 2018, research and development expenses were made up as follows (dollar amounts in thousands):

 

    2019     2018  
Contracted and consulting services   $ -     $ 27  
Patent expenses     318       25  
Trials     -       -  
Professional fees     18       67  
Other     -       25  
    $ 336     $ 144  

 

Expenses for research and development in 2019 increased by 133% compared to expenses in the same period 2018. The increase was primarily due to an increase in licensing fees paid in 2019, offset by lower patent prosecution expenses. No patent trials were conducted in 2019. Most of the R&D spending in 2018 was for the development of LDN, primarily under trials in Africa.

 

55  | P a g e    
 

 

Stock issued for services

 

The cost of stock issued for services G&A and related percentages for the years ended December 31, 2019 and 2018 were as follows (dollar amounts in thousands):

 

    2019     2018  
Consulting services G&A   $ 131     $ 772  
Percentage increase/(decrease) from prior year     (83 )%     (63 )%

 

The decrease in expense reflects a reduction in the number of shares issued for services and the decrease in the price of the Company’s stock year over year.

 

The number of shares issued for consulting services G&A in 2019 was 3,300 (16,999 in 2018).

 

Consulting services G&A 2019 consisted of the following:

 

Amortization of cost incurred for new stock issued in 2019 under G&A consulting contracts entered into in 2019   $ 11,390  

 

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 Consolidated Statements of Operations above as the Warrant valuation expense.

 

In 2019, the Company issued 14,600 warrants as part of notes payable at an exercise price of $5, for which it recorded a $0 warrant expense. In 2018, the Company issued 203,995 warrants as part of notes payable at an exercise price of $5 to $3,740, for which it recorded $0 warrant expense .

 

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 all of the Company’s patents and licenses had been impaired by the end of 2015.

 

Depreciation and amortization expenses for the years ended December 31, 2019 and 2018 were as follows (dollar amounts in thousands):

 

    2019     2018  
Depreciation expense   $ 2     $ 2  
Amortization expense   $ -     $ -  
Increase/ (decrease) from prior year   $ -     $ 1  
Percentage increase (decrease) from prior year     - %     100 %

 

Interest Expense

 

Interest expense for the years ended December 31, 2019 and 2018 were as follows (dollar amounts in thousands):

 

    2019     2018  
Interest expense   $ 894     $ 1,183  
Increase/(decrease) from prior year   $ (289 )   $ (34 )
Percentage increase/(decrease) from prior year     (24 )%     (3 )%

 

56  | P a g e    
 

 

Interest expenses are comprised of loan origination fees and interest owed by the Company. The decrease year over year was attributable to the lower level of debt in the Company, the result of the deconsolidation of Cytocom in 2018.

 

Gain/(Loss) on settlement of debt (dollar amounts in thousands):

 

The Company recorded $0 expense in 2019 for gains/losses on settlement of debt. In 2018, certain lenders to the Company exercised their rights to convert all or a portion of their notes payable to equity. The Company also settled certain obligations in 2018 through the issuance of its common stock. In 2018, the Company recorded a loss of $684,668, reflecting the fair value of the 30,351 shares of common stock issued in exchange for notes and other obligations.

 

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 $4,925 at December 31, 2019, compared to $5,859 at December 31, 2018. Cash at the end of 2018 comprised cash for both the Company and Cytocom. For the years ended December 31, 2019 and 2018, net cash used in operating activities was $934 and $1,369,503, respectively. $0 cash was used in investing activities for the year ended December 31, 2019 ($1,971 was used in 2018). In 2019, the Company was able to cover its operating and investing cash-flow requirements through its existing cash balances and without the need to issue notes payable or to sell equity; in 2018 the Company issued notes payable and sold equity, in the amount of $1,099,970.

 

In 2019, the Company had no sales of LodonalTM . The Company cannot be certain that it will generate sufficient cash flows for the next 12 months to pay for operating expenses and to pay off current and past-due obligations. In addition to projected sales, the Company expects to continue fund operations through sales of equity and notes payable, and conversions of exiting obligations into equity. Over the next 12 months, 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. The estimated cost of this development is between $2,000,000 and $3,000,000.

 

During the year ended December 31, 2019, there were no sales of stock or exercise of stock warrants, compared to $240,500 for the corresponding period in 2018. The Company issued 454,478 in notes payable in year ended December 31, 2019, compared to $859,470 in 2018. There were no loan repayments made in cash in the year ended December 31, 2019 ($0 in 2018).

 

Off-Balance Sheet Arrangements

 

During the years ended December 31, 2019 and 2018, we did not engage in any off-balance sheet arrangements as defined in item 303(a)(4) of the SEC’s Regulation S-K.

 

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

 

Not applicable.

 

Item 8. Financial Statements and Supplementary Data

 

Our Consolidated Financial Statements and Notes thereto, for the fiscal years ended December 31, 2019 and 2018 and the report of Turner, Stone & Company, L.L.P. (“Turner”), our independent registered public accounting firm, are set forth on pages F-1 through F-20 of this Annual Report.

 

57  | P a g e    
 

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

Not applicable.

 

Item 9A. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on the evaluation, the CEO and CFO have concluded that our disclosure controls and procedures are ineffective to ensure that information 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. This determination was based on the small size of our accounting staff, the lack of segregation of duties and the lack of an audit committee at December 31, 2019, which creates a material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness means there is a risk that our financial reports or other filings may contain an error or inaccuracy or not submitted timely.

 

Management Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

Any internal control system, no matter how well designed, has inherent limitations and may not prevent or detect misstatements. Accordingly, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

 

Management, with the participation of our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our internal control over financial reporting as of December 31, 2019 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, because of the Company’s limited resources and limited number of employees, and the absence of an audit committee at December 31, 2019, management concluded that, as of December 31, 2019, our internal control over financial reporting is not effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

 

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to permanent rules of the SEC that permit the Company to provide only management’s report in this Annual Report.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934) during the year ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information

 

None.

 

58  | P a g e    
 

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

Directors

 

As of May 14, 2020, the number of voting members of our Board of Directors was 3. The members of our Board of Directors as of May 14, 2020 are as follows:

 

Name   Age   Director Since   Position
Kevin Phelps   65   November 2018   Interim Chief Executive Officer and Director
Dr. Roscoe Moore   65   August 2018   Director and Chairman of the Board
Michael Sander   56   November 2019   Director

 

The biographies of each director below contain information regarding the person’s service as a director, business experience, director positions held currently or at any time during the last five years, and information regarding involvement in certain legal or administrative proceedings, if applicable.

 

Kevin Phelps — Mr. Phelps, 65, is a General Partner in Trillium Group, LLC, a Rochester, New York based venture capital firm and a Founder of Cashel Rock Advisors and FinanciaLink Strategic Alliances, two private wealth management firms specializing in strategies for corporations and high net-worth individuals. On April 30, 2020, Mr. Phelps was appointed interim Chief Executive Officer following the resignation of Mr. Handley,

 

His professional experience began as a CPA with Price Waterhouse (now PwC), where he consulted with over 20 companies with a principal focus on emerging growth opportunities. In 1987, he was recruited to head financial planning for Eastman Kodak’s BioProducts Division. He assisted in the spinoff of the business into an international joint venture and became the Chief Financial Officer of the new entity, Genencor International, Inc. In this role, he created and managed Genencor’s finance and treasury groups and established the company’s accounting and reporting practices. He raised in excess of $100 million in debt capital to fund Genencor’s operations and expansion. He also served as Vice President of New Business Development.

 

Dr. Roscoe Moore — Dr. Moore, 65, was a career officer within the Commissioned Corps of the United States Public Health Service (USPHS) and Assistant United States Surgeon General (Rear Admiral, USPHS) within the Immediate Office of the Secretary, Department of Health and Human Services (HHS). He operated as Principal Liaison between the HHS and the ministries of health of African countries for the development of infrastructure for preventive health needs and was integrally involved in the formation of the President’s Emergency Program for AIDS Relief (PEPFAR) program under President George W. Bush, a program which is credited with turning the tide of the global AIDS pandemic. He was selected as Chief Veterinary Medical Officer, USPHS, by Surgeon General C. Everett Koop, and was the Chief Epidemiologist with the Center for Devices and Radiological Health for the FDA. Dr. Moore served as an Epidemic Intelligence Service Officer with the U.S. Centers for Disease Control and Prevention (CDC) and as the ranking veterinarian across all uniformed services, including the armed forces. Dr. Moore has conducted clinical research on infectious diseases including Venezuelan equine encephalitis, tuberculosis, listeriosis, psittacosis, malaria, and HIV/AIDS. He has also been involved in the development of a sustainable infrastructure for the surveillance of emerging and re-emerging diseases worldwide. He has written or co-authored over 100 publications covering a broad range of public health issues.

 

Dr. Moore has international experience with North Africa (Morocco), North West Africa Sub-Saharan Africa, West Africa (Senegal, Nigeria, and Mali), Central Africa (Central African Republic, Republic of Congo, Rwanda, and Uganda), East Africa and Southern Africa and the countries of the Southern African Development Community (SADC).

 

Dr. Moore received his Bachelor of Science and Doctor of Veterinary Medicine degrees from the Tuskegee Institute; his Master of Public Health degree in Epidemiology from the University of Michigan; and his Doctor of Philosophy degree in Epidemiology from the Johns Hopkins University. He was awarded the Doctor of Science degree (Honoris Causa) by Tuskegee University in recognition of his distinguished career in public health. Dr. Moore also served as an Assistant Professor of Oncology within the Howard University College of Medicine Cancer Center.

 

59  | P a g e    
 

 

Michael Sander— Mr. Sander, 56, has been a Director since November 2019. Mr. Sander currently serves as the Senior Managing Director, Strategic Planning & Investor Relations, of Sortis Holdings Inc., a company that provides financial services such as equity capital placement, loan sale advisory, debt restructuring, valuations, strategic capital management, and specialty finance. Mr. Sander has been at Sortis Holdings since December 2010.

 

Mr. Sander previously served as Executive Vice President of Columbia Capital Consulting Group (formerly known as RTC Pacific), an FDIC-registered contractor for financial institutions, from December 2008 to November 2010; Senior Vice President of Trinity Inc., an import building supply company, from May 2005 to October 2008; Senior Executive Vice President of Cyberworks Robotics Inc., a developer of AI self-driving software aimed to increase mobility and quality of life for vulnerable people in society, from May 2003 to May 2005; and Managing Partner – Advisor of IWE Digital, an internet digital technology developer agency, from October 1996 to April 2003.

 

Among other qualifications, Mr. Sander brings to the Board executive leadership experience and valuable insights on corporate strategy, risk management, corporate governance and many other issues facing emerging enterprises.

 

Mr. Sander also holds the following directorships:

 

  Klersun Global Agri-Science - Chairman
  Klersun Bioscience - Director
  Medavate Medical Innovations - Interim Chairman
  Intercontinental Energy Company - Director

 

Executive Officers

 

Biographical information concerning Michael Handley, our Chief Executive Officer is set forth above. Biographical information concerning our other executive officers is set forth below.

 

Peter Aronstam – Mr. Aronstam, age 67, has been our Chief Financial Officer since January 2013. Mr. Aronstam brings more than 30 years of experience in accounting, finance, banking, international trade and law to his clients. His career is marked by a progression of senior finance roles with growth and performance-driven enterprises, from start-up technology and internet companies to chief financial officer roles with small service providers to very large international manufacturers to global banks. Mr. Aronstam has advised publicly-held and privately-owned businesses since 1978, providing both full-time and part-time CFO services. His background includes start-up VC-backed entrepreneurial companies, manufacturing technology and service companies, serving as a public-company CFO, corporate and international banking in major multinational banks, managing HR and IT functions, and raising more than $500,000,000 in debt and equity for his companies and their customers. From 2001 to 2006, Mr. Aronstam was the Chief Financial Officer of Airspan Networks, Inc., a public reporting company in Boca Raton, Florida. He also was the CFO of private company Mainstream Holdings, LLC in West Palm Beach, Florida from 2007 to 2008 and private company The Neptune Society in Plantation, Florida from 2008 to 2009. Since 2010, Mr. Aronstam has been a partner of B2B CFO Partners, LLC, doing business as B2B CFO©. The firm provides CFO services to its clients on a part time basis. Born and educated in South Africa, Mr. Aronstam earned his Bachelor of Commerce, Bachelor of Law and PhD from the University of the Witwatersrand in South Africa. Mr. Aronstam has worked in South Africa, Canada, and Florida.

 

Board Committees

 

In February of 2015, the Board authorized the formation of and adopted charters for an audit committee, compensation committee and nominating committee. At December 31, 2019, we had not yet established an audit committee, compensation committee, or nominating committee. In April 2020, the full Board resolved to constitute itself as the Company’s audit committee until such time as an audit committee is appointed. During 2019, the functions ordinarily handled by these committees were handled by our entire Board. As of the date of filing this annual report, no members were appointed to the audit committee, compensation committee or nominating committee. The compensation committee and nominating committee have not yet held any meetings.

 

60  | P a g e    
 

 

Family Relationships

 

There are no familial relationships between any of our officers and directors.

 

Director or Officer Involvement in Certain Legal Proceedings

 

Our directors and executive officers were not involved in any legal proceedings as described in Item 401(f) of Regulation S-K in the past ten years.

 

Director Independence

 

The Company is not currently listed on any national securities exchange that has a requirement that the board of directors be independent. At December 31, 2019, Dr. Moore, Dr. Selsky, Mr. Phelps and Mr. Sander were “independent directors” as that term is defined under the rules of the NASDAQ Capital Market.

 

Code of Ethics

 

We have adopted a Code of Ethics that applies to all of our employees and officers, and the members of our Board of Directors. The Code of Ethics is available on our corporate website at www.immunetherapeutics.com. You can access the Code of Ethics on our website by first clicking “About Us” and then “Corporate Governance.” Any amendment to or waiver of the Code of Ethics will be disclosed on our website promptly following the date of such amendment or waiver.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than 10% shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based on our review of the reports filed by Reporting Persons, we believe that, during the year ended December 31, 2019, the Reporting Persons met all applicable Section 16(a) filing requirements.

 

Item 11. Executive Compensation

 

The following table summarizes the annual compensation of our Named Executive Officers (defined below), as of December 31, 2019. “Named Executive Officers,” consistent with Item 402(m) of Regulation S-K promulgated under the Exchange Act, include: (i) the Company’s Principal Executive Officer and individuals acting in a similar capacity during fiscal year 2019, regardless of compensation level; (ii) the Company’s two most highly compensated executive officers other than the Principal Executive Officer who were serving as executive officers at the end of fiscal year 2019; and (iii) up to two additional individuals who would have been included under (ii) above but for the fact that the applicable individual was not serving as an executive officer of the Company at the end of fiscal year 2019.

 

Name and Principal Position   Year     Salary     Bonus     Stock
Awards
    Option
Awards
    All Other
Compensation
    Total($)  
                                           
Michael Handley     2019     $ 120,000 (1)   $     $     $     $     $ 120,000  
Chief Executive Officer     2018     $     $     $     $     $     $  
                                                         
Noreen Griffin     2019     $ 377,960 (2)   $     $     $     $ 12,000 (2)   $ 389,960  
Chief Executive Officer     2018     $ 481,884 (2)   $     $     $     $ 18,000 (2)   $ 491,884  
                                                         
Peter Aronstam     2019     $ 60,000 (3)   $     $     $     $     $ 60,000  
Chief Financial Officer     2018     $ 70,000 (3)   $     $     $     $     $ 70,000  

 

61  | P a g e    
 

 

(1) Mr. Handley became Chief Executive Officer on September 20, 2019. In 2019, Mr. Handley agreed to defer payment of his of salary until the Company had sufficient income to pay the compensation in cash. At December 31, 2019, the salary deferred for Mr. Handley was $120,000 ($0 at December 31, 2018). In 2019, no stock options were awarded to Mr. Handley.

 

(2) In 2019 and 2018, Ms. Griffin agreed to defer a portion of her salary until the Company had sufficient income to pay the salary in cash in full. At December 31, 2019, the amount of salary deferred for Ms. Griffin was $1,962,464 ($1,584,504 at December 31, 2018). No stock, warrants or options were issued directly to Ms. Griffin in 2019 (4,600 warrants were issued to Global Reverb Corporation, a related party, in 2019, for which the Company recorded an expense of $23,000). In 2018, two thousand options at prices ranging from $30.00 to $40.00 were issued to Ms. Griffin for a bonus and contract renewal. The warrants expire in March 2023.

 

The Company is required to pay Ms. Griffin $1,500 per month for unaccountable expenses during each month of the term of her employment agreement. Unaccountable expenses refer to costs incurred by Ms. Griffin in the course of business that are not required to be reported on a monthly expense report. These costs include expenses incurred related to international travel. At December 31, 2019, the amount of expenses deferred for Ms. Griffin was $55,000 ($42,000 at December 31, 2018).

 

(3) In 2018 and 2019, Mr. Aronstam agreed to defer a portion of his compensation until the Company had sufficient income to pay the compensation in cash. In 2019, the Company accrued compensation totaling $60,000 for Mr. Aronstam ($70,000 in 2018). At December 31, 2019, a total of $71,000 was owed to Mr. Aronstam. No warrants or stock awards were granted to Mr. Aronstam in 2018 and 2019.

 

Employment and Related Agreements

 

Michael Handley, the Company’s Chief Executive Officer, entered into an employment agreement with the Company in September 2019. Pursuant to the Agreement, Mr. Handley agreed to serve as the Company’s Chief Executive Officer (“CEO”) and President. Mr. Handley’s employment with the Company is on an “at-will” basis and may be terminated at any time by the Company or Mr. Handley. In consideration for his services as CEO and President, the Company agreed to pay Mr. Handley a base salary of $480,000 per year, less statutory deductions and withholding (the “Base Salary”). The Base Salary will be increased annually by at least that amount that reflects the rate of change in the Consumer Price Index for Urban Consumers (CPI-U, U.S. City Average, All Items) issued by the United States Department of Labor, Bureau of Labor Statistics, for the preceding twelve months. The Company’s board of directors (the “Board”), or a committee delegated by the Board (the “Compensation Committee”), will also review the Base Salary annually and may increase the Base Salary based on Mr. Handley’s performance and any other factors the Board or Compensation Committee deems relevant. In addition to the Base Salary, each year, Mr. Handley will be eligible to receive an annual cash bonus with a target of 55% of the Base Salary in accordance with criteria to be determined by Board or Compensation Committee. Furthermore, the Company agreed to grant Mr. Handley a stock option award equal to 5% of the authorized shares available under the Company’s Equity Incentive Plan. Such options will (i) have an exercise price equal to the fair market value of the common stock on the date of grant, as determined by the Board or Compensation Committee, and (ii) vest 1/3rd on the first anniversary of the date of grant and 1/36th per month on the first day of each of the 24 months following the first anniversary of the date of grant. Mr. Handley will also be eligible to receive an annual stock option grant as determined by the Board or Compensation Committee. Mr. Handley entitled to receive employee benefits afforded under the Company’s standard written benefits package to regular full-time employees of the Company, including medical, dental, retirement, paid time off for vacation, sick days, and holidays. Mr. Handley will be entitled to no less than 20 paid vacation days per calendar year during his employment with the Company. The Company will also reimburse Handley for all reasonable out-of-pocket business expenses incurred by Mr. Handley in the performance of his duties as CEO and President. Mr. Handley is also entitled to receive payments and benefits in the event the Agreement is terminated by the Company without “Cause” or by Mr. Handley with “Good Reason,” as detailed in the Agreement. On April 30, 2020, Mr. Handley resigned his position as Chief Executive Officer.

 

Peter Aronstam, our Chief Financial Officer, entered into a services agreement with the Company on December 15, 2014. The agreement expired on December 14, 2015, and has been renewed for successive one-year periods until June 30, 2020. The current agreement provides for a monthly payment of $5,000.

 

62  | P a g e    
 

 

Outstanding Equity Awards at Fiscal Year-End

 

Warrants were granted to Mr. Aronstam in December 2014 to acquire 250 shares of common stock of the Company at a price of $140 each. The warrants expired on December 14, 2019. Warrants were granted to Mr. Aronstam in June 2016 to acquire 100 shares of common stock of the Company at a price of $170 each. The warrants expire on June 29, 2021. Warrants were granted to Mr. Aronstam in June 2017 to acquire 500 shares of common stock of the Company at a price of $50 each. The warrants expire on June 26, 2032. Warrants were granted to Mr. Aronstam in July 2017 to acquire 100 shares of common stock of the Company at a price of $50 each. The warrants expire July 1, 2022.

 

Summary Director Compensation Table

 

The following table shows information regarding the compensation earned or paid during 2019 to Non-Employee Directors who served on the Board during the year. The compensation paid to Mr. Handley is shown under “Executive Compensation” and the related explanatory tables. Mr. Handley did not receive any compensation for her service as a member of the Board.

 

Name and
Principal
Position
  Year   Fees Paid
or Earned
in Cash
($)
    Stock
Awards
($)
    Option
Awards
($)
    Non-equity
incentive
plan
compensation
    Non-qualified
incentive
plan
compensation
    All Other
Compensation
($)
    Total ($)  
                                                             
Dr. Clifford Selsky,   2019     60,000 (1)     5,025                               65,025  
Director   2018     60,000 (1)                                   60,000  
                                                             
Dr. Roscoe Moore,   2019     60,000 (2)     (2)                             60,000  
Director, Chairman of the Board   2018     23,000 (2)     37,500 (2)                             23,000  
                                                             
Kevin Phelps,   2019     60,000 (3)     1,340                               61,340  
Director   2018     10,000 (3)                                   10,000  
                                                             
Michael Sander,   2019     10,000 (4)                                   5,000  
Director   2018                                          
                                                             
Edward Teraskiewicz,   2019     50,000 (5)     5,025                              

55.025

 
Director   2018     60,000 (5)                                  

60,000

 
                                                             
Jack Brewer,   2019     40,000 (6)                                   40,000  
Director   2018     20,000 (6)           130,000                         150,000  

 

For 2019, all members of the Board of Directors who are not our employees, or Non-Employee Directors, currently receive an annual retainer of $60,000 per year, payable monthly in arrears. In addition, Non-Employee Directors are eligible to receive stock or warrants upon their appointment to the Board. Certain members of the Board of Directors are also entitled to receive quarterly or annual payment of Company shares or warrants to acquire shares for their services. We do not currently have minimum stock ownership guidelines for Non-Employee Directors.

 

We reimburse Non-Employee Directors for actual out-of-pocket costs incurred to attend board meetings. No additional compensation is paid for attendance in person or by telephone at board meetings.

 

(1) For services as a director in 2019, Dr. Selsky was entitled to receive payment of $60,000 ($60,000 in 2018). Dr. Selsky agreed to defer his fees until 2020. 750 shares of common stock were issued to Dr. Selsky in 2019 for services in 2019 and prior years as director, for which the Company recorded an expense of $5,025 (no shares were issued in 2018).

 

63  | P a g e    
 

 

(2) For services as a director in 2019, Dr. Moore was entitled to receive payment of $60,000 ($5,000 in 2018). Dr. Moore agreed to defer his fees until 2020. 300 shares of common stock were issued to Dr. Moore in 2019 for services as director in 2019 and 2018, for which $25,000 was accrued for as prepaid services in a prior year (no shares were issued in 2018 for services as a director). Dr. Moore also served as a senior advisor to the Company between November 2017 and November 2019. As compensation for his services in that role, Dr. Moore was to be paid a monthly fee of $1,500. Dr. Moore has agreed to defer all 2018 and 2019 fees until 2020. In 2018, Dr. Moore also received 1,875 shares of common stock for these services (valued at $37,500).

 

(3) For services as a director in 2019, Mr. Phelps was entitled to receive payment of $60,000 ($10,000 in 2018). Mr. Phelps agreed to defer his fees until 2020. 200 shares of common stock were issued to Mr. Phelps in 2019 for services as director in 2019 and 2018, for which the Company recorded an expense of $1,340 (no shares were issued in 2018 for services as a director).

 

(4) For services as a director in 2019, Mr. Sander was entitled to receive payment of $10,000 ($0 in 2018). Mr. Sander agreed to defer his fees until 2020. In accordance with his director’s agreement with the Company, Mr. Sander is entitled to receive each quarter either 5,000 restricted shares of Company stock or warrants to purchase 5,000 shares of Company stock, at his election. Mr. Sander did not make an election in 2019; accordingly, no shares of common stock or warrants were issued to Mr. Sander in 2019 for services as director in 2019 and no expense was accrued.

 

(5) Mr. Teraskiewicz served as a director until his resignation on October 31, 2019. For services as a director in 2019, Mr. Teraskiewicz was entitled to receive payment of $5,000 per month ($50,000 in 2019; $60,000 in 2018). Mr. Teraskiewicz agreed to defer this amount until 2020. In 2019, the Company issued 8,000 warrants to Raster Investments, Inc., a related party, for services performed by Mr. Teraskiewicz in 2019. The Company recorded a cost of $40,000. In 2018, the Company issued 12,000 warrants to Raster Investments, Inc. to settle certain amounts owed to Mr. Teraskiewicz for services. The Company recorded a cost of $60,000. 750 shares of common stock were issued to Mr. Teraskiewicz in 2019 for services in 2019 and prior years as director, for which the Company recorded an expense of $5,025 (no shares were issued in 2018).

 

(6) Mr. Brewer served as a director until his resignation on September 24, 2019. For services as a director in 2019, Mr. Brewer was entitled to receive payment of $5,000 per month ($40,000 in 2019; $20,000 in 2018). Mr. Brewer agreed to defer this amount until 2020. No shares of common stock were issued to Mr. Brewer for services in 2019 or 2018. No warrants or options were issued to Mr. Brewer in 2019. In 2018, Mr. Brewer was awarded warrants to acquire 6,500 shares of common stock the Company at prices from $5 to $100 for services as director (valued at $130,000).

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The following table sets forth certain information regarding the ownership of our common stock as of March 31, 2020 (the “Determination Date”) by: (i) each current director of our company; (ii) each of our named executive officers; (iii) all current executive officers and directors of our company as a group; and (iv) all those known by us to be beneficial owners of more than five percent (5%) of our common stock.

 

Beneficial ownership and percentage ownership are determined in accordance with the rules of the SEC. Under these rules, beneficial ownership generally includes any shares as to which the individual or entity has sole or shared voting power or investment power and includes any shares that an individual or entity has the right to acquire beneficial ownership of within 60 days of the Determination Date, through the exercise of any option, warrant or similar right (such instruments being deemed to be “presently exercisable”). In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of our common stock that could be issued upon the exercise of presently exercisable options and warrants are considered to be outstanding. These shares, however, are not considered outstanding as of the Determination Date when computing the percentage ownership of each other person.

 

64  | P a g e    
 

 

To our knowledge, except as indicated in the footnotes to the following table, and subject to state community property laws where applicable, all beneficial owners named in the following table have sole voting and investment power with respect to all shares shown as beneficially owned by them. Percentage of ownership is based on 457,578 shares of common stock outstanding as of March 31, 2020. Unless otherwise indicated, the business address of each person in the table below is c/o Immune Therapeutics, Inc., 2431 Aloma Ave., Suite 124, Winter Park, Florida 32792.

 

Name and Address   Amount of Beneficial
Ownership*
    Percentage
of
Class %
 
             
Noreen Griffin, Chief Executive Officer and Director(1)     15,838 (1)     3.46  
Dr. Roscoe Moore, Director and Chairman of the Board     2,175 (2)     0.48  
Dr. Clifford Selsky, Director     6,267 (3)     1.37  
Kevin Phelps, Director     200 (4)     0.04  
Michael Sander, Director     - (5)     0.00  
Edward Teraskiewicz, Director(6)     29,688 (6)     6.49  
Jack Brewer(7)     6,500 (7)     1.42  
Peter Aronstam, Chief Financial Officer     700 (8)     0.15  
Kelly Wilson, Chief Technology Officer     2,200 (9)     0.48  
                 
All directors and officers as a group (9 persons)     83,368       13.89  

 

* The percentages are calculated using 457,578 outstanding shares of the Company’s common stock on March 31, 2020, as adjusted pursuant to Rule 13d-3(d)(1)(i). Pursuant to Rule 13d-3(d)(1) of the Exchange Act, shares beneficially owned by a person or group includes shares of common stock that such person or group has the right to acquire within 60 days after March 31, 2020, which includes, but is not limited to, (i) shares subject to exercisable options or options exercisable within 60 days of March 31, 2020 and (ii) shares subject to RSUs or performance share awards that will vest within 60 days of March 31, 2020.

 

(1) Ms. Griffin served as Chief Executive Officer and director until September 20, 2019.  Represents 704 shares held in the name of Griffin Enterprises Group, Inc., which is 50% owned and managed by Robert Wilson, Ms. Griffin’s son; 2,685 shares held by the Griffin Family Trust, an irrevocable trust that is not managed by Ms. Griffin; 429 shares held by Noreen Griffin, individually. In addition, 12,020 warrants and options have been issued to Ms. Griffin and to Global Reverb Corporation, a related party.
   
(2) As compensation for services as director, the Company will issue Dr. Moore a per quarter either 75 restricted shares of Company stock or warrants to purchase 75 shares of Company stock, with Dr. Moore choosing shares or warrants. As of March 31, 2020, no shares or warrants had been issued to Dr. Moore.

 

(3) As compensation for services as director, the Company issued Dr. Selsky a total of 1,250 shares of restricted common stock.  Warrants for 5,017 shares were issued to Dr. Selsky in 2016 and 2018.
   
(4) As compensation for services as director, the Company issued Mr. Phelps a total of 200 shares of restricted common stock.  
   
(5) As compensation for services as director, the Company will issue Mr. Sander each quarter either 50 restricted shares of Company stock or warrants to purchase 50 shares of Company stock, with the Mr. Sander choosing shares or warrants. As of March 31, 2020, no shares or warrants had been issued to Mr. Sander.
   
(6) Mr. Teraskiewicz resigned as director on October 31, 2019.  3,550 shares are held by Raster Investments, Inc., an irrevocable trust that is not managed by Mr. Teraskiewicz. At March 31, 2020, Raster Investments, Inc. had a total of 20,000 warrants. Mr. Teraskiewicz has a total of 6,138 warrants in his name.
   
(7) Mr. Brewer resigned as director on September 24, 2019.  Mr. Brewer was granted 6,500 warrants in 2018.

 

65  | P a g e    
 

 

(8) Represents warrants to purchase 700 shares of common stock, as follows: (i) for price of $170, 100 shares until June 29, 2021; (ii) for price of $50, 500 shares until June 26, 2032; and (iii) for price of $50, 100 shares until July 1, 2022.
   
(9) Represents 500 shares of common stock, and 1,700 stock warrants outstanding.

 

Item 13. Certain Relationships and Related Party Transactions

 

None

 

Item 14. Principal Accounting Fees and Services

 

The following table sets forth fees billed to us by Turner, Stone & Company, L.L.P., our independent registered public accounting firm, during the fiscal years ended December 31, 2019 and December 31, 2018 for: (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements; (ii) services by our independent registered public accounting firms that are reasonably related to the performance of the audit or review of our financial statements and that are not reported as audit fees; (iii) services rendered in connection with tax compliance, tax advice and tax planning; and (iv) all other fees for services rendered.

 

    December 31, 2019     December 31, 2019  
             
Audit Fees   $ 48,000     $ 47,950  
Audited Related Fees   $     $  
Tax Fees   $     $  
All Other Fees   $     $  

 

66  | P a g e    
 

 

PART IV

 

Item 15. Exhibits, Financial Statement Schedules.

 

Exhibits Schedule

 

The following exhibits are filed with this Annual Report:

 

Exhibit   Description
     
3.1   Restated Articles of Incorporation*
3.2   Bylaws*
10.1   Sale and Assignment of Patent and Transfer of Technology Agreement with Nicholas Plotnikoff †>
10.2   Agreement with Professor Shan †>
10.3   Patent License Agreement with Penn State Research Foundation r†
10.4   Patent License Agreement Between Immune Therapeutics, Inc. and Jacqueline Young for the intellectual property of Dr. Bernard Bihari#
10.5   Strategic Framework Agreement for Cooperation with Hubei Qianjiang Pharmaceutical Company, and Commissioned Processing Contract, and Addendum to Venture Cooperation †>
10.6   Malawi Memorandum of Agreement with GB Oncology & Imaging Group Ltd.#
10.7   Letter of Intent between GB Oncology & Imaging Group Ltd. and G-Ex Technologies St. Maris Pharma Limited #
10.8   Distribution Agreement in Nigeria with GB Pharma Holdings Inc. †>
10.9   ViPharma Agreement †>
10.10   Strategic Framework Agreement, Addendum to Venture Cooperation and Supplementary Agreement with Hubei Qianjiang Pharmaceutical Company (MENK) (filed as Exhibit 10.11 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, and incorporated herein by reference).
10.11   Manufacturing Agreement with Laboratorios Ramos (and English translation)>
10.12   Engagement Agreement for Corporate Advisory Services by the Brewer Group?
10.13   Employment Agreement with Noreen Griffin (filed as Exhibit 10.14 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, and incorporated herein by reference).
10.14   Master Service Agreement with American Peptide Company (filed as Exhibit 10.17 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, and incorporated herein by reference).
10.15   Agreement with AHAR Pharma (filed as Exhibit 10.18 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, and incorporated herein by reference).
10.16   Consulting agreement with Dr. Graham Burton (filed as Exhibit 10.19 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, and incorporated herein by reference).
10.17   Promissory note to Robert J. Dailey, issued February 6, 2014, for $200,000 (filed as Exhibit 10.1 to our Quarterly Report on Form 10-K for the quarter ended March 31, 2014, and incorporated herein by reference).
10.18   Promissory note to Robert J. Dailey, issued March 7, 2014, for $200,000 (filed as Exhibit 10.2 to our Quarterly Report on Form 10-K for the quarter ended March 31, 2014, and incorporated herein by reference).
10.19   Promissory note to Robert J. Dailey, issued March 28, 2014, for $200,000 (filed as Exhibit 10.3 to our Quarterly Report on Form 10-K for the quarter ended March 31, 2014, and incorporated herein by reference).
10.20   Promissory Note Settlement Agreement, dated September 26, 2014, between Immune Therapeutics, Inc. and Robert Dailey for notes equaling $399,000 µ
10.21   Promissory Note Settlement Agreement, dated September 26, 2014, between Immune Therapeutics, Inc. and Robert Dailey for notes equaling $400,000 µ
10.22   Distribution Agreement, effective June 11, 2014, between Airmed Biopharma Limited and PanAm Global Logistics, Inc. (filed as Exhibit 1.1 to our Current Report on Form 8-K filed June 25, 2014, and incorporated herein by reference).

 

67  | P a g e    
 

 

10.23   Immune Therapeutics, Inc. 2014 Stock Incentive Plan (filed as Appendix A to our Definitive Proxy Statement on Schedule 14A filed on July 17, 2014, and incorporated herein by reference).
10.24   Supplementary Agreement on New Drug Methionine – Enkephalin Cooperation, dated August 6, 2014, between Immune Therapeutics, Inc. and Hubei Qianjiang Pharmaceutical Co., Ltd. (filed as Exhibit 1.1 to our Current Report on Form 8-K on August 13, 2014, and incorporated herein by reference).
10.25   Assignment by Professor Fengping Shan Ph.D. to Immune Therapeutics, Inc., executed August 6, 2014 (filed as Exhibit 1.2 to our Current Report on Form 8-K on August 13, 2014, and incorporated herein by reference).
10.26   Clinical Trial Agreement, dated October 20, 2014, between TNI BioTech International Ltd. and American Hospital and Resorts (filed as Exhibit 10.1 to our Current Report on Form 8-K on October 30, 2014, and incorporated herein by reference).
10.27   Contract for the Compounding of Pharmaceutical Products, dated December 8, 2014, between Immune Therapeutics, Inc. and KRS Global Biotechnology, Inc. (filed as Exhibit 10.1 to our Current Report on Form 8-K on December 15, 2014, and incorporated herein by reference).
10.28   Services Agreement, dated December 15, 2014, between Immune Therapeutics, Inc. and Aronstam Management Services, Inc. µ
10.29   Royalty Agreement (Filed as Exhibit 10.1 to our Current Report on Form 8-K on May 21, 2015, and incorporated herein by reference.)
10.30   Change of Transfer Agent Agreement (Filed as Exhibit 99.1 to our Current Report on Form 8-K on January 26, 2015, and incorporated herein by reference.)
10.31   Real Property Leases for Florida Office and Extensions dated July 19, 2017 and November 13, 2017
10.32   Compounding Contract with Complete Pharmacy and Medical Solutions, LLC (filed as Exhibit 10.1 to our Current Report 8-K on May 20, 2016, and incorporated herein by reference.)
10.33   Employment Agreement with Robert Wilson (filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, and incorporated herein by reference).
10.34   Letter of Intent with Super T-Cell Cancer Co., (filed as Exhibit 10.1 to our Current Report on Form 8-K on April 21, 2016, and incorporated herein by reference.)
10.35   Extension of Employment Agreement with Noreen Griffin dated March 9, 2018. µ
10.36   Extension of AHAR Agreement dated March 29, 2016. µ
10.37   Extension of Employment Agreement with Peter Aronstam dated July 1, 2017. µ
10.38   Consulting Agreement with Joyce Banda dated September 1, 2016. µ
10.39   Intellectual Property Assignment Agreement with Cytocom, Inc. dated September 4, 2015. µ
10.40   Consulting Master Services Agreement with Coté Orphan, LLC dated February 16, 2016. µ
10.41   Securities Purchase Agreement and related agreements with JMJ Financial dated April 12, 2016 (filed as Exhibit 10.1 to our Current Report 8-K on April 18, 2016, and incorporated herein by reference).
10.43   Patent License Agreement dated September 24, 2014 between Dr. Jill P. Smith, LDN Research Group LLC and Cytocom, Inc. and related agreements. µ
10.44   Promissory Note dated February 6, 2017 issued to Phoenix Fund Management, LLC.
10.45   Settlement agreement with Phoenix Fund Management, LLC dated February 28, 2017. µ
10.46   Settlement agreement with Mr. Marshall Faulk dated April 3, 2017. µ
10.47   Promissory Note dated April 5, 2017 to Robert J. Dailey in the principal amount of $150,000.
10.48   Securities Purchase Agreement and Warrant dated May 1, 2017 with Ira Gaines. µ
10.49   Distribution Agreement with TNI BioTech International Ltd. and Omaera Pharmaceuticals Ltd. Dated August 22, 2017.
10.50   Settlement and mutual release agreement dated October 12, 2017 with Phoenix Fund Management, LLC and Far East Holdings, LLC. µ
10.51   Securities Purchase Agreement dated October 25, 2017 with Iliad Research and Trading, L.P. µ
10.52   Iliad Research and Trading (i) promissory note and (ii) warrant dated October 25, 2017. µ

 

68  | P a g e    
 

 

10.53   Independent Corporate Development and Consulting Agreement with CSJ Group, LLC, and Advanced BioStrategies, Inc. dated December 5, 2017. µ
10.54   Independent Corporate Development and Legal Advising Agreement with CSJ and August Strategic & Legal Advisors, Inc. dated December 6, 2017 µ
10.55   Loan agreement and promissory note with Joel Yanowitz, dated January 9, 2018, for $50,000 (filed as Exhibit 10.23 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, and incorporated herein by reference).
10.56   Loan agreement and promissory note with Rogoff Family Trust, dated February 13, 2018, for $50,000 (filed as Exhibit 10.24 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, and incorporated herein by reference).
10.57   Amended and restated License Agreement with Cytocom, Inc. dated May 1, 2018 (filed as Exhibit 10.1 to our Current Report dated June 4, 2018, and incorporated herein by reference).
10.58   Stock Purchase Agreement with Cytocom, Inc. dated June 4, 2018 (filed as Exhibit 10.2 to our Report on Form 8-K dated June 4, 2018, and incorporated herein by reference).
10.59   Promissory Note dated February 27, 2019 to Phoenix Group in the principal amount of $231,478.39.
10.60   Second Amendment to License Agreement with Cytocom Inc., effective December 31, 2018 and signed April 8, 2019.∞
10.61   Employment Agreement with Michael Handley dated September 20, 2019 (Filed as Exhibit 10.1 to our Current Report on Form 8-K on September 25, 2019, and incorporated herein by reference.).
10.62   License Agreement dated January 15, 2020 with Forte Biotechnology Int’l. Corp.
10.63   Letter of Intent dated March 17, 2020 with Cytocom, Inc., setting forth the preliminary terms and conditions of a potential collaboration agreement for the development of Lodonal™ and IRT-101 for use against COVID-19 (Filed as Exhibit 10.1 to our Current Report on Form 8-K on March 20, 2020, and incorporated herein by reference.).
10.64  

Convertible Promissory Note dated March 30, 2020 to Redstart Holdings Corp. in the principal amount of $53,000. ∞

10.65   PRC Amendment to The Second Amendment to the License Agreement effective December 31, 2018 with Cytocom, Inc. and signed May 12, 2020.
21.1   List of Subsidiaries µ
31.1   Chief Executive Officer certification under Section 302 of the Sarbanes-Oxley Act of 2002 µ
31.2   Chief Financial Officer certification under Section 302 of the Sarbanes-Oxley Act of 2002 µ
32.1   Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 µ

 

* filed with the Form 10 Registration Statement filed with the SEC on April 22, 2013 and the Amendment No. 1 to the Form 10 Registration Statement filed with the SEC on June 7, 2013 and incorporated herein by reference.
# filed with the Amendment No. 1 to the Form 10 Registration Statement filed with the SEC on June 7, 2013 and incorporated herein by reference.
+ filed with the Amendment No. 2 to the Form 10 Registration Statement filed with the SEC on July 18, 2013 and incorporated herein by reference.
^ filed with the Amendment No. 3 to the Form 10 Registration Statement filed with the SEC on August 23, 2013 and incorporated herein by reference.
? filed with the Amendment No. 4 to the Form 10 Registration Statement filed with the SEC on September 25, 2013 and incorporated herein by reference.
Î filed with the Amendment No. 5 to the Form 10 Registration Statement filed with the SEC on October 11, 2013 and incorporated herein by reference.
Portions of this exhibit have been redacted pursuant to a confidential treatment order granted by the Securities and Exchange Commission.
> Filed with the Amendment No. 6 to the Form 10 Registration Statement filed with the SEC on November 21, 2013 and incorporated hereby by reference.
R Filed with the Amendment No. 7 to the Form 10 Registration Statement filed with the SEC on January 22, 2015 and incorporated hereby by reference.
µ Filed with Form 10-K for the year ended December 31, 2018.
Filed with Form 10-K for the year ended December 31, 2019.

 

69  | P a g e    
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of Immune Therapeutics, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Immune Therapeutics, Inc. and its subsidiaries (the “Company”) as of December 31, 2019 and 2018 and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2019 and 2018, and the results of its consolidated operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Explanatory Paragraph – Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations since inception and expects to continue to generate operating losses and negative cash flows for the foreseeable future. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Turner, Stone & Company, L.L.P.

Dallas, Texas

May 14, 2020

 

We have served as the Company’s auditor since 2012.

 

F-1

 

 

IMMUNE THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2019 AND 2018

 

    December 31, 2019     December 31, 2018  
ASSETS                
                 
Current Assets:                
Cash   $ 4,925     $ 5,859  
Inventories     -       82,801  
Total current assets     4,925       88,660  
                 
Fixed Assets:                
Computer equipment, net of accumulated depreciation of $12,522 and $10,447 respectively     691       2,766  
Deposits     200       200  
                 
Total assets   $ 5,816     $ 91,626  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
                 
Current Liabilities:                
Accounts payable   $ 2,655,949     $ 2,065,476  
Accrued liabilities     4,694,988       3,039,710  
Net payables due to Cytocom     -       262,645  
Notes payable, net of debt discount     5,545,371       5,187,727  
Derivative liability     798,126       786,706  
Total current liabilities     13,694,437       11,342,264  
                 
Total liabilities     13,694,437       11,342,264  
                 
Commitments and Contingencies (Note 12)                
                 
Stockholders’ Deficit:                
Common stock – par value $0.0001; 500,000,000 shares authorized; 457,578 and 434,323 shares issued and outstanding respectively     46       44  
Additional paid in capital     370,908,099       369,924,426  
Stock issuances due     10,303       35,303  
Accumulated deficit     (384,607,069 )     (381,210,411 )
                 
Total stockholders’ deficit     (13,688,621 )     (11,250,638 )
Total liabilities and stockholders’ deficit   $ 5,816     $ 91,626  

 

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

 

F-2

 

 

IMMUNE THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

    2019     2018  
             
Revenues, net   $ -     $ 113,500  
Cost of products sold     -       47,673  
Gross profit     -       65,827  
                 
Operating expenses:                
Selling, general and administrative     2,368,474       3,232,323  
Research and development expense     336,110       144,099  
Stock issued for services general and administrative     131,390       772,495  
Depreciation and amortization expense     2,074       1,733  
Total operating expenses     2,838,048       4,150,650  
                 
Loss from operations     (2,838,048 )     (4,084,823 )
                 
Other expense:                
Interest expense     (894,173 )     (1,183,196 )
Loss (Gain) on valuation of derivative     (46,745 )     494,445  
Loss on settlement of debt     -       (684,768 )

Recovery of amount due from Cytocom

   

382,308

         
Loss on deconsolidation     -       (2,791,172 )
Loss from equity method investment     -       (376,196 )
Total other expense     (558,610 )     (4,540,887 )
Net loss   $ (3,396,658 )   $ (8,625,710 )
Net loss attributable to non-controlling interest     -       (450,382 )
Net loss attributable to common stockholders     (3,396,658 )     (8,175,228 )
                 
Basic loss per share attributed to common stockholders   $ (7.59 )   $ (19.03 )
                 
Weighted average number of shares outstanding     447,530       429,662  

 

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

 

F-3

 

 

IMMUNE THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

    Common Stock     Additional
Paid-in
    Stock
To Be
    Prepaid     Accumulated     Non-Controlling        
    Shares     Amount     Capital     Issued     Services     Deficit     Interest     Total  
                                                 
Balance December 31, 2017     386,782     $ 39     $ 366,663,784     $ 103,226     $ (226,667 )   $ (373,035,183 )   $ (4,608,585 )   $ (11,103,386 )
                                                                 
Issuance of common stock for prepaid services     16,989       2       613,749       (67,923 )     -       -       -       545,828  
                                                                 
Amortization of prepaid services     -       -       -       -       226,667       -       -       226,667  
                                                                 
Issuance of common stock for interest expense     200       1       9,100       -       -       -       -       9,101  
                                                                 
Issuance of common stock in exchange for debt     30,351       3       671,584       -       -       -       -       671,587  
                                                                 
Issuance of Cytocom common stock for cash and exercise of warrants     -       -       240,500       -       -       -       -       240,500  
                                                                 
Issuance and modification of common stock warrants     -       -       1,725,708       -       -       -       -       1,725,708  
                                                                 
Deconsolidation of Cytocom     -       -       -       -       -       -       5,058,967       5,058,967  
                                                                 
Net loss     -       -       -       -       -       (8,175,228 )     (450,382 )     (8,625,610 )
                                                                 
Balance December 31, 2018     434,323     $ 44     $ 369,924,426     $ 35,303     $ -     $ (381,210,411 )   $ -     $ (11,250,638 )
                                                                 
Issuance of common stock for services     3,000       -       145,000       (25,000 )     -       -       -       120,000  
                                                                 
Issuance of warrants in connection with debt agreement     -       -       73,000       -       -       -       -       73,000  
                                                                 
Issuance of common stock in exchange for debt     18,255       2       62,433       -       -       -       -       62,435  
                                                                 
Issuance of common stock to board members     2,000       -       11,390       -       -       -       -       11,390  
                                                                 
Extinguishment of debt assumed by related party     -       -       691,850       -       -       -       -       691,850  
                                                                 
Net Loss     -       -       -       -       -       (3,396,658 )     -       (3,396,658 )
                                                                 
Balance, December 31, 2019     457,578     $ 46     $ 370,908,099     $ 10,303     $ -     $ (384,607,069 )   $ -     $ (13,688,621 )

 

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

 

F-4

 

 

IMMUNE THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

    2019     2018  
CASH FLOWS FROM OPERATING ACTIVITIES                
Net loss including non-controlling interest   $ (3,396,658 )   $ (8,625,610 )
                 
Adjustments to reconcile net loss to net cash flows used in operating activities:                
Depreciation     2,074       1,734  
Stock issued for services     131,390       710,150  
Amortization of stock issued for prepaid services     -       226,667  
Loss (Gain) on derivative     46,745       (494,445 )
Loss on settlement of debt and accounts payable     -       684,668  
Interest accrued on debt     26,019       -  
Stock issued for loan expenses and interest     -       9,000  
Loss on deconsolidation     -       2,791,172  
Loss on equity method     -       376,196  
Recovery of amount due from Cytocom    

(382,308

)    

-

 
Amortization of debt discount     222,257       420,747  
Expenses paid by lenders     -       305,005  
Penalties related to note default     -       90,123  
Changes in operating assets and liabilities:                
Inventory     82,801       95,297  
Accrued liabilities     2,252,127       1,698,231  
Due to Cytocom     119,668       -  
Accounts payable     894,951       341,562  
                 
Net cash used in operating activities     (934 )     (1,369,503 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Purchase of computer equipment     -       (1,971 )
Net cash used in investing activities     -       (1,971 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from sale of common stock     -       240,500  
Proceeds from notes payable     -       859,470  
Due from Cytocom     -       (152,355 )
Due to Cytocom     -       415,000  
Repayment of notes payable     -       -  
Net cash provided by financing activities     -       1,362,615  
                 
Decrease in cash     (934 )     (8,859 )
Cash and cash equivalents, beginning of year     5,859       14,718  
Cash and cash equivalents, end of year   $ 4,925     $ 5,859  

 

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

 

F-5

 

 

IMMUNE THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018

 

    2019     2018  
             
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                
                 
Cash paid for interest   $ 16,000     $ 59,551  
                 
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:                
                 
Conversion of notes payable, accrued liabilities and accounts payable to common stock   $ 27,110     $ 792,574  
Debt settled and reclassed to accrued expenses   $ 35,325     $ 243,199  
Reclassification from accounts payable to notes payable   $ 304,478     $ -  
Notes Payable and accrued interest assumed by related party   $ 691,850     $ -  
Debt discounts on notes payable and warrants   $ 73,000     $ 243,000  
Transfer from accounts payable to notes payable   $       $ 345,321  
Notes payable for expenses paid by lender   $ -     $ 150,505  
Non-cash additions to notes payable   $       $ 538,123  

 

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

 

F-6

 

 

1. Organization and Description of Business

 

Immune Therapeutics, Inc. (the “Company,” “we,” or “our”) 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 December 2013, the Company formed a 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 to its shareholders. As part of the transaction (“Original Agreement”), the Company transferred to Cytocom certain of its rights, title and interest in or relating to intellectual property (i) patents, patent applications, and all divisional, continuations and continuations-in-part thereof, together with all reissues, reexaminations, renewals and extensions thereof and all rights to obtain such divisionals, continuations and continuations-in-part, reissues, reexaminations, renewals and extensions, and all utility models and statutory invention registrations and any other such analogous rights, (ii) trademarks, service marks, Internet domain names, trade dress, trade styles, logos, trade names, services names, brand names, corporate names, assumed business names and general intangibles and other source identifiers of a like nature, together with the goodwill associated with any of the foregoing, and all registrations and applications for registrations thereof, together with all renewals and extensions thereof and all rights to obtain such renewals and extensions, (iii) copyrights, mask work rights, database and design rights, moral rights and rights in Internet websites, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof and all applications in connection therewith, together with all renewals, continuations, reversions and extensions thereof and all rights to obtain such renewals, continuations, reversions and extensions, and (iv) confidential and proprietary information, including, trade secrets and know-how.

 

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

 

On 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 Original Agreement, Cytocom issued an additional 140,100,000 shares of its common stock to the Company, which gave the Company a 55.3% stake 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.

 

F-7

 

 

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

 

On June 4, 2018, the Company and Cytocom entered into a Stock Purchase Agreement (the “Stock Agreement. Pursuant to the Stock Agreement, the Company cancelled approximately $4,000,000 of debt owed to it by Cytocom in exchange for ten percent (10%) of the issued and outstanding common stock of Cytocom, as calculated on a fully diluted basis. The Restated Agreement was a condition of the Stock Agreement.

 

On April 8, 2019, the Company signed a second amendment to its licensing agreement (the “Second Amendment” with Cytocom. The Second Amendment confirmed that, as of its effective date (December 31, 2018) the Company owned 15.57% of the common shares issued and outstanding on that date. The Company agreed to assume the obligation to repay all accounts payable obligations and accrued liabilities owed by Cytocom as of the effective date, except those accounts’ payable obligations and accrued liabilities as specified in the Second Amendment. The Company also assumed the obligation to repay all notes payable, together with any interest or fees payable thereon, owed by Cytocom as of the effective date, except those notes’ payable obligations, together with any interest or fees payable thereon, as specified by the Second Amendment. The parties further agreed that in the event of a change of control of Cytocom, and at the option of Cytocom, the Company would have the right to purchase outright the Company’s licensing rights to Emerging Markets for humans under the License Agreement at a price equal to value of those licensing rights as determined by and independent valuator acceptable to the Company and Cytocom.

 

At December 31, 2019, the Company’s equity interest in Cytocom stood at 14.6% of Cytocom’s issued and outstanding common stock. The Company’s policies with respect to accounting for its equity interest in Cytocom is described in Note 2 to the “Notes to the Condensed Consolidated Financial Statements” below (“Summary of Significant Accounting Policies: Non-Controlling Interest in Consolidated Subsidiaries”).

 

At present, the Company is a late development-stage biopharmaceutical company focused on the licensing, development and commercialization of innovative prescription medications for humans in Africa, Central and South America, the Caribbean and China (hereinafter referred to as “Emerging Markets”) and worldwide for animals and companion pet therapeutics. As the Company does not FDA approval, it is not permitted to market its licensed products in the United States.

 

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, 2019 was not sufficient to meet the cash requirements to fund planned operations through the next twelve months without additional sources of cash. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business.

 

The Company experienced a net loss attributable to common shareholders of $3,396,658 and used cash and cash equivalents for operations in the amount of $934 during the year ended December 31, 2019, and had a stockholders’ deficit of $13,688,621 at December 31, 2019.

 

F-8

 

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”) and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions, and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

 

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

 

The Company qualifies as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups Act (“JOBS Act”) as we do not have more than $1,000,000,000 in annual gross revenue for the year ended December 31, 2018. 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.

 

Non-Controlling Interest in Consolidated Subsidiaries

 

Prior to May 1, 2018, the Company consolidated Cytocom. On May 1, 2018, the Company entered into an amended and restated licensing agreement (the “Restated Agreement”) with Cytocom, Inc., in accordance with which the Company no longer has any ongoing obligations to pay for costs in connection with the assets of Cytocom. On June 4, 2018, the Company and Cytocom entered into a Stock Purchase Agreement (the “Stock Agreement”). Pursuant to the Stock Agreement, the Company cancelled approximately $4,000,000 of debt owed to it by Cytocom in exchange for ten percent (10%) of the issued and outstanding common stock of Cytocom, as calculated on a fully diluted basis on June 4, 2018. At December 31, 2019, the Company’s equity interest in Cytocom stood at 14.6% of Cytocom’s common stock issued and outstanding. The Company deconsolidated Cytocom as of May 1, 2018, and accounts for its retained interest in Cytocom under the equity method of accounting, with the Company’s share of Cytocom’s earnings recorded in “loss from equity method investment” in the consolidated statements of operations. As the balance of the Company’s investment in Cytocom has been $0 since December 31, 2018, no losses have been recognized during the year ended December 31, 2019.

 

Revenue Recognition

 

We recognize revenue on sales to customers and distributors upon satisfaction of our performance obligations when the goods are shipped. For consignment sales, we recognize revenue when the goods are pulled from consignment inventory.

 

Sales of LodonalTM pills or capsules product are included in revenue when production is sold to a customer in fulfillment of performance obligations under the terms of agreed contracts. Performance obligations primarily comprise delivery of product at a delivery point, as negotiated within each contract. Each quantity of product sold is separately identifiable and represents a distinct performance obligation to which the transaction price is allocated. Performance obligations are satisfied at a point in time once control of the product has been transferred to the customer. The Company considers a variety of facts and circumstances in assessing the point of control transfer, including but not limited to: whether the purchaser can direct the use of the product, the transfer of significant risks and rewards, the Company’s right to payment, and transfer of legal title. In each case, the time between delivery and when payments are due is not significant.

 

Leases

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard requires all leases that have a term of over 12 months to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use asset initially measured at the present value of amounts expected to be paid over the term. At December 31, 2019 we had no leases to which the standard applies. Accordingly, the standard had no material impact on our results of operations in 2019.

 

F-9

 

 

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.

 

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 December 31, 2019, the Company has no cash balances in excess of insured limits.

 

Segment and Geographic Information

 

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

 

Fair Value of Financial Instruments

 

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

 

Derivative Financial Instruments

 

FASB ASC 815, Fair Value Measurements requires bifurcation of certain embedded derivative instruments in certain debt or equity instruments, and measurement at their fair value for accounting purposes. A holder redemption feature embedded in the Company’s note payable requires bifurcation from its host instrument and is accounted for as a freestanding derivative.

 

Inventory

 

Inventories comprise finished product, raw materials and materials used for packaging. Inventories are stated at the lower of cost or market with cost based on the first-in, first-out (FIFO) method. Inventory that can be used in either the production of clinical or commercial products is expensed as research and development costs when identified for use in a clinical trials or clinical manufacturing campaigns. Inventory used in marketing activities is charged to selling, general and administrative expense.

 

Inventory as of December 31, 2019 was valued at $0, a decrease of $82,801 or 100% from the inventory balance at the end of 2018, as the inventory was deemed obsolete during June of 2019, and written off as a component of selling, general and administrative expense.

 

F-10

 

 

Fixed Assets

 

Fixed assets are stated at cost, less accumulated depreciation. Depreciation is determined on a straight-line basis over the estimated useful lives of the assets, which generally range from three to five years. Maintenance and repairs are charged against expense as incurred. Depreciation expense for the years ended December 31, 2019 and December 31, 2018 was $2,074 and $1,733, respectively.

 

Impairment of Long-Lived Assets

 

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

 

Research and Development Costs

 

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

 

Income Taxes

 

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

 

The standard addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC Topic 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC Topic 740 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. At the date of adoption, and as of December 31, 2019 and 2018, the Company does not have a liability for unrecognized tax uncertainties.

 

The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. As of December 31, 2019, and 2018, the Company has not accrued any interest or penalties related to uncertain tax positions.

 

Stock-Based Compensation and Issuance of Stock for Non-Cash Consideration

 

The Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors, including employee stock options, based on estimated fair values equaling either the market value of the shares issued or the value of consideration received, whichever is more readily determinable. The majority of the non-cash consideration pertains to services rendered by consultants and others and has been valued at the fair value of the Company’s common stock at the date of the agreement.

 

F-11

 

 

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

 

Net Loss per Share

 

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

 

The Company’s potential dilutive securities, which include stock and warrants, 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.

 

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:

 

    Year Ended December 31,  
    2019     2018  
Common Stock Purchase Warrants     4,187,579       281,251  
Convertible Debt     168,160       180,603  

 

Recent Accounting Standards

 

During the year ended December 31, 2019, there were several new accounting pronouncements issued by the Financial Accounting Standards Board. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements.

 

3. Fixed Assets

 

    December 31,  
    2019     2018  
Fixed assets:                
Computer equipment   $ 13,213     $ 13,213  
                 
Less accumulated depreciation     (12,522 )     (10,447 )
                 
Fixed assets, net   $ 691     $ 2,766  

 

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. Investments: Deconsolidation of Cytocom

 

In accordance with the May 1, 2018 “Restated Agreement” with Cytocom, the Company no longer has any ongoing obligations to pay for costs in connection with the assets of Cytocom. Accordingly, effective May 1, 2018, the Company deconsolidated Cytocom. However, the Company exercises influence through its retained equity interest and through representation on Cytocom’s board of directors. As a result, the Company uses the equity method to account for its retained interest in Cytocom.

 

F-12

 

 

While the Company formalized the agreement to deconsolidate on May 1, 2018, Cato Research Ltd and Penn State University, both vendors of the Company, did not consent to assign the payables to Cytocom. As such, on December 31, 2019, the Company had outstanding accounts payable balances of $409,390 and $377,774 due to Cato Research Ltd and Penn State University, respectively.

 

Additionally, the Company reached a settlement with Cytocom to recover the net payable balance outstanding of $382,308 at December 31, 2019. The Company recorded a gain on the settlement of that amount. 

 

On May 1, 2018, the Company recorded an equity method investment in Cytocom of $1,189, the par value of Cytocom common stock multiplied by the number of shares owned by the Company, due to the negative equity associated with Cytocom’s underlying financial position. As a result of the continuing losses in Cytocom, the balance of this investment is currently $0.

 

5. Accrued Liabilities

 

Accrued expenses and other liabilities consist of the following:

 

    December 31,  
    2019     2018  
Accrued payroll to officers and others     3,610,810       2,010,570  
Accrued interest and penalties - notes payable     899,904       877,571  
Estimated legal settlements     136,057       136,057  
Other accrued liabilities     48,217       15,512  
                 
Total accrued expenses and other liabilities   $ 4,694,988     $ 3,039,710  

 

6. Notes Payable

 

Notes payable consist of the following:

 

    December 31, 2019     December 31, 2018  
Promissory note issued July 29, 2014 to Ira Gaines. In 2016, the maturity date on the note was extended to December 1, 2017. The note earned interest at a rate of 18% per annum. The Company settled this note with a new note in the same amount on October 1, 2019.   $ -     $ 100,000  
                 
Promissory notes issued between November 26, 2014 and December 31, 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. These notes were in default at December 31, 2019, as the Company was unable to pay installments on their due dates.     286,000       286,000  
                 
Promissory notes issued between May 1, 2015 and December 31, 2016 and maturing between June 14, 2015 and December 1, 2017. Lenders on loans aggregating $675,994 earn interest at rates between 2% and 10% per annum. One loan, in the amount of $100,000, interest was payable in a fixed amount not tied to a specific interest rate. However, this note was extinguished and reassigned to a related party during the year ended December 31, 2019. The Company was unable to repay the remaining notes at maturity and at December 31, 2019 these notes were in default.     625,994       725,994  

 

F-13

 

 

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. The Company was unable to repay the note at maturity and at December 31, 2019 the note was in default.     97,737       97,737  
                 
Promissory notes issued between July 1, 2016 and December 31, 2016. Lenders earn interest at 2% per annum. The notes mature on December 31, 2017, and at December 31, 2019 the notes were in default.     206,000       206,000  
                 
Promissory notes aggregating $1,350,000 issued in the fourth quarter 2016. The notes accrue interest at 2% per annum and mature between November 1, 2017 and December 31, 2017. As December 31, 2019, the notes were in default.     1,354,000       1,354,000  
                 
Promissory notes aggregating $500,000 issued in the first quarter of 2017. The notes accrue interest at 2% per annum and mature between January 12, 2018 and September 30, 2018. At December 31, 2019, the notes were in default.     500,000       500,000  
                 
Promissory notes issued January 25, 2017. The lenders earn interest at 7% per month. The notes matured on July 5, 2017, and at December 31, 2019 the notes were in default. The Company settled this note with a new note in the same amount on October 1, 2019.     -       50,000  

 

Promissory notes aggregating $300,000 issued in the second quarter of 2017. The notes accrue interest at 2% per annum and mature between April 3, 2018 and May 31, 2018. At December 31, 2019, the notes were in default.     300,000       300,000  
                 
Promissory notes aggregating $191,800 issued in the third quarter of 2017. The notes accrue interest at 2% per annum and mature between June 16, 2018 and December 31, 2018. At December 31, 2019, the notes were in default.     191,800       191,800  
                 
Promissory note for $425,000 issued in October 2017 with an original issue discount of $70,000. The note is in default, giving the holder an option to convert the note to stock using the lowest value of the Company’s common stock 25 days prior to the conversion. In 2018, The defaults also resulted in certain penalties, as a result of which the principal amount of the note outstanding at December 31, 2019 had increased to $454,032. $49,943 of accrued interest owed on the note has been converted to stock. The Company has accrued a $798,126 derivative liability for the remaining conversion right.     454,032       455,122  
                 
Promissory notes aggregating $105,500 issued in the fourth quarter of 2017. The notes accrue interest at 2% per annum. At December 31, 2019, the notes were in default.     105,500       105,500  
                 
Promissory notes aggregating $47,975 issued in the first quarter of 2018. The notes accrue interest at 2% per annum and mature between May 2018 and January 2019. At December 31, 2019, the notes were in default.     47,975       47,975  

 

F-14

 

 

Promissory notes aggregating $125,000 issued in the first quarter of 2018. The notes accrue interest between 2% and 12% per annum and mature between April 2018 and June 2018. These notes include warrants between 5,000 and 20,000 shares with an exercise price of $0.5. At December 31, 2019 the notes were in default     125,000       125,000  
                 
Promissory notes aggregating $65,000 issued in the second quarter of 2018. The notes accrue interest between 2% per annum and mature between July 2018 and October 2018. These notes include warrants between 1,000 and 5,000 shares with an exercise price of $5. At December 31, 2019 the notes were in default     65,000       65,000  
                 
Promissory notes aggregating $198,000 issued in the third quarter of 2018. The notes accrue interest at 2% per annum and mature between November 2018 and January 2019. These notes include warrants between 600 and 5,000 shares with an exercise price of $5. At December 31, 2019, the notes were in default.     198,000       193,000  
                 
Promissory notes aggregating $533,855 issued in the fourth quarter of 2018. The notes accrue interest from 2% to 3.5% per annum and mature between February 2019 and December 2019. These notes include warrants between 200 and 39,500 shares with an exercise price of $5 to $40. At December 31, 2019, the note was in default.     533,855       533,855  
                 
Promissory note for $23,000 issued in the first quarter of 2019. The note accrues interest at 2% per annum and matures during July 2019. The note includes warrants for 4,600 shares with an exercise price of $5. At December 31, 2019, the note was in default.     23,000       -  
                 
Promissory note for $231,478 issued in the first quarter of 2019. The note accrues interest at 6% per annum and matured in February 2020. As of the date of this filing, this note is in default.     231,478       -  
                 
Promissory notes aggregating $50,000 issued in the second quarter of 2019. The notes accrue interest at 2% per annum and mature between July and September 2019. These notes include warrants for 10,000 shares with an exercise price of $5. At December 31, 2019, the notes were in default.     50,000       -  
                 
Promissory note in the amount of $150,000 issued on October 1, 2019 for the settlement of outstanding debt in the same amount. The note accrues interest at 15% per annum, with $1,875 due in monthly interest payments. and matures on April 30, 2021.     150,000       -  
                 
Less: Original issue discount on notes payable and warrants issued with notes.     -       (149,256 )
                 
Total   $ 5,545,371     $ 5,187,727  

 

As of December 31, 2019, the Company had accrued $899,904 in unpaid interest and default penalties. During the year ended December 31, 2019, 18,255 shares with a fair value of $78,500 were issued by the Company for settlement of promissory notes totaling $62,435.

 

F-15

 

 

As of December 31, 2018, the Company had accrued $877,571 in unpaid interest and default penalties. During the year ended December 31, 2018, 30,351 shares with a fair value of $318,182 were issued by the Company for settlement of promissory notes totaling $175,000.

 

The Company settled a note of $100,000 with accrued interest and penalties in the amount of $596,850 during the yearend December 31, 2019, by assigning them to a related party. In accordance with ASC 470-50-40-2, the extinguishment transactions between related entities may be in essence capital transactions. Therefore, when related parties are involved, recognition of the difference between the retired debt’s reacquisition price and carrying amount as either a gain or loss may not be appropriate. As such, no gain on the extinguishment of the transaction was recorded.

 

7. Derivative Liability

 

As of December 31, 2019, and December 31, 2018, the fair value of the outstanding derivative liability was $798,126 and $786,706 respectively. The Company estimated the fair value of the derivative liability using the Black-Scholes option pricing model using the following key assumptions during the year ended December 31, 2019:

 

    Year End
December 31, 2019
 
Volatility     165.62 %
Risk-free interest rate     1.96 %
Expected dividends     - %
Expected term     1 year  

 

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

 

Level 1 Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
   
Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
   
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

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

 

The following schedule summarizes the valuation of financial instruments at fair value in the balance sheets as of December 31, 2019:

 

    Fair Value Measurements as of
December 31, 2019
 
    Level 1     Level 2     Level 3  
Assets                        
Total assets     -       -       -  
Liabilities                        
Conversion option derivative liability     -       -       798,126  
                         
Total liabilities   $ -     $ -     $ 798,126  

 

F-16

 

 

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

 

    Significant
Unobservable
Inputs (Level 3)
 
Beginning balance   $ 786,706  
Settlement of liability     -  
Change in fair value     46,745  
Partial settlements of liability     (35,325 )
Ending balance   $ 798,126  

 

8. 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 December 31, 2019, and 2018, the Company was authorized to issue 500,000,000 common shares at a par value of $0.0001 per share.

 

As of December 31, 2019, the Company had 457,578 shares of common stock outstanding and 434,323 outstanding as of December 31, 2018.

 

Stock Warrants

 

In 2019, the Company issued 14,600 warrants upon the issuance of debt, exercisable into one share of common stock of the Company for each warrant at prices of $5.00 per share. The warrants expire between March and May of 2024.

 

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. This expense is reported in the Statements of Operations above as the Warrant valuation expense.

 

During 2019, there were no modifications of the terms of any warrants issued by the Company.

 

Following is a summary of outstanding stock warrants at December 31, 2019:

 

    Number of
Shares
   

Exercise
Price

Per Share

    Weighted
Average
Price
 
                   
Warrants as of December 31, 2017     84,287     $ 10-15,000     $ 330  
                         
Issued in 2018     4,122,833     $ 10-3,740     $ 110  
                         
Expired and forfeited in 2018     6,500     $ 15,000     $ 1,450  
                         
Exercised in 2018     -     $ -     $ -  
                         
Warrants as of December 31, 2018     4,200,620     $ 0.05-3,740     $ 90  
                         
Issued in 2019     14,600     $ 5     $ 5  
                         
Expired and forfeited in 2019     27,641     $ 50-3,740     $ 536  
                         
Exercised in 2019     -     $ -     $ -  
                         
Warrants as of December 31, 2019     4,187,579     $ 0.05-500     $ 2.43  

 

F-17

 

 

Summary of outstanding warrants as of December 31, 2019:

 

Expiration Date   Number of Shares     Exercise Price     Remaining Life (years)  
                   
Second Quarter 2020     300     $ 500       0.50  
Fourth Quarter 2020     1,000     $ 200       1.00  
First Quarter 2021     12,600     $ 200       1.25  
Second Quarter 2021     5,812     $ 14-200       1.50  
Third Quarter 2021     5,167     $ 30-200       1.75  
Fourth Quarter 2021     300     $ 100       2.00  
First Quarter 2022     150     $ 200       2.25  
Second Quarter 2022     1,750     $ 150       2.50  
Third Quarter 2022     2,650     $ 50-100       2.75  
Fourth Quarter 2022     9,811     $ 80-290       3.00  
First Quarter 2023     9,000     $ 5-40       3.25  
Second Quarter 2023     15,000     $ 5-200       3.50  
Third Quarter 2023     76,700     $ 5-100       3.75  
Fourth Quarter 2023     3,970,743     $ 0.05-20       4.00  
First Quarter 2024     36,600     $ 5       4.25  
Second Quarter 2024     8,000     $ 5       4.50  
Third Quarter 2028     3,000     $ 70       8.75  
Second Quarter 2032     28,995     $ 10-70       12.50  
      4,187,579     $ 0.05-500          

 

9. Stock Compensation

 

Shares Issued for Services

 

During the years ended December 31, 2019 and 2018, the Company issued 0 and 16,999 shares of common stock respectively for consulting fees. The Company valued these shares 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 0 and $226,667 for the years ended December 31, 2019 and 2018, respectively.

 

10. Income Taxes - Results of Operations

 

There was no income tax expense reflected in the results of operations for the years ended December 31, 2019 and 2018 because the Company incurred a net loss in both years.

 

On December 22, 2018, the President of the United States signed the Tax Cuts and Jobs Act (“U.S. Tax Reform”), which enacts a wide range of changes to the U.S. corporate income tax system. The impact of U.S. Tax Reform primarily represents the Company’s estimates of revaluing the Company’s U.S. deferred tax assets and liabilities based on the rates at which they are expected to be recognized in the future. For U.S. federal purposes the corporate statutory income tax rate was reduced from 35% to 21%, effective for the 2018 tax year. Based on the Company’s historical financial performance, at December 31, 2018, the net deferred tax asset position was re-measured at the lower corporate rate of 21% and a tax expense was recognized to adjust net deferred tax assets to the reduced value.

 

F-18

 

 

Deferred tax assets:

 

    2019     2018  
             
Net operating losses   $ 20,346,000     $ 19,671,000  
Stock based compensation     39,284,000       39,256,000  
Amortization, depreciation, and impairment     4,178,000       4,178,000  
Capitalization of start-up costs for tax purposes     1,145,000       1,145,000  
Gain/(loss) on conversion of debt     713,000       713,000  
Total deferred tax assets     65,666,000       64,963,000  
                 
Valuation allowance     (65,666,000 )     (64,963,000 )
                 
Total deferred tax assets, net   $ -     $ -  

 

The Company has recognized no tax benefit for the losses generated for the periods through December 31, 2019. 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.

 

As of December 31, 2019, we have estimated federal and state income tax net operating loss (“NOL”) carry-forwards of approximately $97,069,000, which will expire in 2032-2037.

 

    2019     2018  
    Amount     Percent     Amount     Percent  
Benefits for income tax at federal statutory rate   $ 713,000       21 %   $ 1,811,000       21 %
Permanent differences     10,000               (2,000 )        
Increase (decrease) in valuation allowance     (703,000 )     (21) %     (1,809,000 )     (21) %

Income tax expense (benefit) at Company’s effective tax rate

  $ -       - %   $ -       - %

 

11. Licenses and Supply Agreements

 

Patent License Agreements

 

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

 

F-19

 

 

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

 

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

 

12. Commitments and Contingencies

 

Distribution Agreements in Nigeria

 

In October 2013, the Company announced the signing of a Distribution Agreement with AHAR Pharma, a Nigerian company, to market Lodonal™, in Nigeria for the treatment of autoimmune diseases and cancer. AHAR intends to distribute Lodonal™ through a local distributor network, an Internet client base and directly to hospitals, pharmacists and doctors in Nigeria. The first deliveries under the agreement took place in February 2018. Under the original agreement, the Company is obligated to provide delivery of an initial supply of between 1 million and 1.5 million doses of Lodonal™ product to cover AHAR Pharma’s first-year purchase commitment. Due to the fact that AHAR Pharma failed to meet its contractual purchase obligations, the Company formally issued notice of default under the agreement.

 

On April 18, 2018, AHAR Pharma transferred its rights under the Distribution Agreement to Fidson Healthcare Plc (“Fidson”), and Fidson signed an exclusive distribution agreement with the Company to distribute Lodonal™. There were no shipments under this agreement during the year ended December 31, 2019. There were also no discussions with Fidson regarding the Distribution Agreement in 2019.

 

Contract Manufacturing Agreements

 

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

 

Operating Leases

 

At December 31, 2019, the Company was a party to an agreement to a short-term lease office space in Orlando, Florida. Rental expense for the years ended December 31, 2019 and 2018 was $12,661 and $11,775 respectively.

 

13. Related Party Transactions

 

Michael Handley, the Company’s Chief Executive Officer until May 1, 2020, was entitled to receive compensation of $120,000 for the year ended December 31, 2019. Mr. Handley has unpaid cash compensation of $120,000, at December 31, 2019, which is included in accrued expenses.

 

Noreen Griffin, the Company’s former Chief Executive Officer, was entitled to receive compensation of $377,960 and $355,594, respectively, for the years ended December 31, 2019 and 2018. Mrs. Griffin has unpaid cash compensation of $1,962,464 and $1,584,504, at December 31, 2019 and 2018, respectively, which is included in accrued expenses. There was an additional $48,217 due to Mrs. Griffin at December 31, 2019.

 

F-20

 

 

Robert Wilson, the son of Noreen Griffin, the Company’s former Chief Executive Officer, is employed by the Company. Mr. Wilson was entitled to receive compensation of $120,000 for each of the years ended December 31, 2019 and 2018. No cash compensation was paid to Mr. Wilson in 2019 (in 2018, he received payments totaling $70,000). Mr. Wilson has unpaid cash compensation of $190,000 and $70,000, at December 31, 2019 and 2018, respectively, which is included in accrued expenses. In 2018, Mr. Wilson received 500,000 stock options, with a fair value of $24,998.

 

Kelly O’Brien Wilson, the daughter-in-law of Noreen Griffin, the Company’s former Chief Executive Officer, is employed by the Company. Ms. Wilson was entitled to receive compensation of $163,390 for each of the years ended December 31, 2019 and 2018. No cash compensation was paid to Ms. Wilson in 2019 (in 2018, she received payments totaling $136,158). Ms. Wilson has unpaid cash compensation of $258,701 and $95,311, at December 31, 2019 and 2018, respectively, which is included in accrued expenses. In 2018, Ms. Wilson received 1,200,000 stock options, with a fair value of $59,995.

 

Peter Aronstam, the Company’s Chief Financial Officer, was entitled to receive compensation of $60,000 for the years ended December 31, 2019 and 2018. Mr. Aronstam has unpaid cash compensation of $71,000 and $36,000, at December 31, 2019 and 2018, respectively, which is included in accounts payable.

 

Dr. Clifford Selsky, who served on the board of directors until May 4, 2020, was entitled to receive compensation of $5,000 a month. Dr. Selsky has unpaid cash compensation of $230,000 and $60,000, at December 31, 2019 and 2018, respectively, which is included in accounts payable.

 

Kevin Phelps, who serves on the board of directors, is entitled to receive compensation of $5,000 a month. Mr. Phelps has unpaid cash compensation of $65,000 and $10,000 at December 31, 2019 and 2018, respectively, which is included in accounts payable.

 

Michael Sander, who serves on the board of directors, is entitled to receive compensation of $5,000 a month. Mr. Sander has unpaid cash compensation of $10,000 and $0, at December 31, 2019 and 2018, respectively, which is included in accounts payable.

 

In 2019, Dr. Roscoe Moore, the chairman of the board of directors, also served as a senior advisor to the Company under an Independent Senior Advisor Agreement. As compensation for his services in that role, Dr. Moore is to be paid a monthly fee of $1,500. During the year ended December 31, 2018, Moore also received 1,875,000 shares of common stock for these services (with a fair value of $37,500). Dr. Moore had accrued compensation of $95,250 and $24,500 at December 31, 2019 and 2018, which is included in accounts payable. Dr. Moore had a note payable with a balance of $25,000 at December 31, 2019.

 

Edward Teraskiewicz, who served on the board of directors until October 31, 2019, was entitled to receive compensation of $5,000 a month. Mr. Teraskiewicz has unpaid cash compensation of $114,643 and $45,000, at December 31, 2019 and 2018, respectively, which is included in accounts payable.

 

Jack Brewer, who served on the board of directors, was entitled to receive compensation of $5,000 a month. Mr. Brewer has unpaid cash compensation of $60,000 and $20,000, at December 31, 2019 and 2018, respectively, which is included in accounts payable.

 

At December 31, 2019 and 2018, the Company had a payable of $36,000, to Brewer and Associates Consulting LLC, a consulting firm owned by Jack Brewer, for services rendered in prior periods.

 

In 2019, the Company issued a note payable for $40,000 to Raster Investments, Inc. a trust related to Edward Teraskiewicz. The notes bear interest at a rate of 2% per annum. In 2018, the Company issued two notes payable aggregating $210,000 to Raster Investments, Inc. for services performed by Mr. Teraskiewicz for the Company ($150,000) in 2018 and to repay other liabilities ($60,000). The notes bear interest at a rate of 2% per annum and as of December 31, 2019, was in default.

 

F-21

 

 

In 2019, the Company issued a note payable for $23,000 to Global Reverb, Corp. a company on which Noreen Griffin serves as a director. The notes bear interest at a rate of 2% per annum and as of December 31, 2019, was in default.

 

14. Subsequent Events

 

Between January 1, 2020 and May 14, 2020, the Company issued no shares of its common stock.

 

As of May 14, 2020, the Company had outstanding 457,578 shares of common stock.

 

On October 25, 2019, the Company closed voting by written consent as detailed in its Proxy Statement on form 14A, filed September 5, 2019 pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended (“Proxy Statement”). The Proxy Statement disclosed actions for which the Company was soliciting written consent, including consent to effect a reverse stock split of the Company’s issued and outstanding, but not authorized, common stock (the “Reverse Split”) at a ratio of 1,000-to-1. The Company’s shareholders approved the Reverse Split. The implementation of the shareholder approval is subject to approval by the Financial Industry Regulatory Authority (“FINRA”). As of May 14, 2020, the Company had not yet received the approval from FINRA. The financial statements accompanying this Form 10-K are presented on the basis of the implementation of the shareholder consent.

 

On February 2, 2020, the Company amended its by-laws to increase its authorized common stock to 750,000,000 shares.

 

On February 27, 2020, the Company approved and entered into a license agreement (the “License Agreement”) with Forte Biotechnology International Corp. (“Forte”). Under the License Agreement, the Company granted Forte an exclusive license to develop and commercialize pharmaceutical products consisting of Lodonal and MENK for use in veterinary applications for all indications world-wide. As consideration for the license, Forte has agreed to make certain payments to the Company as follows:

 

  Initial License Fee of $3,740,746, payable by the assumption by Forte by no later than May 16, 2020 of certain Notes Payable issued by the Company in that amount.
  Development Milestone Payments. Upon the occurrence of the below-described events, the following one-time, non-creditable, non-refundable milestone payments:

 

Event   Milestone Payment*  
Successful MUMS Designation   $ 100,000  
Successful Conditional Approval   $ 100,000  

 

  Commercial Milestone Payments. Upon reaching the mutually agreed aggregate net sales, Forte will pay one-time, non-creditable, non-refundable milestone payments to be negotiated and addressed in a separate Amendment later.
  Royalties. Forte will pay, during the royalty term (generally 15 years from the first sale of a product in a country), royalties on annual net sales as follows:

 

Annual Sales of Royalty Qualifying Licensed Products   Royalty Rate  
<$500,000,000     2 %
500,000,000 to < $1,000,000,000     4 %
> $1,000,000,000)     6 %

 

On March 30, 2020, the Company issued a Convertible Promissory Note (the “Note”) to Redstart Holdings Corp. (“Redstart”) in the principal amount of $53,000. The Note matures on March 30, 2021, and bears interest at the rate of 12% per annum. Any amount of the Note not repaid at maturity, will bear interest at the rate of 22% per annum.

 

Redstart will have the right, at any time during the period beginning 180 days following the date of the Note and ending the later of the maturity date or the date of payment of the default amount, to convert all or any part of the outstanding and unpaid amount of the Note into shares of the Company’s common stock. The conversion price will be equal to 61% multiplied by the lowest trading price for the common stock during the 20 trading day period ending on the latest complete trading day prior to the conversion date. The Company has agreed to reserve from its authorized and unissued common stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of common stock upon the full conversion of the Note. The Company is also required at all times to have authorized and reserved six times the number of shares that would be issuable upon full conversion of the Note (initially 96,539,162 shares).

 

On April 29, 2020, Mr. Michael Handley, director, president and CEO of the Company tendered his resignation in a letter to the Company’s Board, which was formally accepted on April 30, 2020. Mr. Handley will remain in the leadership of the Company’s non-public affiliates, Cytocom, Inc. and Forte Biotechnology Intl. Corp. The Company’s Board appointed director Kevin J. Phelps as interim president and CEO.

 

On May 4, 2020, Director Clifford Selsky submitted his resignation to the Board. Dr. Selsky had been unable to participate in recent Board meetings and anticipates this to continue during the current corporate and leadership transition, due to the demands of his pediatric medical practice during the COVID-19 pandemic.

 

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

 

F-22
 

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Immune Therapeutics, Inc.
     
Date: May 14, 2020 By: /s/ Kevin Phelps
  Name: Kevin Phelps
  Title: Chief Executive Officer
    (Principal Executive Officer)
     
  By: /s/ Peter Aronstam
  Name: Peter Aronstam
  Title: Chief Financial Officer
    (Principal Accounting Officer)

 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Person   Capacity   Date
         
/s/ Dr. Roscoe Moore   Director   May 14, 2019
Roscoe Moore        
         
Michael Sander   Director   May 14, 2019
Michael Sander        

 

70  | P a g e    

 

Exhibit 10.59

 

PROMISSORY NOTE

 

$231,478.39 February 27, 2019

 

RECITALS

 

WHEREAS Immune Therapeutics, Inc (the “COMPANY” entered into an agreement with the Phoenix Group (“TPG”) on November 21, 2016.

 

WHEREAS TPG has accrued monthly payments of $37,000 (thirty-seven thousand dollars) for the services of Mr. Rudy Williams and Dr. Vincent Ahonkhai for the months of January 2018 through June of 2018 totaling $222,000 (two-hundred twenty-two thousand dollars).

 

WHEREAS TPG has also incurred expenses totaling $9478.39 (nine-thousand four-hundred seventy-eight dollars and thirty-nine cents), with a total owed amount $231,478.39 (Two-hundred thirty-one thousand four-hundred seventy-eight dollars and thirty-nine cents) “VALUE OWED”.

 

WHEREAS, TPG has requested that the Company provide TPG with a Promissory Note for the VALUE OWED bearing interest at a fixed rate as more particularly described in this Agreement; and

 

WHEREAS, the Company has agreed to provide TPG with a Promissory Note, subject to the terms and conditions set forth herein (as defined below).

 

NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and agreements herein contained and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: for VALUE OWED, the undersigned, Immune Therapeutics , Inc., a Florida corporation (referred to herein as the “Company” or the “Company”), with offices at 2431 Aloma Ave, Suite 124 Winter Park, FL 32792 , hereby unconditionally promises to pay to the order of TPG, its endorsees, successors and assigns, in lawful money of the United States, at such address as TPG may from time to time designate, the principal sum of Two-hundred Thirty-one thousand four-hundred seventy-eight dollars and thirty- nine cents ($231,478.39). This Promissory Note (the “Note”) shall mature and become due and payable in full on February 27, 2020 (the “Maturity Date”).

 

1. Terms of Repayment. Principal of and interest on this Note shall be paid by the Company as follows:

 

(a) On the Maturity Date, Company shall pay all principal and interest. Interest shall accrue at a rate of Six Percent (6%) per annum (the “Interest”).

 

(b) The Company further agrees that, if any payment made by the Company or any other person is applied to this Note and is at any time annulled, set aside, rescinded, invalidated, declared to be fraudulent or preferential or otherwise required to be refunded or repaid, or the proceeds of any property hereafter pledged as security for this Note is required to be returned by TPG to the Company, its estate, trustee, receiver or any other party, including, without limitation, under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or repayment, the Company’s liability hereunder (and any lien, security interest or other collateral securing such liability) shall be and remain in full force and effect, as fully as if such payment had never been made, or, if prior thereto any such lien, security interest or other collateral hereunder securing the Company’s liability hereunder shall have been released or terminated by virtue of such cancellation or surrender, this Note (and such lien, security interest or other collateral) shall be reinstated in full force and effect, and such prior cancellation or surrender shall not diminish, release, discharge, impair or otherwise affect the obligations of the Company in respect to the amount of such payment (or any lien, security interest or other collateral securing such obligation).

 

  1  

 

 

2. Liability of the Company. The Company is unconditionally, and without regard to the liability of any other person, liable for the payment and performance of this Note and such liability shall not be affected by an extension of time, renewal, waiver, or modification of this Note or the release, substitution. Each person signing this Note consents to any and all extensions of time, renewals, waivers, or modifications, as well as to release, substitution, or addition of guarantors or collateral security, without affecting the Company’s liabilities hereunder. TPG is entitled to the benefits of any collateral agreement, guarantee, security agreement, assignment, or any other documents which may be related to or are applicable to the debt evidenced by this Note, all of which are collectively referred to as “Loan Documents” as they now exist, may exist in the future, have existed, and as they may be amended, modified, renewed, or substituted.

 

3. Representations and Warranties. The Company represents and warrants as follows: (i) the Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida; (ii) the execution, delivery and performance by the Company of this Note are within the Company’s powers, have been duly authorized by all necessary action, and do not contravene (A) the Company’s certificate of incorporation or (B) bylaws or (x) any law or (y) any agreement or document binding on or affecting the Company, not otherwise disclosed to the TPG prior to execution of this Note, (iii) no authorization or approval or other action by, and no notice to or filing with, any governmental authority, regulatory body or third person is required for the due execution, delivery and performance by the Company of this Note; (iv) this Note constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms except as enforcement hereof may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors’ rights generally and subject to the applicability of general principles of equity; (v) the Company has all requisite power and authority to own and operate its property and assets and to conduct its business as now conducted and proposed to be conducted and to consummate the transactions contemplated hereby; (vi) the Company is duly qualified to conduct its business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it, or in which the transaction of its business makes such qualification necessary; (vii) there is no pending or, to the Company’s knowledge, information or belief, threatened action or proceeding affecting the Company before any governmental agency or arbitrator which challenges or relates to this Note or which may otherwise have a material adverse effect on the Company; (viii) the Company is not in violation or default of any provision of (A) its certificate of incorporation or by-laws, each as currently in effect, or (B) any instrument, judgment, order, writ, decree or contract, statute, rule or regulation to which the Company is subject not otherwise disclosed to the TPG prior to the execution of this Note, and (ix) this Note is validly issued, free of any taxes, liens, and encumbrances related to the issuance hereof and is not subject to preemptive right or other similar right of members of the Company.

 

4. Covenants. So long as any principal or interest is due hereunder and shall remain unpaid, the Company will, unless the TPG shall otherwise consent in writing:

 

  2  

 

 

(a) Maintain and preserve its existence, rights and privileges;

 

(b) Not directly or indirectly sell, lease or otherwise dispose of (A) any of its property or assets other than in its ordinary course of business or (B) substantially all of its properties and assets, in the aggregate, to any person(s) or company, whether in one transaction or in a series of transactions over any period of time, or adopt any plan or arrangement for the dissolution or liquidation of the Company;

 

(c) Not use the proceeds from the issuance of this Note in any way for any purpose that entails a violation of, or is inconsistent with, Regulation U of the Board of Governors of the Federal Reserve System of the United States of America.

 

(d) Comply in all material respects with all applicable laws (whether federal, state or local and whether statutory. administrative or judicial or other) and with every applicable lawful governmental order (whether administrative or judicial);

 

(e) Not (i) make any advance or loan to any person, firm or corporation, except for reasonable travel or business expenses advanced to the Company’s employees or independent contractors in the ordinary course of business, or (ii) acquire all or substantially all of the assets of another entity;

 

(f) Not prepay any indebtedness, except for trade payables incurred in the ordinary course of the Company’s business;

 

(g) Maintain disclosure of Current Public Information as that term is defined in Rule 144(c) of the Securities Act, including proper disclosure of this Note as required in its next quarter or annual filing; and

 

(h) Not take any action which would impair the rights and privileges of this Note set forth herein or the rights and privileges of the holder of this Note.

 

5. Events of Default. Each and any of the following shall constitute a default and, after expiration of a grace period which shall be Thirty (30) calendar days, shall constitute an “Event of Default” hereunder:

 

(a) Non-payment of the Note pursuant to Section 1(a) will constitute an Event of Default.

 

(b) any other failure of the Company to observe or perform any present or future agreement of any nature whatsoever with TPG, including, without limitation, any covenant set forth in this Note;

 

(c) if Company shall commence any case, proceeding or other action: (i) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution, composition or other relief with respect to it or its debts; or (ii) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property, or the Company shall make a general assignment for the benefit of its creditors; or (iii) there shall be commenced against the Company any case, proceeding or other action of a nature referred to above or seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its property, which case, proceeding or other action results in the entry of any order for relief or remains undismissed, undischarged or unbonded for a period of Sixty (60) days; or (iv) the Company shall take any action indicating its consent to, approval of, or acquiescence in, or in furtherance of, any of the acts set forth; or (v) the Company shall generally not, or shall be unable to, pay its debts as they become due or shall admit in writing its inability to pay its debts;

 

  3  

 

 

(d) any representation or warranty made by the Company or any other person or entity under this Note or under any other

Loan Documents shall prove to have been incorrect in any material respect when made;

 

(e) the sale of all or substantially all of the assets, or change in ownership or the dissolution, liquidation, consolidation, or reorganization of Company without the TPG’s prior written notice;

 

(f) if Company shall fail to maintain disclosure of Current Public Information as that term is defined in Rule 144(c) of the Securities Act of 1933;

 

(g) the Company’s shares of Common Stock are suspended from trading or delisted from trading on the Over the Counter Market on which it is currently listed;

 

(h) if the Company fails to disclose the existence of this Note in its next quarter or annual filing;

 

(i) in the event that the Company proposes to replace or replaces its transfer agent and the Company fails to provide, prior to the effective date of such replacement, a fully executed Transfer Agent Instructions in a form as initially delivered pursuant to the terms of this Note (including but not limited to the provision to reserve shares of Common Stock) signed by the successor transfer agent to Company and the Company.

 

6. TPG’s Rights Upon Default. Upon the occurrence of any Event of Default, the TPG may, at its sole and exclusive option, do any or all of the following, either concurrently or separately:

 

(a) accelerate the maturity of this Note and demand immediate payment in full, whereupon the outstanding principal amount of the Note and all obligations of Company to TPG, together with accrued interest thereon and accrued charges and costs, shall become immediately due and payable without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived; and (b) exercise all legally available rights and privileges.

 

7. Usury. In no event shall the amount of interest paid or agreed to be paid hereunder exceed the highest lawful rate permissible under applicable law. Any excess amount of deemed interest shall be null and void and shall not interfere with or affect the Company’s obligation to repay the principal of and interest on the Note. This confirms that the Company and, by its acceptance of this Note, the TPG intend to contract in strict compliance with applicable usury laws from time to time in effect. Accordingly, the Company and the TPG stipulate and agree that none of the terms and provisions contained herein shall ever be construed to create a contract to pay, for the use or forbearance of money, interest in excess of the maximum amount of interest permitted to be charged by applicable law from time to time in effect.

 

8.  Prepayment. The Company may prepay the Note including accrued but unpaid Interest at any time.

 

9.  Costs of Enforcement. Company hereby covenants and agrees to indemnify, defend and hold TPG harmless from and against all costs and expenses, including reasonable attorneys’ fees and their costs, together with interest thereon at the Prime Rate, incurred by TPG in enforcing its rights under this Note; or if TPG is made a party as a defendant in any action or proceeding arising out of or in connection with its status as a TPG, or if TPG is requested to respond to any subpoena or other legal process issued in connection with this Note; or reasonable disbursements arising out of any costs and expenses, including reasonable attorneys’ fees and their costs incurred in any bankruptcy case; or for any legal or appraisal reviews, advice or counsel performed for TPG following a request by Company for waiver, modification or amendment of this Note or any of the other Loan Documents.

 

  4  

 

  

10. Governing Law. This Note shall be binding upon and inure to the benefit of the Company and the TPG and their respective successors and assigns; provided that the Company may not assign this Note, in whole or in part, by operation of law or otherwise, without the prior written consent of the TPG. The TPG may assign or otherwise participate out all or part of, or any interest in, its rights and benefits hereunder and to the extent of such assignment or participation such assignee shall have the same rights and benefits against the Company as it would have had if it were the TPG. This Note, and any claims arising out of relating to this Note, whether in contract or tort, statutory or common law, shall be governed exclusively by, and construed in accordance with the laws of the State of Florida, without regard to principles of conflicts of laws.

 

11. Jurisdiction. THE COMPANY CONSENTS THAT ANY LEGAL ACTION OR PROCEEDING AGAINST IT UNDER, ARISING OUT OF OR IN ANY MANNER RELATING TO THIS NOTE, OR ANY OTHER INSTRUMENT OR DOCUMENT EXECUTED AND DELIVERED IN CONNECTION HEREWITH SHALL BE BROUGHT EXCLUSIVELY IN ANY COURT OF THE STATE OF FLORIDA OR IN THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF FLORIDA. THE COMPANY, BY THE EXECUTION AND DELIVERY OF THIS NOTE, EXPRESSLY AND IRREVOCABLY CONSENTS AND SUBMITS TO THE PERSONAL JURISDICTION OF ANY OF SUCH COURTS IN ANY SUCH ACTION OR PROCEEDINGS. THE COMPANY AGREES THAT PERSONAL JURISDICTION OVER IT MAY BE OBTAINED BY THE DELIVERY OF A SUMMONS BY PERSONAL DELIVERY OR OVERNIGHT COURIER AT THE ADDRESS PROVIDED IN THIS NOTE. ASSUMING DELIVERY OF THE SUMMONS IN ACCORDANCE WITH THIS PROVISION, THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY ALLEGED LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON-CONVENIENS OR ANY SIMILAR BASIS.

 

12. Miscellaneous. (a) Company hereby waives protest, notice of protest, presentment, dishonor, and demand. (b) Time is of the essence for each of Company’s covenants under this Note. (c) The rights and privileges of TPG under this Note shall inure to the benefit of its successors and assigns. All obligations of Company in connection with this Note shall bind Company’s successors and assigns, and TPG’s rights shares of the Company shall succeed to any successor securities to Company’s common stock. (d) If any provision of this Note shall for any reason be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof, but this Note shall be construed as if such invalid or unenforceable provision had never been contained herein. (e) The waiver of any Event of Default or the failure of TPG to exercise any right or remedy to which it may be entitled shall not be deemed a waiver of any subsequent Event of Default or TPG’s right to exercise that or any other right or remedy to which TPG is entitled. No delay or omission by TPG in exercising, or failure by TPG to exercise on anyone or more occasions, shall be construed as a waiver or novation of this Note or prevent the subsequent exercise of any or all such rights. (f) This Note may not be waived, changed, modified, or discharged orally, but only in writing.

 

13. Notice, Etc. Any notice required by the provisions of this Note will be in writing and will be deemed effectively given: (a) upon personal delivery to the party to be notified; (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient; if not, then on the next business day; (c) Five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (d) One (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt, and delivered as follows:

 

  5  

 

  

If to Company  
   
Immune Therapeutics Inc    
2431 Aloma Ave, Suite 124  
Winter Park, FL 32792  

 

If to the TPG:  
   
The Phoenix Group  
9332 Annapolis Road, Suite 211  
Lanham, MD 20706  

  

or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties.

 

[SIGNATURE PAGE TO FOLLOW]

 

The remainder of this page is intentionally left blank.

 

  6  

 

 

IN WITNESS WHEREOF, the undersigned has executed this Promissory Note as of the date first set forth above.

 

THE COMPANY  
Immune Therapeutics, Inc.  
     
     
     
By:  
     
Name: Noreen Griffin Title:  
  CEO  

 

TPG  
The Phoenix Group  
     
     
 
By: Rudy J. Williams  
 
Name: Rudy J Williams  
Title: Prseident  

 

  7  

 

Exhibit 10.60

 

AMENDMENT TO THE SECOND AMENDMENT TO THE LICENSE AGREEMENT

 

This amendment (“Third Amendment”) to the Second Amendment to The License Agreement is effective December 31, 2018 (“Effective Date”) by and between Cytocom Inc., a for profit corporation duly organized and existing under the laws of the Commonwealth of Delaware, having an office at 3001 Aloma Ave, Winter Park, FL 32792 (“CYTO”), and Immune Therapeutics Inc., a Florida Corporation, having an office at 2431 Aloma Ave #124 Winter Park, FL 32792 (“IMUN and or Company or Licensee”). CYTO and Licensee may each be referred to individually as “Party” and collectively as “Parties”.

 

WITNESSETH

 

WHEREAS, the Parties entered into that certain Amended License Agreement, effective May 1, 2018 (the “License Agreement”); and

 

WHERAS, as a consequence of the License Agreement, the Company deconsolidated CYTO as of May 1, 2018 in its financial reporting, and following that date has accounted for its retained interest in CYTO under the equity method of accounting;

 

WHERAS, effective December 31, 2018, the Parties entered into the Second Amendment to the License Agreement (“Second Amendment”) to clarify and confirm certain obligations of the Parties incurred by either Party before the December 31, 2018 that would become the sole obligations of CYTO on and after that date (“Debt Obligations”);

 

WHEREAS, the Parties have determined that additional clarification and confirmation is needed with respect to the Debt Obligations;

 

NOW THEREFORE, in consideration of the foregoing and the mutual promises and covenants set forth herein and for good and valuable consideration, the adequacy and sufficiency of which is hereby acknowledged, the Parties hereby agree as follows:

 

1. Definitions. For purposes of this Third Amendment, all capitalized terms shall have the meaning ascribed by the License Agreement unless expressly amended herein.

 

1.1   “Accounts Payable” means those accounts payable obligations and accrued liabilities as specified in Schedule A “Cytocom Inc. Accounts Payable and Accrued Obligations” attached hereto.
   
1.2 “Notes Payable” means those obligations owed under certain promissory notes as specified in Schedule B “Cytocom Inc. Notes Payable” hereto.

 

2. Cancellation and Replacement of Schedule 1 of the Second Amendment. The Parties hereby agree that Schedule 1 of the Second Amendment will be cancelled and replaced in its entirety by Schedule A “Cytocom Inc. Accounts Payable and Accrued Obligations” attached hereto.

 

3. Cancellation and Replacement of Schedule 2 of the Second Amendment. The Parties hereby agree that Schedule 2 of the Second Amendment will be cancelled and replaced in its entirety by Schedule B “Cytocom Inc. Notes Payable” attached hereto.

 

4. Interpretation. Except to the extent specifically amended by this Second Amendment, all terms and conditions set forth in the License Agreement shall remain unchanged and in full force and effect.

 

5. Entire Agreement. This Third Amendment, in conjunction with the License Agreement and Second Amendment, constitutes the entire agreement between the Parties regarding the subject matter hereof and supersedes any prior understandings, agreements or representations between the Parties, written or oral, relating to the subject matter hereof.

 

6. Counterparts. This Third Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original as against a Party whose signature appears thereon, and each of which shall together constitute one and the same instrument. Any counterpart signature page delivered by electronic means or by facsimile transmission shall be deemed to have the same force and effect as an originally executed signature page.

 

[SIGNATURES APPEAR ON FOLLOWING PAGE]

 

Page 1 of 5
 

 

IN WITNESS WHEREOF, the Parties, intending to be legally bound hereby, have each caused a duly authorized representative to execute this Third Amendment on the day and year set forth below.

 

LICENSEE:   LICENSOR:
Immune Therapeutics, Inc.   Cytocom, Inc.
     
By: /s/ Kevin Phelps   By: /s/ Michael Handley
Name: Kevin Phelps   Name: Michael Handley
Title: Chief Executive Officer   Title: President
Date: May 12, 2020   Date: May 12, 2020

 

Page 2 of 5
 

 

Schedule A

 

Cytocom Inc. Accounts Payable and Accrued Obligations

 

Vendors and Accounts Payable   Amount ($)  
Advanced Biostrategies, Inc.   $ 7,500.00  
Aronstam Management Services Inc     36,000.00  
Austin Legal Group APC     37,500.00  
Birch Stewart Kolash Birch LLP     20,570.00  
ClearTrust, LLC     750.00  
Cooley LLP     103,655.92  
Corporate Creations     561.85  
Dr. Jill Smith     24,670.00  
Dr. Nicholas J. Sisti Esq.     (500.00 )
Elisa DeLaet Jagerson     37,500.00  
Emas Pharma     10,000.00  
Gateway Medical, LLC     65,000.00  
Husch Blackwell LLP     4,586.70  
Jacqueline Young     170,000.00  
LDN Research Group LLC     74,670.00  
Molski Management Services Inc     25,000.00  
The Pennsylvania State University     8,747.00  
TOTAL   $ 626,211.47  

 

Page 3 of 5
 

 

Schedule A (continued)

 

Cytocom Inc. Accounts Payable and Accrued Obligations

 

Creditors and Accrued Obligations   Amount ($)  
Noreen Griffin   $ 520,000.00  
Kelly Wilson     32,000.00  
Robert Wilson     32,000.00  
TOTAL   $ 584,000.00  

 

Page 4 of 5
 

 

Schedule B

 

Cytocom Inc. Notes Payable

 

Borrower at Date of Note Signing   Effective Date of Note   Note Holder/ Lender   Principal Amount of Note ($)     Maturity Date   Accrued Interest
& Fees at 12/31/2018 ($)
    Total Owing at 12/31/2018 ($)  
Cytocom   6/16/2015   MJW Properties   $ 25,000.00     9/30/2015   $ 3,775.00     $ 28,775.00  
Cytocom   9/30/2015   Richard Gostanian     400,000.00     9/30/2016     104,153.42       504,153.42  
Cytocom   1/8/2016   RJ Dailey     80,000.00     1/8/2017     12,011.00       92,011.00  
Cytocom   2/8/2016   Paul Akin     50,000.00     2/8/2017     14,479.45       64,479.45  
Immune   3/9/2016   Paul Akin     20,000.00     3/8/2017     5,705.56       25,705.56  
Immune   9/30/2016   Paul Akin     25,000.00     9/30/2017     2,448.75       27,448.75  
Immune   11/1/2016   Richard Gostanian     275,000.00     11/1/2017     26,422.92       301,422.92  
Immune   12/31/2016   Richard Gostanian     30,000.00     2/18/1982     2,777.50       32,777.50  
Immune   3/31/2017   Paul Akin     5,000.00     3/31/2018     436.67       5,436.67  
Immune   9/30/2017   Paul Akin     25,000.00     9/30/2018     1,916.46       26,916.46  
Cytocom   3/31/2018   Jared Kroeger     50,000.00     3/31/2019     1,909.72       51,909.72  
Cytocom   3/31/2018   Richard Gostanian     101,000.00     3/31/2019     3,857.64       104,857.64  
Cytocom   3/31/2018   RJ Dailey     70,000.00     3/31/2019     6,307.29       76,307.29  
Cytocom   3/31/2018   Susan St Ledger     75,000.00     3/31/2019     2,864.58       77,864.58  
Cytocom   5/14/2018   Susan St Ledger     50,000.00     5/14/2019     1,604.17       51,604.17  
Cytocom   6/30/2018   Paul Akin     10,000.00     6/30/2019     255.56       10,255.56  
Cytocom   6/30/2018   Richard Gostanian     37,500.00     6/30/2019     958.33       38,458.33  
Cytocom   6/30/2018   RJ Dailey     50,000.00     6/30/2019     1,277.78       51,277.78  
Cytocom   7/1/2018   Alan Cunningham     83,000.00     7/1/2019     2,080.68       85,080.68  
Cytocom   7/13/2018   Alan Cunningham     10,000.00     7/13/2019     237.50       10,237.50  
Cytocom   8/23/2018   Richard Kelley     10,000.00     12/23/2018     575.83       10,575.83  
Cytocom   9/30/2018   Richard Gostanian     62,000.00     9/30/2019     792.22       62,792.22  
Cytocom   9/30/2018   RJ Dailey     30,000.00     9/30/2019     383.33       30,383.33  
TOTAL           $ 1,573,500.00         $ 197,231.36     $ 1,770,731.36  

 

Page 5 of 5
 

 

 

Exhibit 10.62

 

IMMUNE THERAPEUTICS & FORTE BIOTECHNOLOGY INTL CORP LICENSE AGREEMENT

15 January 2020

 

SUMMARY OF TERMS

 

Agreement: Immune Therapeutics, Inc. (“Immune” or “IMUN” or “Licensor”) owns or otherwise controls intellectual property relating to the proprietary therapeutic composition known as “Low Dose Naltrexone” or “Lodonal” or “LDN” and also owns or otherwise controls to the composition known as Methionine Enkephalin or MENK. Immune is willing to grant to Forte Biotechnology Intl. Corp (“Forte” or “FBIC” or “Licensee”) an exclusive license to develop and commercialize pharmaceutical products consisting of Lodonal and MENK for use in veterinary applications for all indications world-wide.
   
Field: Veterinary
   
Territory: Worldwide
   
Licensed Product: Lodonal (Low Dose Naltrexone) and Methionine Enkephalin or MENK
   
License Grant: Forte will have an exclusive, non-transferable (except for permitted assignments), royalty- bearing license (with a limited right to grant sublicense rights to sublicensees approved by Immune), under the Immune IP, to develop, use, sell, offer for sale, import, and otherwise commercialize Licensed Products in the Field in the Territory.
   
Payment Obligations:

Initial License Fee. $3,740,746 of Immune debt will be assumed by Forte upon execution of the Definitive License Agreement.

 

Development Milestone Payments. Upon the occurrence of the below-described events, Forte will pay to Immune the following one-time, non-creditable, non-refundable milestone payments:

 

  Event   Milestone Payment*
Successful MUMS Designation   $100,000
Successful Conditional Approval   $100,000

 

 

Commercial Milestone Payments. Upon reaching the mutually agreed to aggregate Net Sales Fore will pay to Immune one-time, non-creditable, non-refundable milestone payments to be negotiated and addressed in a separate Amendment later.

 

*Each milestone payment will be payable only once, even if multiple Licensed Products achieve the same milestone.

 

Royalties. Forte will pay to Immune, during the Royalty Term, royalties on annual Net Sales based on royalty rates to be negotiated later and addressed in an Amendment to the Definitive License Agreement, however no less than the following royalty rates and terms as described in Section 4.3:

 

  Annual Sales of Royalty Qualifying Licensed Products   Royalty Rate
<$500,000,000   2%
500,000,000 to < $1,000,000,000   4%
> $1,000,000,000)   6%

 

 

 

 

LICENSE AGREEMENT

 

This License Agreement (“Agreement”), dated as of 15 January 2020 (the “Execution Date”), is made by and between, Immune Therapeutics, Inc., a Florida C corporation having its principal place of business at 37 North Orange Ave, Suite 607, Orlando, FL 32801 (“Immune” or “IMUN” or “Licensor”), and Forte Biotechnology Intl Corp., a corporation organized and existing under the laws of the State of Florida having its principal place of business at 1001-A East Harmony Road, 114, Fort Collins Co 80528 (“Forte” or “FBIC” or “Licensee”). The execution, delivery, and effectiveness of this Agreement are contingent upon the simultaneous execution and delivery of the related Collaboration & Development Agreement (“Collaboration Agreement”) between the Parties.

 

RECITALS

 

Whereas, IMUN owns or licensed patents, patent applications, know-how and other information relating to Low Dose Naltrexone or Lodonal or LDN. Additionally, IMUN owns or licensed patents, patent applications, know-how and other information relating to Methionine Enkephalin or “MENK.”

 

Whereas, Forte is engaged in the discovery and development of therapies to treat cancer and other diseases in animals;

 

Whereas, Forte desires to obtain, and IMUN is willing to grant to Forte, an exclusive license under the IMUN Technology to develop, make, have made, use, sell, offer for sale, export and import the Product in the Field, in the Territory, on the terms and subject to the conditions set forth herein; and

 

Now, Therefore, in consideration of the foregoing premises and the mutual covenants contained herein, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

 

ARTICLE 1

DEFINITIONS

 

Unless specifically set forth to the contrary herein, the following terms shall have the respective meanings set forth below:

 

1.1 Accounting Standards” shall mean (a) U.S. generally accepted accounting principles or (b) international financial reporting standards; in either case, consistently applied throughout the organization of a Party (or a Related Party, as applicable).

 

1.2 Act” shall mean, as applicable, the United States Federal Food, Drug and Cosmetic Act, 21 U.S.C. §§301 et seq., and/or the Public Health Service Act, 42 U.S.C. §§262 et seq., as such may be amended from time to time.

 

1.3 Administrator” shall have the meaning provided in Section 11.2(a).

 

2

 

 

1.4 Affiliate” shall mean, with respect to any Person, any other Person that directly or indirectly controls, is controlled by or is under common control with such Person. A Person shall be deemed to control another Person if such Person possesses the power to direct or cause the direction of the management, business and policies of such Person, whether through the ownership of fifty percent (50%) or more of the voting securities of such Person, by contract or otherwise. For clarity, once a Person ceases to be an Affiliate of a Party then without any further action, such Person shall cease to have any rights under this Agreement by reason of being an Affiliate of such Party.

 

1.5 Applicable Laws” shall mean the applicable laws of any jurisdiction which are applicable to any of the Parties or their respective Affiliates in carrying out activities hereunder or to which any of the Parties or their respective Affiliates in carrying out the activities hereunder is subject, and shall include all statutes, enactments, acts of legislature, laws, ordinances, rules, regulations, notifications, guidelines, policies, directions, directives and orders of any statutory authority, tribunal, board, or court or any central or state government or local authority or other governmental entity in such jurisdictions.

 

1.6 Bankruptcy Laws” shall have the meaning provided in Section 12.1.

 

1.7 Calendar Quarter” shall mean a three (3) month period ending on March 31, June 30, September 30, and December 31 in each Calendar Year.

 

1.8 Calendar Year” shall mean the period from January 1 of a year through the end of December 31 of the same year.

 

1.9 Change of Control” means, with respect to a Party: (a) a merger, reorganization or consolidation involving such Party, or any parent company of such Party and a Third Party in which the voting securities of such Party or its parent company, as applicable, outstanding immediately prior thereto cease to represent more than fifty percent (50%) of the combined voting power of the surviving entity immediately after such merger, reorganization or consolidation or (b) a Person, or group of Persons (acting in concert), directly or indirectly, become the beneficial owner (as defined in Rule 13d-3 under the U.S. Securities Exchange Act of 1934, as amended) of more than fifty percent (50%) of the voting equity securities or management control of such Party or any parent company of such Party, excluding any PUBLIC OFFERING contemplated herein with respect to Forte.

 

1.10 Forte Competitive Infringement” shall have the meaning provided in Section 8.4(a).

 

1.11 Forte Indemnitees” shall have the meaning provided in Section 10.2.

 

1.12 Forte Know-How” shall mean all Know-How Controlled by Forte or its Affiliates as of the Execution Date or any time during the Term, including all Know-How developed or generated by or on behalf of Forte or any of its Affiliates in the course of conducting research, development, manufacturing, research, development, importation, sale, regulatory or commercialization activities contemplated by this Agreement.

 

3

 

 

1.13 Forte Patent Rights” shall mean all Patent Rights Controlled by Forte or its Affiliates as of the Execution Date that claim or cover the composition of matter, manufacture or use of any Compound and/or Product. The Forte Patent Rights shall include Forte’s (and its Affiliates’) rights in Joint Patent Rights.

 

1.14 Forte Technology” shall mean Forte Patent Rights and Forte Know-How.

 

1.15 Claim” shall have the meaning provided in Section 10.1.

 

1.16 CNADA” is a Conditional New Animal Drug Approval application used to seek conditional approval of a new animal drug. A conditionally approved CNADA has met all the requirements to support the full approval of the new animal drug except for a demonstration of “substantial evidence of effectiveness.” For a CNADA, the applicant must demonstrate a “reasonable expectation of effectiveness.” A conditionally approved CNADA allows the applicant to legally market the new animal drug for up to 5 years, provided FDA approves the required annual renewal requests, while the applicant continues to collect the effectiveness data needed to meet the “substantial evidence” standard for full approval.

 

1.17 Commercially Reasonable Efforts” shall mean, with respect to the efforts to be expended by a Party with respect to any objective, the level of reasonable, diligent, good faith efforts that biopharmaceutical companies typically devote to products owned by them that are at a similar stage in their development or product life and are of similar market potential taking into account efficacy, safety, approved labeling, the competitiveness of alternative products in the marketplace, the patent and other proprietary position of the product, the likelihood of regulatory approval, the profitability of the product, and other relevant factors. As used in this Section 1.16, “biopharmaceutical companies” shall mean companies in the biopharmaceutical industry of a size and stage of development similar to that of such Party, including having human pharmaceutical product candidates or products in a similar stage of development to the Compound. Commercially Reasonable Efforts shall be determined on a market-by-market and Product-by-Product basis, and it is anticipated that the level of effort will be different for different markets, and will change over time, reflecting changes in the status of the Product and the market(s) involved.

 

1.18 Common Stock” means shares of the Forte’s common stock, $0.001 par value per share, or should Forte change its name in connection with the consummation of a PUBLIC OFFERING, the publicly traded company after the name change.

 

1.19 Compounds” shall mean, Lodonal and/or MENK and any other compound whose composition, manufacture or use is claimed by a claim in the IMUN patents listed in Exhibit A or IMUN Know-How. Also, can mean Forte added to any other chemical(s) or compound(s) that have anti-cancer properties or desired formulation properties.

 

1.20 Confidential Information” shall have the meaning provided in Section 6.2.

 

1.21 Control”, “Controls” or “Controlled by” shall mean, with respect to any Patent Rights, Information, Know How, Formulation or other intellectual property rights, the possession by a Person of the ability (whether by ownership, license or other right, other than pursuant to a license granted under this Agreement) to grant access to, or a license or sublicense of, or a covenant not to sue, as applicable, to or under such Patent Rights, Know- How, Information or other intellectual property rights without violating the terms of any agreement or other arrangement with any other Person, or being obligated to pay any royalties or other consideration therefor in existence as of the time such Party or Affiliates would first be required hereunder to grant the other Party such license or access.

 

4

 

 

1.22 Cover” means (a) with respect to Know-How, such Know-How was used in the exploitation of the Product, and (b) with respect to a Patent Right, a Valid Patent Claim would (absent a license thereunder or ownership thereof) be Infringed by the exploitation of the Product; cognates of the word “Cover” shall have correlative meanings.

 

1.23 Domain Names” shall mean internet domain names, whether or not trademarks, registered in any top-level domain by any authorized private registrar or Governmental Authority, web addresses, web pages, websites and related content, accounts with Twitter, Facebook and other social media companies and the content found thereon and related thereto, and URLs.

 

1.24 “INAD” or “Investigational New Animal Drug” is equivalent to a human IND Drug Application, but is to be used for animal FDA drug approvals. It is required to be approved by the FDA prior to any animal clinical studies are initiated.

 

1.25 “Develop” or “Development” means all activities that relate to the development of Compounds and Products or to (a) obtaining, maintaining or expanding regulatory approval of a Product, or (b) developing the ability to manufacture clinical and commercial quantities of a Compound or Product. This includes: (i) preclinical testing, toxicology, and clinical trials; (ii) preparation, submission, review, and development of data or information for the purpose of submission to a Regulatory Authority to obtain, maintain or expand regulatory approval of a Product; and (iii) manufacturing process development and scale-up, bulk production and fill/finish work associated with the supply of a Product for preclinical testing and clinical trials, and related quality assurance and technical support activities.

 

1.26 Encumbrance” shall mean any charge, claim, community property interest, pledge, condition, equitable interest, lien (statutory or other), option, security interest, mortgage, easement, encroachment, right of way, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership.

 

1.27 Export Control Laws” shall mean all applicable U.S. laws and regulations relating to (a) sanctions and embargoes imposed by the Office of Foreign Assets Control of the U.S. Department of Treasury or (b) the export or re-export of commodities, technologies, or services, including, but not limited to, the Export Administration Act of 1979, 24 U.S.C. §§2401-2420, the International Emergency Economic Powers Act, 50 U.S.C. §§1701-1706, the Trading with the Enemy Act, 50 U.S.C. §§1 et. seq., the Arms Export Control Act, 22 U.S.C. §§2778 and 2779, and the International Boycott Provisions of Section 999 of the U.S. Internal Revenue Code of 1986 (as amended).

 

5

 

 

1.28 Fair Market Value” shall have the meaning provided in Section 12.16(b).

 

1.29 FCPA” shall mean the U.S. Foreign Corrupt Practices Act (15 U.S.C. §§78dd-1, et. seq.) as amended.

 

1.30 FDA” shall mean the U.S. Food and Drug Administration and any successor entity thereto.

 

1.31 Field” shall mean all uses of the Product for the treatment of animals for any disease.

 

1.32 First Commercial Sale” shall mean, with respect to a given Product in a given country, the first commercial transfer or disposition for value of such Product by Forte or a Related Party to a Third Party (other than a Related Party) for end use or consumption of such Product in such country after receipt of Marketing Approval for such Product in such country, excluding, however, transfers or dispositions of Product, without consideration: (i) in connection with patient assistance programs; (ii) for charitable or promotional purposes; (iii) for preclinical, clinical, regulatory or governmental purposes or under so-called “named patient” or other limited access programs; or (iv) for use in any tests or studies reasonably necessary to comply with Applicable Law, regulation or request by a Regulatory Authority. For clarity, First Commercial Sale shall be determined on a Product-by-Product and country- by-country basis.

 

1.33 GCP” shall mean the then current “good clinical practices” as such term is defined from time to time by the FDA, EMA or other Regulatory Authority of competent jurisdiction pursuant to its regulations, guidelines or otherwise, as applicable.

 

1.34 GLP” shall mean the then current “good laboratory practices” as such term is defined from time to time by the FDA, EMA or other Regulatory Authority of competent jurisdiction pursuant to its regulations, guidelines or otherwise, as applicable.

 

1.35 GMP” shall mean the then current “good manufacturing practices” as such term is defined from time to time by the FDA, EMA or other Regulatory Authority of competent jurisdiction pursuant to its regulations, guidelines or otherwise, as applicable.

 

1.36 Indemnified Party” shall have the meaning provided in Section 10.3.

 

1.37 Indemnifying Party” shall have the meaning provided in Section 10.3.

 

1.38 Independent Accounting Firm” shall have the meaning provided in Section 12.16(b)(i).

 

1.39 Indication” shall mean a separate and distinct disease or medical condition in humans or animals and potential preventative, diagnostic, therapeutic and other uses: (a) which a Product is intended to treat or prevent, as evidenced by the protocol for a clinical trial of such Product or by the proposed Product labeling in an NADA filed with a Regulatory Authority for such Product; or (b) which is contained in a Product’s labeling approved by a Regulatory Authority as part of the Marketing Approval for such Product.

 

6

 

 

 

1.40 Information” shall mean any and all proprietary data, information, materials and know-how (whether patentable or not) that are not in the public domain, including, but not limited to, (a) ideas, discoveries, inventions, improvements, technology or trade secrets, (b) pharmaceutical, chemical and biological materials, products, components or compositions, (c) methods, procedures, formulas, processes, tests, assays, techniques, regulatory requirements and strategies, (d) biological, chemical, pharmacological, toxicological, pharmaceutical, physical and analytical, clinical, safety, manufacturing and quality control data and information related thereto, (e) technical and non-technical data and other information related to the foregoing, and (f) drawings, plans, designs, diagrams, sketches, specifications or other documents containing or relating to such information or materials.

 

1.41 Infringe” or “Infringement” means any infringement as determined by Applicable Law, including, but not limited to, direct infringement, contributory infringement or any inducement to infringe.

 

1.42 Initiates” or “Initiation” shall mean, with respect to an animal clinical trial, the administration of the first dose to the first patient/subject in such trial.

 

1.43 Invention” shall mean any invention, whether or not patentable, made in the course and as a result of the conduct of the activities contemplated by this Agreement.

 

1.44 Inventory” shall have the meaning provided in Section 2.3(a).

 

1.45 Joint Inventions” shall have the meaning provided in Section 8.1.

 

1.46 Joint Patent Rights” shall have the meaning provided in Section 8.1.

 

1.47 Know-How” shall mean any and all Information related to a Product or any active ingredient contained in a Product, or any general knowledge and understanding of chemistry, formulation, blending, scaling manufacturing, etc., including all technical information, know-how and data, including inventions (whether patentable or not), discoveries, trade secrets, specifications, instructions, processes, formulae, materials, expertise and other technology applicable to compounds, formulations, compositions, products or to their manufacture, development, registration, use or commercialization or methods of assaying or teIMUNng them or processes for their manufacture, formulations containing them, compositions incorporating or comprising them and including all biological, chemical, pharmacological, biochemical, toxicological, pharmaceutical, physical and analytical, safety, quality control, manufacturing, preclinical and clinical data, instructions, processes, formulae, expertise and information, regulatory filings and copies thereof, relevant to the development, manufacture, use or commercialization of and/or which may be useful in studying, teIMUNng, development, production or formulation of Products, or intermediates for the synthesis of a Product.

 

1.48 License Grant” shall have the meaning provided in Section 2.1.

 

1.49 Losses” has the meaning provided in Section 10.1.

 

7

 

 

1.50 Marketing Approval” shall mean all required approvals from the relevant Regulatory Authority in a given country necessary to market and sell a pharmaceutical product in such country, including, but not limited to, pricing and reimbursement approvals if required for marketing or sale of such product in such country.

 

1.51 NADA” shall mean New Animal Drug Approval as defined in the Federal Food, Drug, and Cosmetic Act (the act), a new animal drug may not be sold into interstate commerce unless it is the subject of an Approved New Animal Drug Application (NADA). Under section 512(j) of the act, unapproved investigational new animal drugs may be exempt from the approval requirements of the act. An investigational new animal drug may be shipped in interstate commerce for use by experts, qualified by scientific training and experience, to investigate their safety and effectiveness, if the requirements for the exemption set forth in 21 CFR part 511 are met.

 

1.52 Net Sales” Shall be divided into three distinct scenarios: (1) co- commercialization deal with large strategic pharmaceutical company, (2) use of third-party or distribution company, and (3) Forte’s own efforts to commercialize the Product using in- house sales/marketing/commercialization infrastructure. Therefore, Net Sales definitions will be different for each of these scenarios:

 

(a) Net Sales with strategic company: Following the negotiation and consummation of a sublicense or acquisition agreement with a large strategic pharma company, Forte will have negotiated a final Average Selling Price (“ASP”) that will be used for all payments back to Forte. IMUN will receive royalty payments calculated on those ASP prices.

 

(b) Net Sales with third party distributor(s) or sales organization(s): Following the negotiation and execution of an agreement with a third-party distributor royalties will be calculated by using the net amount of money paid back to Forte for sales by the third party.

 

(c) Finally Net Sales with Forte’s own commercial sales and marketing infrastructure will be determined by using the following definition: Net Sales shall mean the gross amounts invoiced for sales or other dispositions of Products by or on behalf of Forte or any of its Related Parties (each, a “Selling Party”) to Third Parties (other than Related Parties), less the following deductions actually incurred, allowed, paid, accrued or otherwise specifically allocated to Products by the Selling Party, all in compliance with applicable Accounting Standards, consistently applied by the Selling Party:

 

(i) normal and customary trade discounts, including, but not limited to, trade, cash and quantity discounts or rebates credits or refunds, actually allowed and taken;

 

(ii) credits or allowances actually granted or made for rejection of or return of previously sold Products, including, but not limited to, recalls, or for retroactive price reductions and billing errors or for stocking allowances;

 

(iii) governmental and other rebates (or credits or other equivalents thereof) actually granted to managed health care organizations, commercial insurance companies, pharmacy benefit managers (or equivalents thereof), distributors, national, state/provincial, local, and other governments, their agencies and purchasers, and reimbursers, or to trade customers;

 

8

 

 

(iv) reasonable fees paid to wholesalers, distributors, selling agents (excluding sales representatives of the Selling Party), group purchasing organizations, Third Party payors, other contractees and managed care entities, in each case with respect to the Product;

 

(v) charges separately invoiced for freight, insurance, transportation, postage and handling;

 

(vi) taxes, custom duties or other governmental charges (including any tax such as a value added or similar tax or government charge but excluding what is commonly known as income tax) levied on or measured by the billing amount for Products, as adjusted for rebates and refunds; and to the extent these taxes and charges are included in the gross sales.

 

In no event shall any particular amount identified above be deducted more than once in calculating Net Sales (i.e., no “double counting” of deductions). In no event shall a particular amount identified above to be deducted exceed the gross amount invoiced resulting in a negative royalty. In such a case a minimum royalty will be due.

 

In the unusual event that the Product is “bundled” for sale together with one or more other products in a country (a “Product Bundle”), IMUN will receive their royalty based upon the final dollar value received by Forte.

 

Sale of Product by a Selling Party to another Selling Party for resale by such entity to a Third Party (other than a Related Party) shall not be deemed a sale for purposes of this definition of “Net Sales,” provided that the subsequent resale is included in the computation of Net Sales. Simply put, IMUN will receive royalties on what revenue comes back to Forte regardless of the many layers of sales and resales that may occur.

 

Further, transfers or dispositions of Product, without consideration: (A) in connection with patient assistance programs; (B) for charitable or promotional purposes; (C) for preclinical, clinical, regulatory or governmental purposes or under so-called “named patient” or other limited access programs; or (D) for use in any tests or studies reasonably necessary to comply with Applicable Law, regulation or request by a Regulatory Authority, shall not, in each case of (A) through (D), be deemed sales of such Product for purposes of this definition of “Net Sales.”

 

1.53 Other Active” shall mean any other active pharmaceutical ingredient other than a Compound.

 

1.54 Party” shall mean Forte and IMUN, individually, and “Parties” shall mean Forte and IMUN, collectively.

 

1.55 Patent Certification” shall have the meaning provided in Section 8.4(a).

 

9

 

 

1.56 Patent Rights” shall mean (i) patents and patent applications (which for the purposes of this Agreement shall be deemed to include certificates of invention and applications for certificates of invention), (ii) any and all divisionals, continuations, continuations-in-part, reissues, renewals, substitutions, registrations, re-examinations, revalidations, extensions, supplementary protection certificates and the like of any such patents and patent applications, and (iii) any and all foreign equivalents of the foregoing.

 

1.57 Person” means any individual, partnership, joint venture, limited liability company, corporation, firm, trust, association, unincorporated organization, governmental authority or agency, or any other entity not specifically listed herein.

 

1.58 Phase I Clinical Trial” means an animal clinical trial of a Product, the principal purpose of which is to evaluate safety in healthy animals, to determine pharmacokinetic parameters and other key pharmaceutical properties of the Product (including absorption, metabolism, and elimination), or to determine the appropriate range of doses to evaluate in further clinical trials, in each case as described in 21 C.F.R. § 312.21(a), as amended from time to time, or the corresponding foreign regulation

 

1.59 “Pivotal Clinical Trial” means a pivotal animal clinical trial of a Product with a defined dose or a set of defined doses of such Product designed to ascertain efficacy and safety of such Product for the purpose of enabling, without the performance of additional animal clinical trials, the preparation and submission of an NADA or CNADA to the applicable Regulatory Authorities in a country of the Licensed Territory, as further defined in 21 C.F.R. § 312.21(c) for the U.S., as amended from time to time, or the corresponding foreign regulations.

 

1.60 Product” shall mean any pharmaceutical composition or preparation (in any and all dosage forms) in final form containing a Compound as an active ingredient, that utilizes or is covered by the IMUN Patent Rights or Know-How. Specifically formulated Lodonal or MENK.

 

1.61 Product Bundle” shall have the meaning set forth in Section 1.55.

 

1.62 Regulatory Authority” shall mean any country, federal, supranational, state or local regulatory agency, department, bureau or other governmental or regulatory authority having the administrative authority to regulate the development or marketing of pharmaceutical products in any country or other jurisdiction.

 

1.63 Regulatory Documentation” shall mean all regulatory applications, registrations, licenses, authorizations and approvals (including, but not limited to, all INADs, NADAs and Marketing Approvals), all correspondence submitted to or received from Regulatory Authorities (including, but not limited to, minutes and official contact reports relating to any communications with any Regulatory Authority), and all reports and documentation in connection with clinical studies and tests (including, but not limited to, study reports and study protocols, and copies of all interim study analysis), and all data contained in any of the foregoing, including, but not limited to, all INADs, NADAs, advertising and promotion documents, manufacturing data, drug master files, clinical data, adverse event files and complaint files, in each case related to a Compound and/or Product.

 

10

 

 

1.64 Related Party” shall mean each of Forte’s Affiliates and its and their respective Sublicensees hereunder.

 

1.65 Royalty Term” shall have the meaning provided in Section 4.4.

 

1.66 Rules” shall have the meaning provided in Section 11.2(a).

 

1.67 Sale Transaction” shall have the meaning provided in Section 12.7(a)(i).

 

1.68 IMUN Indemnitee” shall have the meaning provided in Section 10.1.

 

1.69 “IMUN Know-How” shall mean all Know-How Controlled by IMUN or any of its Affiliates as of the Execution Date or at any time during the Term.

 

1.70 IMUN Patent Rights” shall mean any and all Patent Rights Controlled by IMUN or any of its Affiliates as of the Execution Date that claim or Cover the Compounds and/or the composition of matter, manufacture, research, development, importation, sale or use of the Product. The IMUN Patent Rights shall include IMUN’s (and its Affiliates’) rights in Joint Patent Rights. The IMUN Patent Rights shall include those listed in Exhibit A. Notwithstanding the foregoing, (i) IMUN Patent Rights shall not include any Patents Controlled by any Third Party Acquirer of IMUN, or any Affiliate of such Third Party Acquirer, except for any such Patents claiming inventions made by such Third Party Acquirer or its Affiliate after such Third Party Acquirer’s acquisition of IMUN through (a) use of IMUN Know-How or (b) practice of any invention that is then Covered by a Valid Patent Claim of the IMUN Patent Rights listed in Exhibit A.

 

1.71 “IMUN Technology” shall mean all IMUN Know-How and IMUN Patent Rights.

 

1.72 Sublicensee” shall mean a Third Party sublicensee under the license granted by IMUN to Forte pursuant to Section 2.1, whether such Third Party’s sublicense was granted to it directly by Forte or its Affiliate or indirectly through one or more tiers of sublicense.

 

1.73 Technical Assistance” shall have the meaning provided in Section 2.3(d).

 

1.74 Term” shall have the meaning provided in Section 9.1.

 

1.75 Territory” shall mean Global.

 

1.76 Third Party” shall mean a Person other than Forte and its Affiliates, and IMUN and its Affiliates.

 

1.77 Third Party Acquirer” shall have the meaning provided in Section 12.7(a)(i).

 

11

 

 

1.78 Third Party Patent Licenses” shall have the meaning provided in Section 4.5(b).

 

1.79 Trademark” shall mean means any word, name, logo, tagline, slogan, symbol, device, design, color, shape, designation or any combination thereof, including any trademark, service mark, trade name, brand name, sub-brand name, trade dress, product configuration rights, program name, delivery form name, certification mark or collective mark, that functions as an identifier of source, origin or quality, in each case, whether or not registered, and all statutory and common law rights therein and all registrations and applications therefor, together with all goodwill associated with, or symbolized by, any of the foregoing.

 

1.80 Valid Patent Claim” shall mean a claim of an issued and unexpired patent included within the IMUN Patent Rights, in a country within the Territory that, unless licensed would be infringed by the manufacture, use, importation or sale of such Product in such country in the Territory, which claim has not been held invalid or unenforceable by a decision of a court or other governmental agency of competent jurisdiction, which decision is an unappealable or unappealed decision within the time allowed for appeal, which is not lost in an interference proceeding or through disclaimer or otherwise not admitted to be invalid, and which has not been pending for more than 7 years.

 

ARTICLE 2

LICENSE GRANT

 

2.1 License Grant. Subject to the terms and conditions of this Agreement, as of the Execution Date provided that the Initial License Fee as defined in Section 4.1 of this Agreement is paid as of the Execution Date and, IMUN hereby grants, and shall procure that each of its relevant Affiliates shall grant, to Forte (i) an exclusive, royalty-bearing license (or sublicense, including the right to sublicense solely as set forth in Section 2.3 and elsewhere in this Agreement), under the IMUN Patent Rights and the IMUN Know-How to the extent specific to the Compound and the Product; and (ii) a non-exclusive, royalty-bearing (as set forth in Section 4.3) license (or sublicense including the right to sublicense solely as set forth in Section 2.3 and elsewhere in this Agreement), under the IMUN Know-How that is not specific but is related to one or both of the Compounds and/or the Products; in each case, to make, have made, use, sell, have sold, offer for sale, and import Compounds and Products in the Field in the Territory during the Term (collectively, the “License Grant”).

 

2.2 Sublicensing.

 

(a) Right to Sublicense. Subject to Section 2.3(b), Forte shall have the right to grant sublicenses, through multiple tiers of sublicensees, under the licenses and rights granted in Section 2.1 to any Person that is not a competitor of IMUN defined as a company in the human oncology field, provided that any sublicenses to such other Persons shall be subject to prior written consent of IMUN, such consent not to be unreasonably withheld, conditioned or delayed.

 

12

 

 

(b) Sublicense Terms. Any sublicense granted by Forte under this Agreement (directly or indirectly through its Affiliate) to a Third Party shall be (i) in writing and (ii) subject and subordinate in all respects to, and consistent with, the terms and conditions of this Agreement. Forte shall provide IMUN with a copy of any sublicense agreement entered into by Forte or its Affiliate, and any amendment thereto, within fifteen (15) days of its execution. Forte shall be responsible for its Sublicensees and their respective compliance with the relevant obligations under this Agreement and shall, at its own cost, enforce compliance by Sublicensees with the terms of this Agreement. In the event any of the Sublicensees breaches their respective sublicense agreement or this Agreement, Forte shall be fully responsible and shall compensate IMUN for any incurred damages. Forte hereby waives any requirement that IMUN exhaust any right, power or remedy, or proceed against any sublicensee of Forte for any obligation or performance under this Agreement prior to proceeding directly against the sublicensing party. Any sublicense granted pursuant to this Section 2.3 shall terminate immediately if the relevant sublicensee commits or omits to do any act which would, if committed or omitted by a Party, would give rise to a right of termination pursuant to Article 9.

 

2.3 Technology Transfer and IMUN Assistance.

 

(a) Manufacturing Technology Transfer. Within one year after the Execution Date of an approved contract manufacturing agreement to manufacture Compounds and Product for use in the Field, IMUN shall transfer or cause to be transferred (including from its Third Party contract manufacturers) to Forte, or a Third Party manufacturer designated by Forte, copies of all IMUN Know-How that is available in written, graphic, electronic or other tangible form (and to the extent such Know-How exists in electronic form, IMUN may provide the same to Forte in electronic form) and related to the manufacture of Compound and Products in IMUN’s possession and Control, only to the extent required to enable Forte (or its designee) to manufacture Compounds and Product for use in the Field using the process employed by or on behalf of IMUN to manufacture Compounds and Product. In case the Know-How is not captured in writing, IMUN shall make its scientists and manufacturing team available for in-person meetings to explain and demonstrate the Know-How subject to the limitation in Section 2.3(e) hereof. In addition, IMUN shall provide Forte with an introduction to IMUN’s Third Party contract manufacturer(s) for Compound.

 

(b) IMUN Know-How. As requested by Forte, IMUN shall transfer to Forte all clinical safety, toxicology and other data within the IMUN Know-How related to the Compounds and the Product in IMUN’s possession and that is available in written, graphic, electronic or other tangible form (or true and complete copies thereof), and to the extent such data exists in electronic form, IMUN may provide the same to Forte in electronic form. In case the Know-How is not captured in writing, IMUN shall make its scientists and manufacturing team available for in-person meetings as described in the Collaboration Agreement to explain and demonstrate the Know-How subject to the limitation in Section 2.3(e) hereof. During the Term, IMUN shall promptly notify Forte of the development or acquisition of additional IMUN Know-How and shall promptly convey such IMUN Know- How to Forte.

 

13

 

 

(c) IMUN Assistance. At Forte’s request and subject to the limitation in Section 2.4(c) hereof and the terms and conditions of the Collaboration Agreement, IMUN shall provide reasonable technical, regulatory and development assistance to Forte in the practice of the IMUN Know-How transferred to Forte pursuant to this Section 2.4 (“Technical Assistance”). For clarity, Technical Assistance excludes the performance of any additional research, development, regulatory or manufacturing (including CMC) work.

 

(d) Reserved Rights. Notwithstanding anything herein to the contrary, IMUN, on behalf of itself and its Affiliates, hereby expressly reserves the right to practice, and to grant licenses under, the IMUN Technology for any and all purposes other than the specific purposes for which the IMUN Technology is exclusively licensed to Forte under Section 2.1. Except as expressly provided herein, IMUN grants no other right or license, including any rights or licenses to the IMUN Technology or other intellectual property rights.

 

2.4 Negative Covenants.

 

(a) Forte hereby covenants:

 

(i) not to practice, and not to cause any Related Party or other Third Party to practice, any IMUN Technology for any purpose other than as expressly authorized in this Agreement; and

 

(ii) not to develop, use, make, have made, promote, market, offer for sale, have sold, sell, export, import or otherwise commercialize either directly or indirectly or through any Related Party or other Third Party, any aqueous plasma-based product, other than Product, that includes one or more anti-cancer molecules that treats or prevents the same indication.

 

(b) The Parties hereby acknowledge and agree that the negative covenants set forth in this Section 2.4 shall only survive for the term of this Agreement and shall immediately terminate upon termination of this Agreement for any reason.

 

ARTICLE 3

DEVELOPMENT, REGULATORY ACTIVITIES AND COMMERCIALIZATION

 

3.1 Responsibility. Forte (itself and/or with or through its Related Parties) shall be solely responsible, at its own expense, for, and shall control all aspects of Development (including, but not limited to, pre-clinical, chemistry manufacturing controls [aka CMC], and clinical development), manufacture, registration and commercialization (including, but not limited to, marketing, promoting, selling, distributing and determining pricing for) Products in the Field in the Territory. Without limiting the generality of the foregoing, Forte (itself and/or with or through its Related Parties) shall be solely responsible for preparing and submitting all required regulatory filings in connection with obtaining and maintaining Marketing Approvals with respect to Products in the Field in the Territory, including all INADs, NADAs, or CNADAs at Forte’s sole expense. All of such submissions and other regulatory filings relating to Products in the Field shall be submitted in the name of, and owned by, Forte (or a Related Party, as applicable). Subject to the limitations in Section 2.4(e), IMUN shall provide Forte with reasonable assistance with the foregoing set forth in this Section 3.1 upon Forte’s written request.

 

14

 

 

3.2 Diligence. Forte (itself and/or with or through its Related Parties) shall use Commercially Reasonable Efforts to Develop, seek Marketing Approval for, and commercialize the Products in the Territory. Without limiting the foregoing, Forte (itself and/or with or through its Related Parties) shall first use Commercially Reasonable Efforts to develop, seek Marketing Approval, and commercialize at least one Product for at least one Indication in the Field in the United States.

 

(a) Development. Forte (itself and/or with or through its Related Parties) must conduct meaningful development activities for the Compound and Product within every period of six months (6) over the life of the agreement until obtaining a marketing authorization in the US, Europe, Asia or other market that is mutually agreed upon by both parties, subject to written notification of the failure to engage in such activities and right to cure in thirty (30) days of receipt of the written notification. Meaningful development activities include, without limitation, (a) planning, preparing for the conduct of (including drafting protocols and negotiating with clinical research organization and clinical trial sites) and writing study reports for clinical trials and (b) conducting regulatory affairs, including planning for and attending regulatory meetings, preparing regulatory filings and addressing issues raised by Regulatory Authorities; provided, however, if Forte has failed to submit to or discuss with a Regulatory Authority a regulatory filing that includes Forte’s proposed protocol for the then subsequent clinical trial within twelve (12) months after the last patient follow-up of each Clinical Trial and Pivotal Clinical Trial conducted by Forte, then Forte shall be deemed to be in material breach of its diligence obligations hereunder, and IMUN shall have the right to terminate this Agreement in accordance with Section 9.2 subject to written fortification and the right to cure in 30 days of receipt of the written notification; provided that such twelve (12)-month period will be extended automatically by the amount of any delay resulting from (i) clinical or regulatory delays that are outside of Forte’s reasonable control, including requests or requirements of a Regulatory Authority beyond what would be reasonably anticipated, or (ii) delays in manufacturing needed quantities of Compounds or Products that are outside of Forte’s reasonable control.

 

(b) Commercialization.

 

Forte shall submit to IMUN a marketing plan for the Product within sixty (60) Days from the date of the regulatory approval required for the commercialization of the applicable Product in the Territory. Forte shall make Commercially Reasonable Efforts to commercialize the Product in accordance with its marketing plan submitted to IMUN, or as such plan may be updated from time to time on a commercially reasonable basis. Forte shall conduct all activities relating to the commercialization of the Product in the Field within the Territory at its own expense, and shall start commercialization of the Product (provided the product can be manufactured on commercial scale) within the later of six (6) months or a commercially reasonable time period following the receipt of regulatory approvals necessary for commercialization of such Product. If and when Forte fails to meet the above-mentioned deadline, except for non-performance caused by reasons directly attributable to IMUN, such failure shall be treated as a material breach by Forte, and IMUN shall have the right to terminate this Agreement in accordance with Section 9.2 upon written notification to Forte and after a thirty (30) day cure period.

 

15

 

 

3.3 Records. Forte and IMUN shall maintain, or cause to be maintained, complete and accurate records of all development work conducted by or on behalf of Forte or IMUN with respect to Compound and Product, including all results, data, inventions and developments made in the performance of such development work. All such records maintained shall be in sufficient detail and in good scientific manner appropriate for patent and regulatory purposes, and all such records shall be Forte’s and IMUN’s Information and IMUN shall retain all intellectual property and ownership rights of every kind and nature in such records. Forte shall provide IMUN access to such records upon IMUN’s reasonable request. IMUN will provide Forte with access to such records upon Forte’s reasonable request.

 

3.4 Meetings; Reports.

 

(a) Meetings. Prior to Initiation of the first Clinical Trial of a Product, the Parties shall, at IMUN’s written request but no more than semi-annually, hold periodic meetings (by telephone or videoconference unless otherwise agreed) at which qualified representatives of Forte responsible for Product development will report to IMUN, and respond to IMUN’s reasonable questions regarding, the progress and results of Forte’s Product development and registration efforts.

 

(b) Reports. Forte shall keep IMUN generally informed as to Forte’s development and commercialization of any Compounds and Products, including a quarterly written report therefor to IMUN within forty-five (45) days after the end of each Calendar Quarter. Each quarterly written report will (i) summarize the status of the Product development efforts of Forte and Related Parties, including the Indications for which any of them is developing any Product, (ii) disclose any INAD or NADA or CNADA submitted, and any Marketing Approval obtained, by or on behalf of Forte or any Related Party with respect to any Product (including the applicable Indication), and (iii) summarize Product commercialization activities undertaken or planned by or on behalf of Fortte or any Related Party with respect to any Product; in each case, in the preceding three (3) months. Forte shall promptly respond to any of IMUN’s reasonable written requests or inquiries relating to the written progress reports provided hereunder.

 

3.5 Compliance with Applicable Laws. Forte shall conduct, and shall cause its Related Parties to conduct, all development, regulatory, manufacturing and commercialization activities with respect to Compounds and Products in the Territory in compliance with all Applicable Laws and, as applicable, GLP, GCP and/or GMP. IMUN shall comply with all Applicable Laws having jurisdiction over the performance of this Agreement with respect to any activities it performs hereunder.

 

16

 

 

ARTICLE 4

PAYMENTS

 

4.1 Initial License Fee. In consideration for the rights and licenses granted to FORTE hereunder, FORTE shall assume IMUN debt in an amount equal to three million seven hundred and forty thousand and seven hundred and forty-six dollars ($3,740,746), payable solely in unregistered Forte common stock (the “Initial License Fee”).

 

4.2 Milestone Payments. Forte shall provide IMUN with prompt written notice (but in no event later than ten (10) Business Days after such occurrence) of achievement of each of the milestone events set forth in this Section 4.2. All Milestone Payments will be paid for any drug Candidate that contains Forte in any amount or created with IMUN Know- How regardless of whether that drug Candidate has Londonal/MENK alone or Londonal/MENK with other active agents. The milestone payments shall be paid as follows:

 

Developmental Milestones   Milestone Payment
Successful MUMS Designation   $ 100,000
Conditional Approval   $ 100,000

 

The above milestone payments shall only be paid once, for Forte or its Related Party’s first achievement of the corresponding milestone event by any Product (regardless of the number of times such milestone event is achieved by a Product, the number of Indications for which such milestone event is achieved by a Product, or the number of Products that achieve such milestone event, and regardless of whether any such milestone event is achieved by the same Product that achieved any other milestone event or by a different Product). The milestone payment shall be payable in cash, or as otherwise agreed in writing by the parties, to IMUN within forty-five (45) days after the occurrence of such milestone.

 

Commercial Milestone Payments

 

Additional Commercial Milestone Payments shall be negotiated once and if Products are approved and marketed, however, both parties agree that the Commercial Milestone Payments will be consistent and no more than the industry norms for the veterinary market and the approved indications.

 

4.3 Royalties. Subject to Sections 4.4(a), 4.5 and 4.6 below, Forte will pay to IMUN, during the Royalty Term, royalties on Net Sales. Royalty Rates may be, at both Parties’ mutual agreement, re-negotiated via amendment to be attached to this Agreement, but will be no lower than the following rates set forth below:

 

17

 

 

 

Annual Net Sales Increments

 

Royalty

Rate

 

That portion of annual Net Sales of Products by Forte and Related Parties that is less than or equal to five hundred million dollars (>$500,000,000) unless a higher increment has been reached in the previous annual period in which case the royalty rate will start at the highest rate achieved for all Net Sales that year and remain at that level unless a higher rate is achieved.

 

 

2%

 

       
 

That portion of annual Net Sales of Products by Forte and Related Parties that is greater than five hundred million dollars ($500,000,000) and less than or equal to one billion dollars ($1,000,000,000) unless a higher increment has been reached in the previous annual period in which case the royalty rate will start at the highest rate achieved for all Net Sales that year and remain at that level unless a higher rate is achieved. If in subsequent years the annual revenues decline and are below five hundred million dollars (>$500,000,000) for twelve consecutive months then the effective royalty rate will be reduced back to 2% instead of starting at the higher royalty rate from the previous year.

 

  4%
       
 

That portion of annual Net Sales of Products by Forte and Related 6% Parties that is greater than one billion dollars ($1,000,000,000) and will remain at this royalty rate for all future annual Net Sales once achieved in any given year. If in subsequent years the annual revenues decline and are below one billion dollars (>$1,000,000,000) for twelve consecutive months then the effective royalty rate will be reduced back to 4% instead of starting at the higher royalty rate from the previous year.

   

 

4.4 Royalty Term. Royalties under Section 4.3 shall be payable on a quarterly basis due within forty-five (45) days after the end of each Calendar Quarter for aggregate sales in all countries for all markets for all indications during the period of time commencing on the First Commercial Sale of a Product in a country and ending upon the later of: (a) fifteen (15) years from the date of First Commercial Sale of such Product in such country; and (b) expiration of the last-to-expire Valid Patent Claim of the IMUN Patent Rights Covering the manufacture, use or sale of such Product in such country. On a Product-by- Product and country-by-country basis, upon expiration of the Royalty Term for a Product in a country, Forte’s license under Section 2.1 with respect to such Product in such country shall become non-exclusive, fully-paid, irrevocable and perpetual (the “Royalty Term”).

 

(a) Additional Third Party Licenses. In the event that Forte reasonably determines that it is necessary to obtain rights to issued and unexpired Patent Rights of Third Parties (whether through acquisition or license) in order to make, have made, use, offer to sell, sell or import the Compound contained in a Product in a country (“Third Party Patent Licenses”), Forte shall obtain the prior written consent of IMUN in order to engage in such license negotiations, where such consent shall not be unreasonably withheld. If Forte obtains Third Party Patent Licenses, up to one hundred percent (100%) of such acquisition costs and royalties actually paid to Third Parties under such Third Party Patent Licenses by Forte for the sale of such Product in such country annually shall be creditable against the royalty payments due IMUN by Forte with respect to Net Sales of such Product in such country annually; provided however, that in no event shall the deductions under this Section 4.4(a) reduce royalties due to IMUN in any Calendar Quarter to less than twenty five percent (25%) of the amount that would otherwise be due to IMUN under this Article 4. Any portion of the royalties paid to Third Parties under such Third Party Patent Licenses with respect to such Product in such country that Forte would, but for the foregoing limitation on royalty reductions, be entitled to deduct under this Section 4.4(a) shall be carried over and applied against royalties payable to IMUN in respect of such Product in such country in subsequent years until the full deduction is taken.

 

18

 

 

4.5 Compulsory Licenses. If a compulsory license is granted to a Third Party with respect to Product in any country with a royalty rate lower than the royalty rate under Section 4.3, then the Parties shall negotiate in good faith, a mutually agreeable royalty rate to be paid by Forte to IMUN on Net Sales of such Product in that country under Section 4.3, taking into account the relative loss of sales due to the compulsory license.

 

4.6 Adjustment for Generic Competition. On a Product-by-Product and country-by-country basis, during any portion of the Royalty Term for a Product in a country when no Valid Patent Claim of the IMUN Patent Rights covers the manufacture, use or sale of such Product in such country and if one or more Generic Versions of such Product account for fifty percent (50%) or more of aggregate unit sales of such Product and such Generic Version(s) in such country annually, as determined by reference to applicable sales data obtained from IMS Health or from such other third party source for such sales data as may be agreed upon by the Parties (provided that such other source, if any, shall be generally recognized as a reliable source for pharmaceutical sales data among major pharmaceutical companies), then for the remainder of the Royalty Term for such Product in such country, the royalties payable by Forte to IMUN under Section 4.3 with respect to Net Sales of such Product in such country shall be reduced by twenty five percent (25%).

 

ARTICLE 5

PAYMENT; RECORDS; AUDITS

 

5.1 Payment; Reports. Royalties under Section 4.3 shall be calculated and reported to IMUN each Calendar Quarter by Forte during the Royalty Term and shall be paid forty-five (45) days after the end of each Calendar Quarter. Each payment of royalties shall be accompanied by a report of Net Sales of Products in U.S. dollars by Forte and Related Parties in sufficient detail to permit confirmation of the accuracy of the payment made, including gross sales and Net Sales of Products on a Product-by-Product and country-by- country basis, the deductions from gross sales (by major category as set forth in the definition of Net Sales), details of any royalty credits taken pursuant to Section 4.4(a) on a Third Party Patent License-by-Third Party Patent License basis, any applicable reductions or adjustments made pursuant to Section 4.5 and/or Section 4.6, the applicable royalty rate, the royalty payable, the methods used to calculate the royalty rate and the exchange rates used.

 

5.2 Exchange Rate; Manner and Place of Payment. All payment amounts in this Agreement are expressed in U.S. dollars, and all payments hereunder shall be payable in U.S. dollars. When conversion of payments from any foreign currency is required, such conversion shall be calculated using an exchange rate equal to the average of the interbank rates of exchange for such currency as reported at www.OANDA.com during the year, up to that point, for which payment is due. All payments owed under this Agreement shall be made by wire transfer in immediately available funds to the bank and account designated in writing by IMUN.

 

19

 

 

 

5.3 Income Tax Withholding. IMUN represents, warrants, and covenants that IMUN will pay any and all taxes levied on account of any payments made to it under this Agreement. If any taxes are required to be withheld by Forte from any payment made to IMUN under this Agreement, Forte shall (i) deduct such taxes from the payment made to IMUN, (ii) timely pay the taxes to the proper taxing authority, (iii) send proof of payment to IMUN and certify its receipt by the taxing authority within thirty (30) days following such payment, and (iv) cooperate with IMUN in any way reasonably requested by IMUN, to obtain available reductions, credits or refunds of such taxes. Also, IMUN shall cooperate with Forte in any way reasonably requested by Forte, to obtain available reductions, credits or refunds of such taxes. Without limiting the generality of the foregoing, upon request each Party shall provide the other Party such information in the Party’s possession as may be reasonably necessary for the Party to obtain the benefit of any present or future treaty against double taxation which may apply to payments made to IMUN under this Agreement or any other terms of this Agreement.

 

If Forte is required to make a payment to IMUN subject to a deduction or withholding of taxes, and if such deduction or withholding of tax obligation arises solely as a result of the assignment of this Agreement by Forte or as a result of any failure on the part of Forte to comply with Applicable Laws relating to the withholding of taxes, in each case, after the Execution Date, that has the effect of increasing the deduction or withholding of taxes on such payment above the amounts of deduction or withholding of taxes that would otherwise be deducted or withheld prior to such assignment of this Agreement or prior to such failure by Forte to comply with such Applicable Laws, as applicable (a “Forte Withholding Tax Action”), then the payment by Forte (in respect of which such deduction or withholding of taxes is required to be made) shall be increased by the amount of such additional deduction or withholding taxes (the “Additional Tax”), but solely to the extent that (i) such Additional Tax arises solely as a direct result of such Forte Withholding Tax Action and (ii) such Additional Tax cannot be recovered by IMUN. The Additional Tax, along with any other taxes deducted and withheld from the payment made by Forte, shall be timely remitted to the proper governmental authority for the account of IMUN in accordance with Applicable Laws. IMUN will provide satisfactory backup proof to Forte auditors upon request and IMUN agrees to promptly credit back any tax overpayments made.

 

5.4 Audits.

 

(a) Records Maintenance. Forte shall keep (and shall cause its Affiliates and Sublicensees to keep) complete and accurate records (owned exclusively by Forte) pertaining to the sale or other disposition of Products in sufficient detail to permit IMUN confirm the accuracy of all royalty payments due hereunder for at least three (3) full Calendar Years following the end of the Calendar Year to which they pertain and Forte will audit the Net Sales and royalty payments no more than annually at its sole expense and with an auditor acceptable to IMUN, whose consent will not be unreasonably withheld.

 

20

 

 

(b) IMUN Audit Rights. IMUN shall have the additional right, once annually, to cause an independent, certified public accountant reasonably acceptable to Forte to audit such records solely to confirm Net Sales and royalties for a period covering not more than the preceding three (3) full Calendar Years. No Calendar Year shall be subject to audit under this section more than once. Such audits may be exercised during normal business hours upon reasonable prior written notice of not less than thirty (30) days to Forte in the location where the records are maintained. The auditor will execute a reasonable written confidentiality agreement with Forte (as determined by Forte in Forte’s sole but reasonable discretion) and will disclose to IMUN only such information as is reasonably necessary to provide IMUN with information regarding any actual or potential discrepancies between royalty amounts reported and actually paid and amounts payable under this Agreement. The auditor will send a copy of the report to Forte at the same time it is sent to IMUN. The report shall be confidential and will be sent to both Parties will include the methodology and calculations used to determine the results. Prompt adjustments shall be made by the Parties to reflect the results of such audit. Forte shall bear the full cost of such audit.

 

5.5 Late Payments. Any late payment shall accrue interest at a rate of six percent (6%) per annum beginning on the date that the payment is past due until the date of actual payment; provided, however, that in no event shall such rate exceed the maximum legal annual interest rate.

 

ARTICLE 6

CONFIDENTIALITY AND PUBLICATION

 

6.1 Confidential Obligations. Except to the extent expressly authorized by this Agreement, each Party (in such capacity, the “Receiving Party”) agrees that, during the Term and for seven (7) years thereafter, it shall keep confidential and shall not publish or otherwise disclose to any Third Party, and shall not use for any purpose other than as expressly provided for in this Agreement or any other written agreement between the Parties, any Confidential Information furnished or made available to it by or on behalf of the other Party (in such capacity, the “Disclosing Party”). The Parties shall also protect the trade secrets received from the other Party for so long as they remain trade secrets pursuant to the laws of Florida. The Receiving Party shall use at least the same standard of care as it uses to protect proprietary or confidential information of its own (but in no event less than reasonable care) to ensure that its, and its Affiliates’, employees, agents, consultants and other representatives do not disclose or make any unauthorized use of the Confidential Information and shall be responsible and liable for any breach of such obligations by its Affiliates, employees, agents, consultants and other representatives. The Receiving Party shall promptly notify the Disclosing Party upon discovery of any unauthorized use or disclosure of the Disclosing Party’s Confidential Information.

 

21

 

 

6.2 Confidential Information. “Confidential Information” means any technical, business or other Information provided by or on behalf of one Party to the other Party in connection with this Agreement, whether prior to, on or after the Execution Date, including Information relating to the terms of this Agreement (subject to Section 6.5), information relating to the Compounds or Products (including Regulatory Documentation), any exploitation of the Compounds or Products, any Know-How with respect thereto developed by or on behalf of the Disclosing Party or its Affiliates (including the IMUN Know-How and Forte Know-How, as applicable) or the scientific, regulatory or business affairs or other activities of either Party. Notwithstanding the foregoing, the terms of this Agreement shall be deemed to be the Confidential Information of both Parties and both Parties shall be deemed to be the receiving Party and the disclosing Party with respect thereto. Notwithstanding the foregoing, the confidentiality and non-use obligations under this Article 6 with respect to any Confidential Information shall not include any information that: (i) is now, or hereafter becomes, through no act or failure to act on the part of the Receiving Party, generally known or available; (ii) is known by the Receiving Party and/or any of its Affiliates at the time of receiving such information, as evidenced by its records; (iii) is hereafter furnished to the Receiving Party and/or any of its Affiliates by a Third Party, as a matter of right and without restriction on disclosure; or (iv) is independently discovered or developed by the Receiving Party and/or any of its Affiliates, without the use of Confidential Information of the Disclosing Party. Any combination of features or disclosures shall not be deemed to fall within such exclusions set forth in preceding Section 6.2(i) and (ii) merely because individual features are published or available to the general public or in the rightful possession of the Receiving Party unless the combination itself and principle of operation are published or available to the general public or in the rightful possession of the Receiving Party.

 

6.3 Authorized Disclosure. Notwithstanding the provisions of Section 6.1, the Receiving Party may disclose Confidential Information of the Disclosing Party as expressly permitted by this Agreement, or if and to the extent such disclosure is reasonably necessary in the following instances:

 

(a) filing or prosecuting Patents as permitted by this Agreement;

 

(b) enforcing such Party’s rights under this Agreement and in connection with, Marketing Approvals and other regulatory filings and communications;.

 

(c) prosecuting or defending litigation as permitted by this Agreement;

 

(d) complying with applicable court orders, applicable laws, rules or regulations, or the limiting rules of any exchange on which the Receiving Party’s securities are traded;

 

(e) disclosure to Affiliates, actual and potential licensees and sublicensees, employees, consultants or agents of the Receiving Party who have a need to know such information in order for the Receiving Party to exercise its rights or fulfill its obligations under this Agreement, provided, in each case, that any such Affiliate, actual or potential licensee or sublicensee, employee, consultant or agent agrees to be bound by terms of confidentiality and non-use comparable in scope to those set forth in this Article 6;

 

22

 

 

(f) disclosure to Third Parties in connection with due diligence or similar investigations by such Third Parties, and disclosure to potential Third Party investors in confidential financing documents, provided, in each case, that any such Third Party agrees to be bound by reasonable obligations of confidentiality and non-use that are no less restrictive than the confidentiality obligations herein.

 

Notwithstanding the foregoing, in the event the Receiving Party is required to make a disclosure of the Disclosing Party’s Confidential Information pursuant to Section 6.3(c) or 6.3(d), it will, except where prohibited by applicable law, give reasonable advance notice to the Disclosing Party of such disclosure and use efforts to secure confidential treatment of such information at least as diligent as the Receiving Party would use to protect its own confidential information, but in no event less than reasonable efforts. The Disclosing Party shall then have the right to disapprove of the disclosure, except where prohibited by applicable law, in the Disclosing Party’s reasonable judgment. In any event, the Receiving Party agrees to take all reasonable action to avoid disclosure of Confidential Information hereunder.

 

6.4 Publications.

 

Forte and its Affiliates shall have the right to publish worldwide the results of their development activities, including clinical trials, with respect to the Compounds and Products. IMUN shall have the right to review and comment on any material proposed for disclosure or publication by Forte or its Affiliate, such as by oral presentation, manuscript or abstract, that relates to the development, manufacture or commercialization Compounds or Products and/or that includes Confidential Information of IMUN. Before any such material is submitted for publication or disclosure (other than oral presentation materials and abstracts, which are addressed below), Forte shall deliver a complete copy to IMUN at least forty five (45) days prior to submitting the material to a publisher or initiating such other disclosure, and IMUN shall review any such material and give its comments to Forte within thirty (30) days of the delivery of such material to IMUN which comments shall be reviewed by Forte. With respect to oral presentation materials and abstracts, Forte shall deliver a complete copy to IMUN at least fifteen(15) business days prior to the anticipated date of the presentation, and IMUN shall make reasonable efforts to expedite review of such materials and abstracts, and shall return such items as soon as practicable to Forte with appropriate comments, if any, but in no event later than ten (10) business days from the date of delivery to IMUN which comments shall be considered by Forte. Forte shall reasonably comply, or cause its Affiliate to comply (as applicable), with IMUN’s reasonable requests to delete references to IMUN’s Confidential Information in any such material and agrees to delay any submission for publication or other public disclosure for a period of up to an additional sixty (60) days for the purpose of preparing and filing appropriate patent applications.

 

23

 

 

6.5 Publicity

 

(a) Press Releases. No later than one (15) business days following the Execution Date, the Parties shall, if they mutually agree, issue a joint press release announcing the execution of this Agreement in substantially the form attached hereto as Exhibit C. Except as required by applicable securities laws or the limiting rules of any stock exchange on which securities issued by a Party or its Affiliates are traded, a Party shall not make any other public announcement concerning this Agreement or the subject matter hereof without the prior written consent of the other, which shall not be unreasonably withheld, conditioned, or delayed; provided that each Party may make any public statement in response to questions by the press, analysts, investors or those attending industry conferences or financial analyst calls, respond to queries by any exchange on which such Party’s securities are traded, or issue press releases, so long as any such public statement, response, or press release is not inconsistent with prior public disclosures or public statements made in accordance with this Section 6.5 and which do not reveal non-public information about the other Party. In the event of a required public announcement, to the extent practicable under the circumstances, the Party making such announcement shall use reasonable efforts to provide the other Party with a copy of the proposed text of such announcement sufficiently in advance of the scheduled release to afford such other Party a reasonable opportunity to review and comment upon the proposed text, unless the proposed text is substantially the same as that used in any prior public disclosure, press release or public statement made in accordance with this Section 6.5. Forte shall be permitted to issue press releases as to the status of its activities under this Agreement and the License Grant as necessary to communicate with its shareholders, investors, and the public at large.

 

(b) Filing of this Agreement. To the extent applicable, the Parties shall coordinate in advance with each other in connection with the filing of this Agreement (including redaction of certain provisions of this Agreement) with any securities authority or with any stock exchange on which securities issued by a Party or its Affiliate are traded, and each Party will use reasonable efforts to seek confidential treatment for the terms proposed to be redacted; provided that each Party will ultimately retain control over what information to disclose to any securities authority or stock exchange, as the case may be, and provided further that the Parties will use their reasonable efforts to file redacted versions with any governing bodies which are consistent with redacted versions previously filed with any other governing bodies. Other than such obligation, neither Party (nor any of its Affiliates) will be obligated to consult with or obtain approval from the other Party with respect to any filings to any securities authority or stock exchange.

 

ARTICLE 7

REPRESENTATIONS AND WARRANTIES; CERTAIN COVENANTS

 

7.1 Mutual Representations and Warranties. Each Party represents and warrants to the other that: (i) it is duly organized and validly existing under the laws of its jurisdiction of incorporation or formation, and has full corporate or other power and authority to enter into this Agreement and to carry out the provisions hereof; (ii) it is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder, and the person or persons executing this Agreement on its behalf has been duly authorized to do so by all requisite corporate or partnership action; and (iii) this Agreement is legally binding upon it, enforceable in accordance with its terms, and does not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound, nor violate any material law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it.

 

24

 

 

7.2 IMUN Representations and Warranties. IMUN represents and warrants to Forte that:

 

(a) Exhibit A attached hereto contains a true and complete list of the IMUN Patent Rights existing on the Execution Date. The IMUN Patent Rights listed in Exhibit A include all of the Patent Rights Controlled by IMUN as of the Execution Date that cover the Compounds and Products or the manufacture, use, sale, offer for sale or import of any of the foregoing;

 

(b) IMUN or its Affiliates (i) have the right to grant the License Grant that it purports to grant in Section 2.1; and (ii) has not granted to any Third Party any license or other right with respect to any Compound, Product or IMUN Technology that conflicts with or in any way jeopardizes the License Grant and rights granted to Forte herein;

 

(c) IMUN has neither assigned nor otherwise entered into an agreement by which IMUN purports to assign or transfer to a Third Party any right, title or interest in or to any technology or intellectual property right that would conflict with IMUN’s obligations under this Agreement;

 

(d) there are no agreements between IMUN and a Third Party under which rights with respect to the IMUN Technology are being licensed to Forte;

 

(e) IMUN or its Affiliates are the sole and exclusive owner or Licensee of all right, title and interest in and to the IMUN Patent Rights in existence on the Execution Date;

 

(f) to IMUN’s knowledge, the issued and unexpired claims included in the IMUN Patent Rights existing as of the Execution Date are valid and enforceable;

 

(g) no reexamination, interference, invalidity, opposition, nullity or similar claim or proceeding is pending or threatened with respect to any IMUN Patent Right;

 

(h) To IMUN’s knowledge, the development, manufacture, use, sale, offer for sale or import of any Product does not infringe or constitute a misappropriation or violation of the rights of any Third Party;

 

(i) there are no claims, judgments, liens or settlements against or owed by IMUN (or any of its Affiliates) with respect to the IMUN Technology, and IMUN is not a party to any legal action, suit or proceeding relating to the IMUN Technology or any Compound or Product, nor has IMUN received any written communication from any Third Party, including, but not limited to, any Regulatory Authority or other government agency, threatening such action, suit or proceeding;

 

25

 

 

(j) neither IMUN nor any of its Affiliates has obtained, or filed for, any INADs (other than the Compound IND), NADAs or Marketing Approvals for any Compounds or Product in the Field;

 

(k) all research and development (including non-clinical studies and clinical trials) conducted by or, to IMUN’s knowledge, on behalf of IMUN or any of its Affiliates, related to the Compounds and/or Products prior to the Execution Date was conducted in compliance in all material respects with all Applicable Laws and, as applicable, GLP, GCP and/or GMP;

 

(l) neither IMUN nor any of its Affiliates is debarred or disqualified under the Act or comparable Applicable Laws outside of the United States;

 

(m) neither IMUN nor any of its Affiliates has employed or otherwise used in any capacity, in connection with the development or manufacture of Compound or Product, the services of any Person debarred or disqualified under United States law, including 21 U.S.C. §335a, or any foreign equivalent thereof;

 

(n) IMUN and, its directors, officers, employees, and any agent, representative, subcontractor or other third party acting for or on such its behalf, has not, directly or indirectly, offered, paid, promised to pay, or authorized such offer, promise or payment, of anything of value, to any Person for the purposes of obtaining or retaining business through any improper advantage in connection with the development of a Product, or that would otherwise violate any applicable Laws, rules and regulations concerning or relating to public or commercial bribery or corruption, and IMUN’s books, accounts, records and invoices related to the Product are complete and accurate in all material respects; and

 

(o) IMUN has not violated the FCPA or Export Control Laws in connection with the development of the Compounds or Products prior to the Execution Date of this Agreement.

 

7.3 Forte Representations and Warranties. Forte represents and warrants to IMUN that:

 

(a) neither Forte nor any of its Affiliates is debarred or disqualified under the Act or comparable Applicable Laws outside of the United States;

 

7.4 Forte Covenants. In addition to any covenants made by Forte elsewhere in this Agreement, Forte hereby covenants to IMUN as follows:

 

(a) neither Forte nor any of its Affiliates will employ or use the services of any Person who is debarred or disqualified under United States law, including, but not limited to, 21 U.S.C. §335a, or any foreign equivalent thereof, in connection with activities relating to any Compound or Product; and in the event that Forte becomes aware of the debarment or disqualification or threatened debarment or disqualification of any Person providing services to Forte or any of its Affiliates with respect to any activities relating to any Compound or Product, Forte will promptly notify IMUN in writing and Forte will cease, or cause its Affiliate to cease (as applicable), employing, contracting with, or retaining any such Person to perform any services relating to any Compound or Product;

 

26

 

 

(b) neither Forte nor any of its Affiliates will, in connection with the exercise of its rights or performance of its obligations under this Agreement, directly or indirectly through Third Parties, pay, promise or offer to pay, or authorize the payment of, any money or give any promise or offer to give, or authorize the giving of anything of value to a public official or entity or other Person for purpose of obtaining or retaining business for or with, or directing business to, any Person, including Forte and its Affiliates, nor will Forte or any of its Affiliates directly or indirectly promise, offer or provide any corrupt payment, gratuity, emolument, bribe, kickback, illicit gift or hospitality or other illegal or unethical benefit to a public official or entity or any other Person in connection with the exercise of Forte’s rights or performance of Forte’s obligations under this Agreement;

 

(c) neither Forte nor any of its Affiliates (or any of their respective employees and contractors), in connection with the exercise of Forte’s rights or performance of Forte’s obligations under this Agreement, shall cause IMUN to be in violation of the FCPA or Export Control Laws;

 

(d) Forte shall promptly notify IMUN if it has any information or suspicion that there may be a violation of the FCPA or Export Control Laws in connection with the exercise of Forte’s rights or performance of Forte’s obligations under this Agreement;

 

7.5 Performance by Affiliates, Sublicensees and Subcontractors. The Parties recognize that each Party may perform some or all of its obligations or exercise some or all of its rights under this Agreement through one or more Affiliates, subcontractors, or, in the case of Forte and subject to Section 2.2, Sublicensees; provided, in each case, that (i) none of the other Party’s rights hereunder are diminished or otherwise adversely affected as a result of such delegation or subcontracting, and (ii) each such Affiliate, subcontractor or Sublicensee undertakes in writing obligations of confidentiality and non-use regarding Confidential Information and ownership of Inventions which are substantially the same as those undertaken by the Parties pursuant to Article 6 and Section 8.1; and provided, further, that such Party shall at all times be fully responsible for the performance and payment of such Affiliate, subcontractor or Sublicensee and the acts or omissions of each Affiliate, subcontractor or Sublicensee.

 

7.6 Disclaimer. Except as expressly set forth in this Agreement, THE TECHNOLOGY, INTELLECTUAL PROPERTY RIGHTS AND INVENTORY PROVIDED BY IMUN HEREUNDER ARE PROVIDED “AS IS”. Except as expressly set forth in this Agreement, IMUN EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, WRITTEN OR ORAL, INCLUDING, WITHOUT LIMITATION, THE WARRANTIES OF QUALITY, DESIGN, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF PATENTS, NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES, OR ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICES.

 

27

 

 

ARTICLE 8

INTELLECTUAL PROPERTY

 

8.1 Ownership. As between the Parties, IMUN (or its Affiliates) is/are the sole and exclusive owner/Licensee of all right, title and interest in and to the IMUN Technology, other than Joint Inventions and Joint Patent Rights, and Forte is the sole and exclusive owner of all right, title and interest in and to the Forte Technology, other than Joint Inventions and Joint Patent Rights. A Party shall have and retain all right, title and interest in any Invention made solely by one or more employees or agents of such Party and or its Affiliates or other persons acting under its authority. The Parties shall jointly own rights in any Invention made jointly by one or more employees or agents of each Party and/or its Affiliates or other persons acting under its authority (“Joint Inventions”) and Patent Rights therein (“Joint Patent Rights”). Subject to the rights and licenses granted under the Agreement, each Party shall have the right to practice and use, and grant licenses to practice and use, any Joint Inventions and Joint Patent Rights without the other Party’s consent and has no duty to account to the other Party for such practice, use and license, and each Party hereby waives any right it may have under the laws of any country to require any such consent or accounting, provided however, each Party shall reasonably inform to the other Party if and when Joint Patent Rights are practiced, used, and licenses to practice are granted.

 

8.2 Patent Prosecution and Maintenance.

 

(a) IMUN Patent Rights

 

(i) IMUN shall have the sole right, but not the obligation, to control the preparation, filing, prosecution and maintenance of IMUN Patent Rights that are not included in the license grant in Section 2.1(i) by counsel of its choice. IMUN shall be solely responsible for such expenses relating thereto.

 

(ii) IMUN shall have the first right to control the preparation, filing, prosecution and maintenance of IMUN Patent Rights that are included in the license grant in Section 2.1(i) at IMUN’s expense and by counsel of its choice. Forte may be consulted with IMUN as to the preparation, filing, prosecution and maintenance of such Patent Rights relating to this agreement reasonably prior to any deadline or action with any patent office, and shall furnish to Forte copies of all relevant drafts and documents reasonably in advance of such consultation. IMUN shall keep Forte reasonably informed of progress with regard to the preparation, filing, prosecution and maintenance of such Patent Rights and shall provide to Forte copies of all material patent office submissions within a reasonable amount of time following submission thereof by IMUN. In the event that IMUN desires to abandon or cease prosecution or maintenance of any of such Patent Rights, IMUN shall provide written notice to Forte of such intention to abandon promptly after IMUN makes such determination (which notice shall be given no later than ninety (90) days prior to the next deadline for any action that must be taken with respect to such Patent Rights in the relevant patent office). In such case, Forte shall have the right, in its discretion, exercisable upon written notice to IMUN delivered no later than thirty (30) days after receipt of notice from IMUN, to assume responsibility for prosecution and maintenance of such Patent Rights, at its sole cost and expense and by counsel of its own choice and if Forte exercises such right, then such Patent Rights are expressly excluded from the definition of IMUN Patent Rights and are not subject to the License Grant. For the avoidance of doubt, nothing in this Section 8.2(a)(ii) grants Forte ownership rights in IMUN Patent Rights.

 

28

 

 

(b) Forte Patent Rights. Forte shall have the sole right, to control the preparation, filing, prosecution and maintenance of Forte Patent Rights, at Forte’s sole expense and by counsel of its choice.

 

(c) Joint Patent Rights. IMUN shall have the first right to control the preparation, filing, prosecution and maintenance of Joint Patent Rights at IMUN’s expense and by counsel of its choice. IMUN shall consult with Forte as to the preparation, filing, prosecution and maintenance of such Joint Patent Rights reasonably prior to any deadline or action with any patent office, and shall furnish to Forte copies of all relevant drafts and documents reasonably in advance of such consultation. IMUN shall keep Forte reasonably informed of progress with regard to the preparation, filing, prosecution and maintenance of such Joint Patent Rights and shall provide to Forte copies of all material patent office submissions within a reasonable amount of time following submission thereof by IMUN, and in any case no less than quarterly. In the event that IMUN desires to abandon or cease prosecution or maintenance of any of such Joint Patent Rights, IMUN shall provide written notice to Forte of such intention to abandon promptly after IMUN makes such determination (which notice shall be given no later than ninety (90) days prior to the next deadline for any action that must be taken with respect to such Joint Patent Rights in the relevant patent office). In such case, Forte shall have the right, in its discretion, exercisable upon written notice to IMUN delivered no later than thirty (30) days after receipt of notice from IMUN, to assume responsibility for prosecution and maintenance of such Joint Patent Rights, at its sole cost and expense and by counsel of its own choice and if Forte exercises such right, then such Joint Patent Rights are expressly excluded from the definition of Joint Patent Rights and IMUN will assign its right, title and interest in such Joint Patent Rights to Forte.

 

(d) Cooperation of the Parties. Each Party agrees to cooperate fully in the preparation, filing, prosecution and maintenance of Joint Patent Rights under this Agreement and in the obtaining and maintenance of any patent extensions, supplementary protection certificates and the like with respect to any Joint Patent Right. Such cooperation includes, but is not limited to: (i) promptly executing all papers and instruments, or requiring its employees or contractors to execute such papers and instruments, so as to effectuate the joint ownership of Joint Inventions and Joint Patent Rights set forth in Section 8.1, and to enable the other Party to apply for and to prosecute patent applications in any country in accordance with the foregoing provisions of this Section 8.2; and (ii) promptly informing the other Party of any matters coming to such Party’s attention that may affect the preparation, filing, prosecution or maintenance of any such patent applications.

 

29

 

 

8.3 Interference, Opposition, Invalidation, Reexamination and Reissue.

 

(a) Notice. Each Party shall inform the other Party of any request for, or filing or declaration of, any interference, opposition, invalidation, reissue or reexamination relating to claims of a IMUN Patent Right, Forte Patent Right or Joint Patent Right, within ten (10) days of learning of such event.

 

(b) IMUN Patent Rights.

 

With respect to any request for or filing or declaration of, any interference, opposition, invalidation, reissue or reexamination relating to a claim of a IMUN Patent Right that is not included in the License Grant in Section 2.1, IMUN shall have the sole right (in its discretion) to initiate, prosecute and/or respond, to such action or proceeding.

 

(i) IMUN Patent Rights. With respect to any request for, or filing or declaration of, any interference, opposition, invalidation, reissue or reexamination relating to a claim of a IMUN Patent Right that is included in the license grant in Section 2.1(i), IMUN, at IMUN’s expense and by counsel of its choice, shall have the first right (in its discretion) to initiate, prosecute and/or respond, to such action or proceeding, provided that IMUN shall consult with Forte with respect to any such action or proceeding and shall consider Forte’s position in good faith. IMUN shall not settle any interference, opposition, invalidation, reissue or reexamination action or proceeding relating to any claim of such Patent Right without informing Forte. IMUN shall keep Forte informed of developments in any such action or proceeding involving any claim relating to such Patent Right. In the event that IMUN does not desire to initiate, prosecute and/or respond to such action or proceeding, IMUN shall provide written notice to Forte of such intention promptly after IMUN makes such determination. In such case, Forte shall have the right, in its discretion, exercisable upon written notice to IMUN, to assume responsibility to initiate, prosecute and/or respond, to such action or proceeding, at its sole cost and expense and by counsel of its own choice.

 

(c) Forte Patent Rights. With respect to any request for, or filing or declaration of, any interference, opposition, invalidation, reissue, or reexamination relating to a claim of a Forte Patent Right, Forte shall have the sole right (in its discretion) to initiate, prosecute and/or respond, to such action or proceeding at Forte’s expense and by counsel of its choice.

 

(d) Joint Patent Rights. With respect to any request for, or filing or declaration of, any interference, opposition, invalidation, reissue or reexamination relating to a claim of a Joint Patent Right, IMUN, at IMUN’s expense and by counsel of its choice, shall have the first right (in its discretion) to initiate, prosecute and/or respond to such action or proceeding, provided that IMUN shall consult with Forte with respect to any such action or proceeding and shall consider Forte’s position in good faith. IMUN shall not settle any interference, opposition, invalidation, reissue or reexamination action or proceeding relating to any claim of such Patent Right without the prior written consent of Forte. IMUN shall keep Forte informed of developments in any such action or proceeding involving any claim relating to such Patent Right. In the event that IMUN does not desire to initiate, prosecute and/or respond to such action or proceeding, IMUN shall provide written notice to Forte of such intention promptly after IMUN makes such determination. In such case, Forte shall have the right, in its discretion, exercisable upon written notice to IMUN, to assume responsibility to initiate, prosecute and/or respond, to such action or proceeding, at its sole cost and expense and by counsel of its own choice.

 

30

 

 

8.4 Enforcement and Defense of Patent Rights.

 

(a) Notice. Each Party shall notify the other Party in writing within ten (10) business days (except as expressly set forth below) of becoming aware of any alleged or threatened Infringement by a Third Party of any of the IMUN Patent Rights, Joint Patent Rights or Forte Patent Rights, including, but not limited to, any such alleged or threatened Infringement on account of a Third Party’s manufacture, use or sale of a Compound or Product in the Field, any certification filed in the United States under 21 U.S.C. §355(b)(2) or 21 U.S.C. §355(j)(2) or similar provisions in other jurisdictions in connection with an NADA or CNADA (in the United States or a comparable application for Marketing Approval under Applicable Law in any country other than the United States) or other NADA/CNADA for a Product in the Field (a “Patent Certification”), and any declaratory judgment action filed by a Third Party that is developing, manufacturing or commercializing a Compound or Product in the Field alleging the invalidity, unenforceability or non- infringement of any of the IMUN Patent Rights, Joint Patent Rights or Forte Patent Rights, (collectively, “Forte Competitive Infringement”); provided, however, that each Party shall notify the other Party of any Patent Certification regarding any IMUN Patent Right or Joint Patent Right that it receives, and such Party shall provide the other Party with a copy of such Patent Certification, within five (5) business days of receipt.

 

(b) IMUN Patent Rights.

 

(i) Forte Competitive Infringement. Forte shall have the first right, but not the obligation, to bring (or defend) and control any action or proceeding with respect to Forte Competitive Infringement of a IMUN Patent Rights as related to this License Agreement, at Forte’s own expense and by counsel of its own choice, and IMUN shall have the right to be represented in any such action or proceeding, at IMUN’s own expense and by counsel of its own choice. If Forte fails to bring any such action or proceeding with respect to Forte Competitive Infringement of any IMUN Patent Right within ninety (90) days following the notice of alleged Forte Competitive Infringement, IMUN shall have the right to bring (or defend) and control any such action at its own expense and by counsel of its own choice, and Forte shall have the right, at its own expense, to be represented in any such action by counsel of its own choice; provided, however, that if the applicable Forte Competitive Infringement is the result of Forte’s receipt of a Patent Certification with respect to a IMUN Patent Right, Forte shall notify IMUN of Forte’s decision to bring (or defend) and control any action or proceeding within ten (10) days of Forte’s receipt of such Patent Certification with respect to a IMUN Patent Right, after which time, in each case, IMUN shall have the right to bring (or defend) and prosecute such action, and Forte shall have the right, at its own expense, to be represented in any such action by counsel of its own choice.

 

31

 

 

(ii) Other Infringement. IMUN shall have the sole right, but not the obligation, to bring (or defend) and control any action or proceeding with respect to any Infringement of any IMUN Patent Right that is not Forte Competitive Infringement, at its own expense and by counsel of its own choice.

 

(c) Joint Patent Rights.

 

(i) Forte Competitive Infringement. Forte shall have the first right, but not the obligation, to bring (or defend) and control any action or proceeding with respect to Forte Competitive Infringement of any Joint Patent Right, at its own expense and by counsel of its own choice, and IMUN shall have the right, at its own expense, to be represented in any such action by counsel of its own choice. If Forte fails to bring any such action or proceeding with respect to Forte Competitive Infringement of any Joint Patent Right within ninety (90) days following the notice of alleged infringement, IMUN shall have the right to bring (or defend) and control any such action at its own expense and by counsel of its own choice, and Forte shall have the right, at its own expense, to be represented in any such action by counsel of its own choice; provided, however, that if the applicable Forte Competitive Infringement is the result of Forte’s receipt of a Patent Certification with respect to a Joint Patent Right, Forte shall notify IMUN of Forte’s decision to bring (or defend) and control any action or proceeding within ten (10) days of Forte’s receipt of such Patent Certification with respect to a Joint Patent Right, after which time IMUN shall have the right to bring (or defend) and prosecute such action, and Forte shall have the right, at its own expense, to be represented in any such action by counsel of its own choice.

 

(ii) IMUN Competitive Infringement. IMUN shall have the first right, but not the obligation, to bring (or defend) and control any action or proceeding with respect to Infringement of any Joint Patent Right to the extent the Infringement is not a Forte Competitive Infringement (“IMUN Competitive Infringement”), at its own expense and by counsel of its own choice, and Forte shall have the right, at its own expense, to be represented in any such action by counsel of its own choice. If IMUN fails to bring any such action or proceeding with respect to IMUN Competitive Infringement of any Joint Patent Right within ninety (90) days following the notice of alleged infringement, Forte shall have the right to bring (or defend) and control any such action at its own expense and by counsel of its own choice, and IMUN shall have the right, at its own expense, to be represented in any such action by counsel of its own choice; provided, however, that if the applicable IMUN Competitive Infringement is the result of IMUN’s receipt of a Patent Certification with respect to a Joint Patent Right, IMUN shall notify Forte of IMUN’s decision to bring (or defend) and control any action or proceeding within ten (10) days of IMUN’s receipt of such Patent Certification with respect to a IMUN Patent Right, after which time IMUN shall have the right to bring (or defend) and prosecute such action, and Forte shall have the right, at its own expense, to be represented in any such action by counsel of its own choice.

 

(d) Forte Patent Rights. FORTE shall have the sole right, but not the obligation, to bring (or defend) and control any action or proceeding with respect to infringement of any Forte Patent Right at its own expense and by counsel of its own choice.

 

32

 

 

(e) Cooperation. In the event a Party brings (or defends) an infringement action or litigation from a Third Party in accordance with this Section 8.4, or in the event a Party is entitled to bring (or defend) an infringement action or litigation against IMUN or Forte by a Third Party in accordance with this Section 8.4 but lacks standing to do so, the other Party shall cooperate fully, including, but not limited to, if required to bring (or defend) such action, Forte will pay for the defense of such action, or the furnishing of a power of attorney or being named as a party will defend the other Party in that litigation or infringement action. Neither Party shall enter into any settlement or compromise of any action under this Section 8.4 which would in any manner alter, diminish, or be in derogation of the other Party’s rights under this Agreement without the prior written consent of such other Party, which shall not be unreasonably withheld, conditioned, or delayed.

 

(f) Duty to Protect Patent Rights. As of the Execution Date, during the Royalty Term on a country-by-country basis, the Parties shall use Commercially Reasonable Efforts to preserve, protect and maintain the IMUN Patent Rights and the Joint Patent Rights and keep them in good standing in every country where rights exist and, if necessary, shall initiate legal remedies to keep the IMUN Patent Rights and Joint Patent Rights valid, enforceable, and pertinent to the requirements hereunder.

 

(g) Recovery. Except as otherwise agreed by the Parties in connection with a cost-sharing arrangement, any recovery realized by a Party as a result of any action or proceeding pursuant to this Section 8.4(g), whether by way of settlement or otherwise, shall be applied first to reimburse the documented out-of-pocket legal expenses of the Party that brought (or defended) and controlled such action or proceeding incurred in connection with such action or proceeding, and second to reimburse the documented out-of-pocket legal expenses of the other Party incurred in connection with such action or proceeding, and any remaining amounts shall be retained by the Party that brought (or defended) and controlled such action; provided, however, that:

 

(i) any recovery realized by Forte as a result of any action brought (or defended) and controlled by Forte pursuant to Section 8.4(b)(i) or Section 8.4(c)(i) (after reimbursement of the Parties’ documented out-of-pocket legal expenses relating to the action or proceeding) shall be allocated as follows:

 

(A) compensatory damages shall: (1) if awarded as lost sales, be treated as Net Sales of Products in the year in which such damages are received for purposes of Section 4.3; and (2) if not awarded as lost sales, be treated as profits or royalties, as appropriate, and shall be used to determine lost sales, which lost sales shall be treated as Net Sales of Products for purposes of Section 4.3 in the year in which such damages are received, provided that in no event shall Forte be obligated to pay to IMUN more than fifty percent (50%) of the compensatory damages described in this Section 8.4(g)(i)(A); and

 

(B) non-compensatory damages shall be divided equally, fifty percent (50%) to Forte and fifty (50%) to IMUN; and

 

(ii) any recovery realized by IMUN as a result of any action brought and controlled by IMUN pursuant to Section 8.4(c)(ii) (after reimbursement of the Parties’ documented out-of-pocket legal expenses relating to the action or proceeding) shall be allocated as follows, subject to any payments to IMUN required by the IMUN License:

 

33

 

 

(A) compensatory damages shall be shared equally by the Parties; and

 

(B) non-compensatory damages shall be shared equally by the Parties.

 

8.5 Patent Term Extensions.

 

(a) IMUN Patent Rights. Forte shall have the right to determine the IMUN Patent Rights that are included in the license grant in Section 2.1(i) for which it will apply for patent extension in any country and/or region for any Product in the Field, other than any IMUN Patent Right included in the license grant in Section 2.1(i) in any country and/or region for which IMUN (or its Affiliate, licensee or sublicensee) has already applied for or received patent extension for (i) IMUN Product, or (ii) any compound that is not a Compound or product that is not a Product. Forte shall file for any such extension at Forte’s cost and expense. IMUN shall provide all reasonable assistance to Forte in connection with such filings, provided that Forte shall pay or reimburse any out-of-pocket costs incurred by IMUN in providing such assistance. IMUN shall have the right to determine the IMUN Patent Rights that are not included in the license grant in Section 2.1(i) for which it will apply for patent extension in any country and/or region for any Product in the Field. IMUN may file for any such extension at IMUN’s cost and expense. Forte shall provide all reasonable assistance to IMUN in connection with such filings, provided that IMUN shall pay or reimburse any out-of-pocket costs incurred by Forte in providing such assistance.

 

(b) Joint Patent Rights. Forte shall have the first right to determine the Joint Patent Rights for which it will apply for patent extension in any country and/or region for any Product in the Field, and Forte shall file for any such extension at Forte’s cost and expense; provided, however, that, solely in the case of Joint Patent Rights that do not claim or cover any Product in the Field, IMUN shall have the right to determine those of such Joint Patent Rights for which it will apply for patent extension in any country and/or region for a product of IMUN which is not a Product, and IMUN shall file for any such extension at IMUN’s cost and expense. Where Forte has determined and provided notice to IMUN that it will not proceed with applying for a patent extension for Joint Patent Right (such notice to be provided to IMUN such that IMUN will have sufficient time to apply for such patent extension), IMUN shall have the right to determine whether it will apply for patent extension for such Joint Patent Right, any such extension to be filed at IMUN’s cost and expense. Each Party shall provide all reasonable assistance to the other Party in connection with such filings, provided that the Party filing for any such extension shall pay or reimburse any out-of-pocket costs incurred by the other Party in providing such assistance.

 

(c) Forte Patent Rights. Forte shall have the sole right to apply for extension of any Forte Patent Right in any country and/or region for any product, including, but not limited to, any Product in the Field, at Forte’s sole cost and expense.

 

8.6 Infringement of Third Party Rights. Each Party shall promptly notify the other in writing of any allegation by a Third Party that the activity of either Party pursuant to this Agreement infringes or may infringe the intellectual property rights of such Third Party, or of any other deficiency with respect to those intellectual property rights. In the case of IMUN notifying Forte of allegation by a Third Party, IMUN will bear the cost of legal and all other expenses needed to defend against such allegation. Neither Party shall have the right to settle any patent infringement litigation under this Section 8.6 in a manner that diminishes the rights or interests of the other Party without the written consent of such other Party (which shall not be unreasonably withheld, conditioned, or delayed).

 

34

 

 

8.7 Marking. To the extent required by applicable law, Forte shall, and shall cause its Related Parties to, mark all Products made, used or sold in the Field, or their containers, with the number of each issued IMUN Patent Right that applies to such Product.

 

ARTICLE 9

TERM AND TERMINATION

 

9.1 Term. The term of this Agreement (the “Term”) shall commence on the Execution Date and, unless earlier terminated in accordance with this Article 9, shall continue in full force and effect, on a Product-by-Product and country-by-country basis, until the expiration of the Royalty Term with respect to such Product in such country.

 

9.2 Termination for Material Breach. Each Party shall have the right to terminate this Agreement in its entirety upon written notice to the other Party if such other Party is in material breach of this Agreement and has not cured such breach within sixty (60) days after written notice from the terminating Party requiring cure of the breach. Any such termination shall become effective at the end of such sixty (60)-day period unless the breaching Party has cured such breach prior to the end of such period (or if such breach is not capable of being cured during such sixty (60)-day period, the breaching Party fails to present a mutually agreeable remediation plan for such breach or ceases to exert Commercially Reasonable efforts to pursue the cure as provided in the remediation plan). Any right to terminate under this Section 9.2 shall be stayed and the cure period tolled in the event that, during any cure period, the Party alleged to have been in material breach shall have initiated dispute resolution in accordance with Article 11 with respect to the alleged breach, which stay and tolling shall continue until such dispute has been resolved in accordance with Article 11.

 

9.3 Termination for Patent Challenge. IMUN shall have the right to terminate this Agreement immediately upon written notice to Forte if Forte or its Affiliate directly, or through assistance granted to a Third Party, commences any interference or opposition proceeding with respect to, challenges the validity or enforceability of, or opposes any extension of or the grant of a supplementary protection certificate with respect to, any IMUN Patent Right.

 

9.4 Termination by Forte. Forte may terminate this Agreement in its entirety or on a country-by-country or product-by-product basis at any time upon sixty (60) days’ prior written notice to IMUN, in the event (i) Forte reasonably determines that it is unsafe to continue the clinical studies or commercialization of the Compounds or Products, (ii) circumstances beyond Forte’s reasonable control preventing completion of such clinical studies, and commercialization of the Compounds or Products, including without limitation, failure to demonstrate clinical effectiveness by failing to meet the primary endpoint in any such clinical study as set forth in the protocol. In case of a partial termination by Forte either on a country-by-country or product-by-product basis, the rest of the Agreement shall continue in full force and effect; and (iii) if IMUN unreasonably refuses to consent to Forte obtaining or otherwise acquiring rights to intellectual property belonging to third parties that Forte reasonably determines it is necessary in order to make, have made, use, offer to sell, or import the Compound.

 

35

 

 

9.5 Termination for Insolvency. In the event that either Party (a) files for protection under bankruptcy or insolvency laws, (b) makes an assignment for the benefit of creditors, (c) appoints or suffers appointment of a receiver or trustee over substantially all of its property that is not discharged within ninety (90) days of such filing, (d) proposes a written agreement of composition or extension of its debts, (e) proposes or is a voluntary party to any dissolution or liquidation, (f) files a petition under any bankruptcy or insolvency act or (g) admits in writing its inability generally to meet its obligations as they fall due in the general course, then the other Party shall have the right to terminate this Agreement in its entirety, immediately upon written notice to such Party.

 

9.6 Additional Termination Rights. IMUN shall have the right to terminate this Agreement in the event of the occurrence of any of the following with written notification to Forte and ninety (90) days to cure each breach from the date of provision of such notice, provided, however, that the total cumulative cure periods Forte is entitled to use hereunder shall not exceed one hundred and eighty (180) days and the ninety (90) day cure period shall not apply to Section 9.6(a) and Section 9.6(b):

 

(a) Forte fails to make a payment due to IMUN pursuant to Section 4.1;

 

(b) Forte fails to pay a milestone payment or royalty payment due to IMUN under Section 4.2 or Section 4.3;

 

(c) Forte fails to pay any payment obligated by the Collaboration Agreement;

 

(d) the Collaboration Agreement is terminated; or

 

(e) Forte ceases to diligently commercialize the Product in the U.S. due to non- competitiveness of the Product or other clinical/commercial reason.

 

9.7 Termination for Force Majeure. The non-affected Party may terminate this Agreement due to force majeure pursuant to Section 12.8 upon thirty (30) days written notice to the other Party.

 

9.8 Effect of Expiration or Termination.

 

(a) Expiration. On a Product-by-Product and country-by-country basis, upon expiration (but not on earlier termination) of this Agreement, all licenses granted by IMUN to Fortee pursuant to this Agreement that were in effect immediately prior to such expiration shall survive on a non-exclusive, perpetual, irrevocable, fully-paid, worldwide, royalty-free basis.

 

36

 

 

(b) Termination Generally. In the event of termination of this Agreement for any reason, the license (on a country by country basis in the event of partial termination by Forte under Section 9.4) granted to Forte pursuant to Section 2.1 shall automatically terminate and revert to IMUN, and all other rights and obligations of the Parties under this Agreement shall terminate, except as expressly provided elsewhere in this Article 9.

 

(c) Termination by IMUN Pursuant to Sections 9.2, 9.3, 9.5 9.7, by FORTE pursuant to Section 9.4., and by the Parties pursuant to Section 9.6 In the event of termination of this Agreement Sections 9.2, 9.3, 9.4 9.5, 9.6 or 9.7, the following provisions shall also apply:

 

(i) Effective as of such termination, all licenses granted by IMUN to Forte under this Agreement will terminate;

 

(ii) Effective as of such termination, Forte shall, and it hereby does, grant to IMUN: (A) an exclusive, worldwide, royalty-free, fully-paid, perpetual, irrevocable license, with the right to sublicense through multiple tiers of sublicense, under those Forte Patent Rights that claim any Invention made solely by one or more employees or agents of Forte or its Affiliates in the course of conducting research, development, manufacturing, regulatory or commercialization activities contemplated by this Agreement, the Forte Know-How, and Forte’s interest in the Joint Patent Rights; and (B) a non-exclusive, worldwide, royalty-free, fully-paid, perpetual, irrevocable license (or sublicense), with the right to sublicense through multiple tiers of sublicense, under Blocking Patents (defined below); in each case, solely to develop, make, have made, use, sell, offer for sale, and import Compounds and Products in the Field. For purposes of this Section 9.8(c)(i), “Blocking Patents” shall mean Forte Patent Rights other than those described in Section (A) of this Section 9.9(c)(ii).

 

(iii) Effective as of such termination, Forte shall, and it hereby does, transfer and assign to IMUN all of its right, title and interest in and to all Trademarks and Domain Names relating to the Product owned by Forte as of the date of termination.

 

(iv) As promptly as practicable (and in any event within ninety (90) days) after such termination, Forte shall: (A) to the extent not previously provided to IMUN, deliver to IMUN true, correct and complete copies of all Regulatory Documents, and disclose to IMUN all previously undisclosed Forte Know How; (B) transfer or assign, or cause to be transferred or assigned, to IMUN or its designee (or to the extent not so assignable, take all reasonable actions to make available to IMUN or its designee the benefits of) all INADs, NADAs/CNADAs and Marketing Approvals for Products, whether held in the name of FORTE or any of its Related Parties; and (C) take such other actions and execute such other instruments, assignments and documents as may be necessary to effect, evidence and record the transfer, assignment or other conveyance of rights under this Section 9.8(c)(iii) to IMUN.

 

37

 

 

(v) Forte shall, as directed by IMUN, either promptly wind-down any ongoing development activities with respect to Products in an orderly fashion or promptly transition such development activities to IMUN or its designee, with due regard for patient safety and in compliance with all Applicable Laws and GCP.

 

(vi) IMUN shall have the right to purchase from Forte any or all usable inventory of Compounds and Products in Forte’s or it’s Affiliates’ possession as of the date of termination. Such inventory shall be provided at a transfer price equal to Forte’s cost of such inventory.

 

(vii) If Forte was, prior to termination, manufacturing, or having manufactured on its behalf, any quantities of Compounds or Products, then at IMUN’s request, until the earlier of (A) such time as IMUN has secured another source thereof that is able to meet IMUN’s quality and quantity requirements, and (B) eighteen (18) months after such termination, Forte shall use commercially reasonable efforts to supply, or cause to be supplied, to IMUN (at IMUN’s sole cost and expense) such quantities thereof as IMUN may reasonably require for the development and commercialization of Products in the Field; provided that IMUN shall use commercially reasonable efforts to secure another source of supply as soon as reasonably practicable. Such material shall be provided at a transfer price equal to Forte’s cost of such materials.

 

9.9 Accrued Obligations; Survival. Neither expiration nor any termination of this Agreement shall relieve either Party of any obligation or liability accruing prior to such expiration or termination, including but not limited to any Royalty, Milestone, collaboration payments, or manufacturing payments; nor shall expiration or any termination of this Agreement preclude either Party from pursuing all rights and remedies it may have under this Agreement, at law or in equity, with respect to breach of this Agreement. In addition, the Parties’ rights and obligations under Sections 6.1 through 6.3, 12.1 through 12.15 and 12.17 and Articles 9 and 11 of this Agreement shall survive expiration or any termination of this Agreement.

 

9.10 Return of Confidential Information. Within thirty (30) days following the expiration or termination of this Agreement, except to the extent that a Party retains a license from the other Party as provided in this Article 9, each Party shall promptly return to the other Party, or delete or destroy, all relevant records and materials in such Party’s possession or control containing Confidential Information of the other Party and cease using Know- How in the development or manufacture of new or existing Product or products; provided that such Party may keep one copy of such materials for archival purposes only subject to a continuing confidentiality obligations.

 

9.11 Damages; Relief. Termination of this Agreement shall not preclude either Party from claiming any other damages, compensation or relief that it may be entitled to hereunder.

 

38

 

 

ARTICLE 10

INDEMNIFICATION

 

10.1 Indemnification by Forte. Forte hereby agrees to save, defend, indemnify and hold harmless IMUN, its Affiliates, its and their respective officers, directors, agents, employees, successors and assigns (the “IMUN Indemnitees”) from and against any and all losses, damages, liabilities, expenses and costs, including, but not limited to, reasonable legal expense and attorneys’ fees (“Losses”), to which any IMUN Indemnitee may become subject as a result of any claim, demand, action or other proceeding by any Third Party (each, a “Claim”) to the extent such Losses arise out of or relate to (a) the gross negligence or willful misconduct of any Forte Indemnitee (defined below); (b) the material breach by Forte of this Agreement, including or any warranty, representation, covenant or agreement made by Forte in this Agreement; (c) any prior terminated agreement that includes the License Grant, Patent Rights, or any other rights contemplated by this Agreement; or (d) the development, commercialization or use of any Compound or Product by or on behalf of Forte, its Sublicensees or any of its or their respective Affiliates, including any Third Party claims alleging death, personal injury or other product liability to the extent arising out of or related to the use of any Compound or Product sold by or on behalf of Forte in the Territory; except, in each case, to the extent such Losses result from the gross negligence or willful misconduct of any IMUN Indemnitee or the breach by IMUN of any warranty, representation, covenant or agreement made by IMUN in this Agreement.

 

10.2 Indemnification by IMUN. IMUN hereby agrees to save, defend, indemnify and hold harmless Forte, its Affiliates and their respective officers, directors, agents, employees, consultants, attorneys, successors, and agents (the “Forte Indemnitees”) from and against any and all Losses to which any Forte Indemnitee may become subject as a result of any Claim by any Third Party to the extent such Losses arise out of or relate to (a) the gross negligence or willful misconduct of any IMUN Indemnitee; or (b) the material breach by IMUN of this Agreement, including breach by IMUN of any warranty, representation, covenant or agreement made by IMUN in this Agreement; in each case except to the extent such Losses result from the gross negligence or willful misconduct of any Forte Indemnitee or the breach by Forte of any warranty, representation, covenant or agreement made by Forte in this Agreement.

 

10.3 Control of Defense. In the event a Party (the “Indemnified Party”) seeks indemnification under Section 10.1 or 10.2, it shall inform the other Party (the “Indemnifying Party”) of a Claim as soon as reasonably practicable after it receives notice of the Claim (it being understood and agreed, however, that the failure by an Indemnified Party to give notice of a Claim as provided in this Section 10.3 shall not relieve the Indemnifying Party of its indemnification obligation under this Agreement except and only to the extent that such Indemnifying Party is actually damaged as a result of such failure to give notice), shall permit the Indemnifying Party to assume direction and control of the defense of the Claim (including, but not limited to, the right to settle the Claim solely for monetary consideration) using counsel reasonably satisfactory to the Indemnified Party, and shall cooperate as requested (at the expense of the Indemnifying Party) in the defense of the Claim. If the Indemnifying Party does not assume control of such defense within fifteen (15) days after receiving notice of the Claim from the Indemnified Party, the Indemnified Party shall control such defense and, without limiting the Indemnifying Party’s indemnification obligations, the Indemnifying Party shall reimburse the Indemnified Party for all costs, including, but not limited to, reasonable attorney fees, incurred by the Indemnified Party in defending itself within thirty (30) days after receipt of any invoice therefor from the Indemnified Party. The Party not controlling such defense may participate therein at its own expense. The Party controlling such defense shall keep the other Party advised of the status of such Claim and the defense thereof and shall consider recommendations made by the other Party with respect thereto. The Indemnified Party shall not agree to any settlement of such Claim without the prior written consent of the Indemnifying Party, which shall not be unreasonably withheld, conditioned, or delayed. The Indemnifying Party shall not agree to any settlement of such Claim or consent to any judgment in respect thereof that does not include a complete and unconditional release of the Indemnified Party from all liability with respect thereto, that imposes any liability or obligation on the Indemnified Party or that acknowledges fault by the Indemnified Party without the prior written consent of the Indemnified Party. If the Parties cannot agree as to the application of Section 10.1 or 10.2 to any Claim, pending resolution of the dispute pursuant to Article 11, the Parties may conduct separate defenses of such Claims, with each Party retaining the right to Claim indemnification from the other Party in accordance with Section 10.1 or 10.2, as applicable, upon resolution of the underlying Claim.

 

39

 

 

10.4 Insurance. Each Party shall procure and maintain insurance, including, but not limited to, comprehensive or commercial general liability insurance (including, but not limited to, contractual liability and product liability covering clinical trial insurance), adequate to cover its obligations hereunder and which is consistent with normal business practices of prudent companies similarly situated with a minimum limit of one million dollars ($1,000,000) per occurrence and an aggregate of five million dollars ($5,000,000), Forte to obtain such insurance before commencement of Clinical Trials and share the certificate of insurance with IMUN. It is understood that such insurance shall not be construed to create a limit of either Party’s liability with respect to its indemnification obligations under this Article 10 or otherwise. Each Party shall provide the other Party with written evidence of such insurance upon request. Each Party shall provide the other Party with written notice at least thirty (30) days prior to the cancellation, non-renewal or material change in such insurance which materially adversely affects the rights of the other Party hereunder.

 

10.5 Limitation of Liability. EXCEPT FOR LIABILITY FOR BREACH OF ARTICLE 6 OR IN THE CASE OF FRAUD OR INTENTIONAL MISCONDUCT OR TO THE EXTENT ANY SUCH DAMAGES ARE REQUIRED TO BE PAID TO A THIRD PARTY AS PART OF A CLAIM FOR WHICH A PARTY PROVIDES INDEMNIFICATION UNDER THIS ARTICLE 10, NEITHER PARTY SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH THIS AGREEMENT OR ANY LICENSE GRANTED HEREUNDER.

 

ARTICLE 11

DISPUTE RESOLUTION

 

11.1 Disputes. Subject to Section 11.3, the Parties will refer any claim, dispute, or controversy as to the breach, enforcement, interpretation or validity of this Agreement (each, a “Dispute”) to the President or Chief Executive Officer of IMUN and the Chief Executive Officer or President of Forte (as determined solely by Forte) for attempted resolution. In the event such executives are unable to resolve such Dispute within thirty (30) days of such Dispute being referred to them, then, upon the written request of either Party to the other Party, the Dispute shall be subject to arbitration in accordance with Section 11.2, except as expressly set forth in Section 11.3.

 

11.2 Arbitration.

 

(a) Claims. Subject to Section 11.3 below, any Dispute that is not resolved under Section 11.1 within the applicable thirty (30)-day period shall be resolved by final and binding arbitration administered by the Judicial Arbitration and Mediation Services (the “Administrator”) in accordance with its then-effective Comprehensive Arbitration Rules and Procedures (the “Rules”), except to the extent any such Rule conflicts with the express provisions of this Section 11.2. (Capitalized terms used but not otherwise defined in this Agreement shall have the meanings provided in the Rules.) The Arbitration shall be conducted by three neutral arbitrators (one each selected by each Party, and the third mutually selected by the Parties), provided that such individuals shall not be a current or former employee or director, or a current stockholder, of either Party or any of their respective Affiliates (or any licensee or sublicensee of the rights granted to such Party under this Agreement). The arbitrators shall have extensive backgrounds and experience in the subject matter of this Agreement. The arbitration and all associated discovery proceedings and communications shall be conducted in English, and the arbitration shall be held at NY International Arbitration Center, NY, USA.

 

(b) Discovery. Within thirty (30) days after selection of the Arbitrator, the Arbitrator shall conduct the Preliminary Conference. In addressing any of the subjects within the scope of the Preliminary Conference, the Arbitrator shall take into account both the desirability of making discovery efficient and cost-effective and the needs of the Parties for an understanding of any legitimate issue raised in the Arbitration. In that regard, the Parties agree to the application of the E-Discovery procedures set forth in Rule 16.2(c) of the JAMS Expedited Procedures. In addition, each Party shall have the right to take up to forty (40) hours of deposition testimony, including, but not limited to, expert deposition testimony.

 

(c) Hearing; Decision. The Hearing shall commence within sixty (60) days after the discovery cutoff. The Arbitrator shall require that each Party submit concise written statements of position and shall permit the submission of rebuttal statements, subject to reasonable limitations on the length of such statements to be established by the Arbitrator. The Hearing shall be no longer than five (5) business days in duration. The Arbitrator shall also permit the submission of expert reports. The Arbitrator shall render the Award within thirty (30) days after the Arbitrator declares the Hearing closed, and the Award shall include a written statement describing the essential findings and conclusions on which the Award is based, including, but not limited to, the calculation of any damages awarded. The Arbitrator will, in rendering his or her decision, apply the substantive law of the State of New York, excluding its conflicts of laws principles with the exception of sections 5-1401 and 5-1402 of New York General Obligations Law. The Arbitrator’s authority to award special, incidental, consequential or punitive damages shall be subject to the limitation set forth in Section 10.5. The Award rendered by the Arbitrator shall be final, binding and non- appealable, and judgment may be entered upon it in any court of competent jurisdiction.

 

40

 

 

(d) Costs. Each Party shall bear its own attorney’s fees, costs, and disbursements arising out of the arbitration, and shall pay an equal share of the fees and costs of the arbitrator; provided, however, the Arbitrator shall be authorized to determine whether a Party is the prevailing party, and if so, to award to that prevailing party reimbursement for any or all of its reasonable attorneys’ fees, costs and disbursements (including, but not limited to, expert witness fees and expenses, photocopy charges, travel expenses, etc.), and/or the fees and costs of the Administrator and the Arbitrator.

 

11.3 Court Actions. Nothing contained in this Agreement shall deny either Party the right to seek injunctive or other equitable relief from a court of competent jurisdiction in the context of a bona fide emergency or prospective irreparable harm, and such an action may be filed and maintained notwithstanding any ongoing discussions between the Parties or any ongoing arbitration proceeding. In addition, either Party may bring an action in any court of competent jurisdiction to resolve disputes pertaining to the validity, construction, scope, enforceability, infringement or other violations of Patent Rights or other intellectual property rights, and no such claim shall be subject to arbitration pursuant to Section 11.2.

 

ARTICLE 12

MISCELLANEOUS

 

12.1 Rights Upon Bankruptcy. All rights and licenses granted under or pursuant to this Agreement are, and shall otherwise be deemed to be, for purposes of Section 365(n) of Title 11 of the United States Code and other similar laws in any jurisdiction outside the U.S. (collectively, the “Bankruptcy Laws”), licenses of rights to be “intellectual property” as defined under the Bankruptcy Laws. If a case is commenced during the Term by or against a Party under Bankruptcy Laws then, unless and until this Agreement is rejected as provided in such Bankruptcy Laws, such Party (in any capacity, including, but not limited to, debtor in possession) and its successors and assigns (including a trustee) shall perform all of the obligations provided in this Agreement to be performed by such Party. If a case is commenced during the Term by or against a Party under the Bankruptcy Laws, the Agreement is rejected as provided in the Bankruptcy Laws and the other Party elects to retain its rights hereunder as provided in the Bankruptcy Laws, then the Party subject to such case under the Bankruptcy Laws (in any capacity, including, but not limited to, debtor in possession) and its successors and assigns (including, but not limited to, a Title 11 trustee), shall provide to the other Party copies of all Information necessary for such other Party to prosecute, maintain and enjoy its rights under the terms of this Agreement promptly upon such other Party’s written request therefor. All rights, powers and remedies of the non- bankrupt Party as provided herein are in addition to and not in substitution for any and all other rights, powers and remedies now or hereafter existing at law or in equity (including, but not limited to, the Bankruptcy Laws) in the event of the commencement of a case by or against a Party under the Bankruptcy Laws.

 

41

 

 

12.2 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the state that IMUN is domiciled in. Currently IMUN is a Florida C-corp.

 

12.3 Jurisdiction and Venue. Excluding arbitration pursuant to Section 11.2, (i) the Parties hereby consent to the exclusive jurisdiction of the Federal and State courts in Colorado with respect to any disputes, claims, controversies or other actions or proceedings arising under this Agreement and agree that exclusive venue for any such action shall lie in Colorado, and (ii) the Parties hereby waive any and all rights to commence any action or proceeding before any other court or judicial body or in any other venue. Each Party hereby waives any objection on the grounds of lack of jurisdiction, and/or forum non conveniens or otherwise to the exercise of such jurisdiction over it by any such courts.

 

12.4 Waiver of Jury Trial. THE PARTIES HEREBY UNCONDITIONALLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING DIRECTLY OR INDIRECTLY OUT OF, RELATED TO, OR IN ANY WAY CONNECTED WITH, THE PERFORMANCE OR BREACH OF THIS AGREEMENT, OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN THEM. The scope of this waiver is intended to be all encompassing of any and all disputes that may be filed in any court or other tribunal (including, without limitation, contract claims, tort claims, breach of duty claims, and all other common law and statutory claims).

 

12.5 Entire Agreement; Amendments. This Agreement (including the Exhibits hereto) is both a final expression of the Parties’ agreement and a complete and exclusive statement with respect to all of its terms. This Agreement supersedes all prior and contemporaneous agreements and communications, whether oral, written or otherwise, concerning any and all matters contained herein. The Exhibits to this Agreement are incorporated herein by reference and shall be deemed a part of this Agreement. This Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by authorized representatives of both Parties hereto. In the event of a conflict between the terms of this Agreement and any terms set forth in this Exhibits the terms of this Agreement shall take precedence.

 

12.6 Non-Waiver. The failure of a Party to insist upon strict performance of any provision of this Agreement or to exercise any right arising out of this Agreement shall neither impair that provision or right nor consitute a waiver of that provision or right, in whole or in part, in that instance or in any other instance. Any waiver by a Party of a particular provision or right shall be in writing, shall be as to a particular matter and, if applicable, for a particular period of time and shall be signed by such Party.

 

12.7 Assignment. Except as expressly provided hereunder, neither this Agreement nor any rights or obligations hereunder may be assigned or otherwise transferred by either Party without the prior written consent of the other Party (which consent shall not be unreasonably withheld, conditioned, or delayed) and any sale, merger, or Change of Control of Forte must be conditioned on such a transaction not decreasing or terminating Forte obligations, including Milestone Payments and Royalties due IMUN, pursuant to this Agreement or the related Collaboration Agreement; provided, however:

 

42

 

 

(a) Notwithstanding the foregoing, IMUN may assign this Agreement and its rights and obligations hereunder without Forte’s consent only if Forte is in material breach of the terms and conditions in this Agreement and the parties were unable to cure the material breach in 90 days after IMUN notifies Forte of the material breach in writing:

 

(i) in connection with the transfer or sale of all or substantially all of the assets of such Party to which this Agreement relates to a Third Party (“Third Party Acquirer”), whether by merger, sale of stock, sale of assets or otherwise (each, a “Sale Transaction”), provided that in the event of a Sale Transaction (whether this Agreement is actually assigned or is assumed by the Third Party Acquirer or the surviving corporation resulting from such Sale Transaction by operation of law [e.g., in the context of a reverse triangular merger]), intellectual property rights of the Third Party Acquirer that existed prior to the Sale Transaction shall not be included in the technology licensed hereunder or otherwise subject to this Agreement, but in the interest of clarity the Parties hereby acknowledge and agree that the Sale Transaction shall not terminate or alter the licenses or other intellectual property rights of Forte acquired pursuant to this Agreement or the related R&D and Supply Agreement, or decrease or terminate any of the payments or Royalties due IMUN pursuant to this Agreement or the related Collaboration Agreement; or

 

(ii) to an Affiliate, provided that the assigning Party shall remain liable and responsible to the non-assigning Party hereto for the performance and observance of all such duties and obligations by such Affiliate.

 

(b) Notwithstanding the foregoing, Forte may assign this Agreement and its rights and obligations hereunder without IMUN’s consent in connection with the transfer or sale of all or substantially all of the assets of Forte to a Third Party Acquirer, as described in Section 12.7(a)(i) or if IMUN is in breach of one or more of the terms in this agreement and has not cured the breach within 90 days of being notified in writing by Forte.

 

The rights and obligations of the Parties under this Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Parties, and the name of a Party appearing herein will be deemed to include the name of such Party’s successors and permitted assigns to the extent necessary to carry out the intent of this section. Any assignment not in accordance with this Agreement shall be void.

 

12.8 Force Majeure. Each Party shall be excused from liability for the failure or delay in performance of any obligation under this Agreement (except for Forte’s obligation to submit payment) by reason of any event beyond such Party’s reasonable control, including, but not limited to, Acts of God, fire, flood, explosion, earthquake, or other natural forces, war, civil unrest, acts of terrorism, accident, destruction or other casualty, any lack or failure of transportation facilities, any lack or failure of supply of raw materials, any strike or labor disturbance, or any other event similar to those enumerated above. Such excuse from liability shall be effective only to the extent and duration of the event(s) causing the failure or delay in performance and provided that the Party has not caused such event(s) to occur. The affected Party shall notify the other Party of such force majeure circumstances as soon as reasonably practical, and shall promptly undertake all reasonable efforts necessary to cure such force majeure circumstances. If the period of the delay shall exceed one hundred eighty (180) days, then the non-delayed Party may cancel further performance of the delayed obligation or terminate this Agreement without any penalty whatsoever.

 

43

 

 

 

12.9 Severability. If any one or more of the provisions contained in this Agreement is held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby, unless the absence of the invalidated provision(s) adversely affects the substantive rights of the Parties. The Parties shall in such an instance use their best efforts to replace the invalid, illegal or unenforceable provision(s) with valid, legal and enforceable provision(s) which, insofar as practical, implement the purposes of this Agreement.

 

12.10 Notices. All notices which are required or permitted hereunder shall be in writing and sufficient if delivered personally, sent by nationally-recognized overnight courier or sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:

 

If to IMUN, to: Immune Therapeutics, Inc.
  37 North Orange Ave Suite 607
  Orlando, FL 32801
  Attn: Chief Legal Officer

 

If to Forte, to: Forte Biotechnology Intl Corp.
 

1001-A East Harmony Road, 114

Fort Collins, CO 80528

  Attn:  Chief Legal Officer

 

or to such other address(es) as the Party to whom notice is to be given may have furnished to the other Party in writing in accordance herewith. Any such notice shall be deemed to have been given: (a) when delivered, if personally delivered on a business day (or if delivered or sent on a non-business day, then on the next business day); or (b) on the business day after dispatch, if sent by nationally-recognized overnight courier.

 

12.11 Interpretation. The headings of Sections contained in this Agreement preceding the text of the sections, subsections and paragraphs hereof are inserted solely for convenience and ease of reference only and shall not constitute any part of this Agreement, or have any effect on its interpretation or construction. All references in this Agreement to the singular shall include the plural where applicable. Unless otherwise specified, references to “$” or “dollars” means U.S. dollars. The term “including” or “includes” as used in this Agreement means including, without limiting the generality of any description preceding such term, and the word “or” has the inclusive meaning represented by the phrase “and/or.”

 

44

 

 

Unless otherwise specified, references in this Agreement to any section shall include all subsections and paragraphs in such Section and references in this Agreement to any subsection shall include all paragraphs in such subsection. All references to days in this Agreement shall mean calendar days, unless otherwise specified. Ambiguities and uncertainties in this Agreement, if any, shall not be interpreted against either Party, irrespective of which Party may be deemed to have caused the ambiguity or uncertainty to exist. This Agreement has been prepared in the English language, and the English language shall control its interpretation. In addition, all notices required or permitted to be given hereunder, and all written, electronic, oral or other communications between the Parties regarding this Agreement shall be in the English language.

 

12.12 Relationship between the Parties. The Parties’ relationship, as established by this Agreement, is solely that of independent contractors. This Agreement does not create any partnership, joint venture or similar business relationship between the Parties. Neither Party is a legal representative of the other Party and neither Party may assume or create any obligation, representation, warranty or guarantee, express or implied, on behalf of the other Party for any purpose whatsoever.

 

12.13 Cumulative Remedies. No remedy referred to in this Agreement is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to in this Agreement or otherwise available under law.

 

12.14 No Third Party Rights. The provisions of this Agreement are for the exclusive benefit of the Parties, and no other person or entity shall have any right or claim against any Party by reason of these provisions or be entitled to enforce any of these provisions against any Party.

 

12.15 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original document, and all of which, together with this writing, shall be deemed one instrument. This Agreement may be executed by facsimile or PDF signatures, which signatures shall have the same force and effect as original signatures.

 

12.17 Attorneys’ Fees. In the event of litigation between the Parties to enforce the provisions of or with respect to this Agreement, the prevailing Party shall be entitled to reimbursement for reasonable attorneys’ fees and costs at trial and on appeal.

 

[Remainder of this page intentionally left blank.]

 

45

 

 

Confidential

 

In Witness Whereof, the Parties hereto have duly executed this License Agreement as of the Execution Date.

 

IMMUN THERAPEUTICS, INC.   FORTE BIOTECHNOLOGY INTL CORP.
         
By:     By:  
         
Name: Michael K. Handley   Name: Cozette M. McAvoy
         
Title: President & CEO   Title: CLO

 

46

 

 

Confidential

 

Exhibit A

 

IMUN Patent Rights as of the Execution Date

 

No   Title  

Issued

Date

 

Patent

Number

  Country   Status
1                    
2                    
3                    
4                    
5                    
No                    
1                    
2                    
3                    

 

 

 

 

 

 

Exhibit 10.64

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

Principal Amount: $53,000.00 Issue Date: March 30, 2020
Purchase Price: $53,000.00  



CONVERTIBLE PROMISSORY NOTE

 

FOR VALUE RECEIVED, IMMUNE THERAPEUTICS, INC., a Florida corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of REDSTART HOLDINGS CORP., a New York corporation, or registered assigns (the “Holder”) the sum of $53,000.00 together with any interest as set forth herein, on March 30, 2021 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of twelve percent (12%)(the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”). Interest shall be computed on the basis of a 365 day year and the actual number of days elapsed. Interest shall commence accruing on the Issue Date. All payments due hereunder (to the extent not converted into common stock, $0.0001 par value per share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”).

 

This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.

 

     
 

 

The following terms shall apply to this Note:

 

Article I. CONVERSION RIGHTS

 

1.1 Conversion Right. The Holder shall have the right from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III), each in respect of the remaining outstanding amount of this Note to convert all or any part of the outstanding and unpaid amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso. The beneficial ownership limitations on conversion as set forth in the section may NOT be waived by the Holder. The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”); however, if the Notice of Conversion is sent after 6:00pm, New York, New York time the Conversion Date shall be the next business day. The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Holder’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Holder’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.4 hereof.

 

1.2 Conversion Price. The Conversion Price shall equal the Variable Conversion Price (as defined herein)(subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The “Variable Conversion Price” shall mean 61% multiplied by the Market Price (as defined herein) (representing a discount rate of 39%). “Market Price” means the lowest Trading Price (as defined below) for the Common Stock during the twenty (20) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Trading Price” means, for any security as of any date, the closing bid price on the OTCQB, OTCQX, Pink Sheets electronic quotation system or applicable trading market (the “OTC”) as reported by a reliable reporting service (“Reporting Service”) designated by the Holder (i.e. Bloomberg) or, if the OTC is not the principal trading market for such security, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no closing bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “pink sheets”. If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTC, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.

 

  2  
 

 

1.3 Authorized Shares. The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note issued pursuant to the Purchase Agreement. The Borrower is required at all times to have authorized and reserved six times the number of shares that would be issuable upon full conversion of the Note (assuming that the 4.99% limitation set forth in Section 1.1 is not in effect)(based on the respective Conversion Price of the Note (as defined in Section 1.2) in effect from time to time, initially 96,539,162 shares)(the “Reserved Amount”). The Reserved Amount shall be increased (or decreased with the written consent of the Holder) from time to time in accordance with the Borrower’s obligations hereunder. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Note. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.

 

If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.

 

1.4 Method of Conversion.

 

(a) Mechanics of Conversion. As set forth in Section 1.1 hereof, from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower (upon payment in full of any amounts owed hereunder).

 

(b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion.

 

  3  
 

 

(c) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations hereunder, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion.

 

(d) Delivery of Common Stock by Electronic Transfer. In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder and its compliance with the provisions set forth herein, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.

 

(e) Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline due to action and/or inaction of the Borrower, the Borrower shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock (the “Fail to Deliver Fee”); provided; however that the Fail to Deliver Fee shall not be due if the failure is a result of a third party (i.e., transfer agent; and not the result of any failure to pay such transfer agent) despite the commercially reasonable efforts of the Borrower to effect delivery of such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify. Accordingly, the parties acknowledge that the liquidated damages provision contained in this Section 1.4(e) are justified.

 

  4  
 

 

1.5 Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless: (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration (such as Rule 144 or a successor rule) (“Rule 144”); or (iii) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement).

 

Any restrictive legend on certificates representing shares of Common Stock issuable upon conversion of this Note shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if the Borrower or its transfer agent shall have received an opinion of counsel from Holder’s counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that (i) a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected; or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act; or otherwise may be sold pursuant to an exemption from registration. In the event that the Company does not reasonably accept the opinion of counsel provided by the Holder with respect to the transfer of Securities pursuant to an exemption from registration (such as Rule 144), at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

 

1.6 Effect of Certain Events.

 

(a) Effect of Merger, Consolidation, Etc. Except with respect to the merger or other combination of the Borrower with Aletheia, at the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall be deemed to be an Event of Default (as defined in Article III) pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III). “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.

 

(b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Note is issued and outstanding and prior to conversion of all of the Note, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not affect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, ten (10) days prior written notice (but in any event at least five (5) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Note. The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.

 

  5  
 

 

(c) Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.

 

1.7 Prepayment. Notwithstanding anything to the contrary contained in this Note, at any time during the periods set forth on the table immediately following this paragraph (the “Prepayment Periods”), the Borrower shall have the right, exercisable on not more than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.7. Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to Holder, or upon the direction of the Holder as specified by the Holder in a writing to the Borrower (which shall direction to be sent to Borrower by the Holder at least one (1) business day prior to the Optional Prepayment Date). If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash equal to the percentage (“Prepayment Percentage”) as set forth in the table immediately following this paragraph opposite the applicable Prepayment Period, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Section 1.4 hereof (the “Optional Prepayment Amount”).

  6  
 

 

Prepayment Period   Prepayment Percentage  
1. The period beginning on the Issue Date and ending on the date which is sixty (60) days following the Issue Date.     120 %
2. The period beginning on the date which is sixty-one (61) days following the Issue Date and ending on the date which is ninety (90) days following the Issue Date.     125 %
3. The period beginning on the date that is ninety-one (91) day from the Issue Date and ending one hundred twenty (120) days following the Issue Date.     130 %
4. The period beginning on the date that is one hundred twenty-one (121) day from the Issue Date and ending one hundred fifty (150) days following the Issue Date.     135 %
5. The period beginning on the date that is one hundred fifty-one (151) day from the Issue Date and ending one hundred eighty (180) days following the Issue Date.     139 %
6. The period beginning on the date that is one hundred eighty-one (181) day from the Issue Date and ending three hundred sixty (360) days following the Issue Date.     139 %

 

After the expiration of three hundred sixty (360) days following the Issue Date, the Borrower shall have no right of prepayment. Notwithstanding anything contained herein to the contrary, the Holder’s conversion rights herein shall not be affected in any way until the Note is fully paid (funds received by the Holder) pursuant to an Optional Prepayment Notice.

 

Article II. CERTAIN COVENANTS

 

2.1 Sale of Assets. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business. Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.

 

Article III. EVENTS OF DEFAULT

 

If any of the following events of default (each, an “Event of Default”) shall occur:

 

3.1 Failure to Pay Principal and Interest. The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity or upon acceleration and such breach continues for a period of five (5) days after written notice from the Holder.

 

3.2 Conversion and the Shares. The Borrower fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion. It is an obligation of the Borrower to remain current in its obligations to its transfer agent. It shall be an event of default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent. If at the option of the Holder, the Holder advances any funds to the Borrower’s transfer agent in order to process a conversion, such advanced funds shall be paid by the Borrower to the Holder within forty-eight (48) hours of a demand from the Holder.

 

  7  
 

 

3.3 Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of twenty (20) days after written notice thereof to the Borrower from the Holder.

 

3.4 Breach of Representations and Warranties. Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, the Purchase Agreement), shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.

 

3.5 Receiver or Trustee. The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.

 

3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.

 

3.7 Delisting of Common Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTC (which specifically includes the quotation platforms maintained by the OTC Markets Group) or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock Exchange.

 

3.8 Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act (the filing of a Form 15 with the SEC is an immediate Event of Default).

 

3.9 Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.

 

3.10 Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.

 

3.11 Financial Statement Restatement. The restatement of any financial statements filed by the Borrower with the SEC at any time after 180 days after the Issuance Date for any date or period until this Note is no longer outstanding, if the result of such restatement would, by comparison to the un-restated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.

 

  8  
 

 

3.12 Replacement of Transfer Agent. In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.

 

3.13 Cross-Default. Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder. “Other Agreements” means, collectively, all agreements and instruments between, among or by: (1) the Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term “Other Agreements” shall not include the related or companion documents to this Note. Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to the Holder.

 

Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Amount (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT AMOUNT (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.7, 3.8, 3.10, 3.11, 3.12, 3.13, and/or 3.14 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

 

If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect.

 

  9  
 

 

 

Article IV. MISCELLANEOUS

 

4.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.

 

4.2 Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, facsimile or email, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. The addresses for such communications shall be:

 

If to the Borrower, to:

 

IMMUNE THERAPEUTICS, INC.

2431 Aloma Ave #124

Winter Park, FL 32792

Attn: Michael K. Handley, Chief Executive Officer

Fax:

Email: Mike.Handley@immunetherapeutics.com

 

If to the Holder:

 

REDSTART HOLDINGS CORP.

1188 Willis Avenue

Albertson, New York 11507

Attention: Gregg B. Solomon, President

e-mail: redstartholdingscorp@gmail.com

 

With a copy by fax only to (which copy shall not constitute notice):

 

Naidich Wurman LLP

111 Great Neck Road, Suite 216

Great Neck, NY 11021

Attn: Allison Naidich

facsimile: 516-466-3555

e-mail: allison@nwlaw.com

 

  10  
 

 

4.3 Amendments. This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Notes issued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented.

 

4.4 Most Favored Nation. During the period where any monies are owed to the Holder pursuant to this Note, if the Borrower engages in any future financing transactions with a third party investor, the Borrower will provide the Holder with written notice (the “MFN Notice”) thereof promptly but in no event less than 10 days prior to closing any financing transactions. Included with the MFN Notice shall be a copy of all documentation relating to such financing transaction and shall include, upon written request of the Holder, any additional information related to such subsequent investment as may be reasonably requested by the Holder. In the event the Holder determines that the terms of the subsequent investment are preferable to the terms of the securities of the Borrower issued to the Holder pursuant to the terms of the Purchase Agreement, the Holder will notify the Borrower in writing. Promptly after receipt of such written notice from the Holder, the Borrower agrees to amend and restate the Securities (which may include the conversion terms of this Note), to be identical to the instruments evidencing the subsequent investment. Notwithstanding the foregoing, this Section 4.4 shall not apply in respect of (i) an Exempt Issuance, or (ii) an underwritten public offering of Common Stock. “Exempt Issuance” means the issuance of: (a) shares of Common Stock or options to employees, officers, consultants, advisors or directors of the Borrower pursuant to any stock or option plan duly adopted for such purpose by a majority of the members of the Board of Directors or a majority of the members of a committee of directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of this Note and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date hereof, and (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Borrower, provided that any such issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Borrower and in which the Borrower receives benefits in addition to the investment of funds, but shall not include a transaction in which the Borrower is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.

 

4.5 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the Securities and Exchange Commission). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement; and may be assigned by the Holder without the consent of the Borrower.

 

4.6 Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.

 

  11  
 

 

4.7 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state courts of New York or in the federal courts located in the Eastern District of New York. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The Borrower and Holder waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Note, any agreement or any other document delivered in connection with this Note by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

 

4.8 Purchase Agreement. By its acceptance of this Note, each party agrees to be bound by the applicable terms of the Purchase Agreement.

 

4.9 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

 

IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this on March 30, 2020

 

IMMUNE THERAPEUTICS, INC.  
     
By:  
  Michael K. Handley  
  Chief Executive Officer  

 

  12  
 

 

EXHIBIT A — NOTICE OF CONVERSION

 

The undersigned hereby elects to convert $_________________ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of IMMUNE THERAPEUTICS, INC., a Florida corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower dated as of March 30, 2020 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.

 

Box Checked as to applicable instructions:

 

  [  ] The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent at Custodian (“DWAC Transfer”).
     
  Name of DTC Prime Broker:
    Account Number:
     
  [  ] The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:

 

REDSTART HOLDINGS CORP.

1188 Willis Avenue

Albertson, New York 11507

Attention: Certificate Delivery

e-mail: redstartholdingscorp@egmail.com

 

Date of conversion:                                                        _____________

Applicable Conversion Price:                                      $____________

Number of shares of common stock to be issued

pursuant to conversion of the Notes:                         ______________

Amount of Principal Balance due remaining

under the Note after this conversion:                          ______________

 

REDSTART HOLDINGS CORP.  
     
By:  
Name: Gregg B. Solomon  
Title: President  
Date:    

 

  13  
 

 

 

Exhibit 10.65

 

PRC AMENDMENT

 

TO THE SECOND AMENDMENT TO THE LICENSE AGREEMENT

 

This amendment to the Second Amendment to The License Agreement (herein referred to as the “PRC Amendment”) is effective December 31, 2018 (“Effective Date”) by and between Cytocom, Inc., a for profit corporation duly organized and existing under the laws of the Commonwealth of Delaware, having an office at 3001 Aloma Ave, Winter Park, FL 32792 (“CYTO”), and Immune Therapeutics, Inc., a Florida Corporation, having an office at 2431 Aloma Ave #124 Winter Park, FL 32792 (“IMUN and or Company or Licensee”). CYTO and Licensee may each be referred to individually as “Party” and collectively as “Parties”.

 

WITNESSETH

 

WHEREAS, the Parties entered into a certain amended License Agreement effective May 1, 2018 (the “License Agreement”), that replaced in its entirety the original license agreement between the parties dated September 30, 2014;

 

WHEREAS, effective December 31, 2018, the Parties entered into the Second Amendment to the License Agreement (“Second Amendment”) to clarify, among other things, that the “Territory” of the License Agreement includes “the Republic of China”; and

 

WHEREAS, the Parties have decided to effect a minor amendment for the avoidance of confusion by stating clearly that the parties intended to refer to the People’s Republic of China in stating “the Republic of China” in the Second Amendment and did not intend that such reference refer to The Republic of China, also known as Taiwan;

 

NOW THEREFORE, in consideration of the foregoing and the mutual promises and covenants set forth herein and for good and valuable consideration, the adequacy and sufficiency of which is hereby acknowledged, the Parties hereby agree as follows:

 

1. Replacement of Country Reference. In Section 1.1 of the Second Amendment the parties hereby replace the country reference of “the Republic of China” with “the People’s Republic of China” so that the “Territory” of the License Agreement properly reflects the intent of the parties and avoids confusion.

 

2. Interpretation. Except for this clarifying amendment as to the above country reference, all terms and conditions set forth in the License Agreement by action of this PRC Amendment shall remain unchanged and in full force and effect.

 

3. Entire Agreement. This PRC Amendment, in conjunction with the License Agreement and subsequent amendments, constitutes the entire agreement between the Parties regarding the subject matter hereof and supersedes any prior understandings, agreements or representations between the Parties, written or oral, relating to the subject matter hereof.

 

4. Counterparts. This PRC Amendment may be executed in any number of duplicate counterparts, each of which shall be deemed to be an original as against a Party whose signature appears thereon, and each of which shall together constitute one and the same instrument. Any duplicate counterpart signature page delivered by electronic means or by facsimile transmission shall be deemed to have the same force and effect as an originally executed signature page.

 

[SIGNATURES APPEAR ON FOLLOWING PAGE]

 

Page 1 of 2
 

 

IN WITNESS WHEREOF, the Parties, intending to be legally bound hereby, have each caused a duly authorized representative to execute this Fourth Amendment on the day and year set forth below.

 

LICENSEE:   LICENSOR:
Immune Therapeutics, Inc.   Cytocom, Inc.
       
By: /s/ Kevin Phelps   By: /s/ Michael Handley
Name:  Kevin Phelps   Name:  Michael Handley
Title: Chief Executive Officer   Title: President
Date: May 12, 2020   Date: May 12, 2020

 

Page 2 of 2
 

 

 

Exhibit 31.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

 

I, Kevin Phelps, certify that:

 

1. I have reviewed this Annual Report on Form 10-K of Immune Therapeutics, Inc.

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  (c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  (d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: May 14, 2020 By: /s/ Kevin Phelps
    Kevin Phelps
   

Chief Executive Officer

(Principal Executive Officer)

 

 

 

Exhibit 31.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

 

I, Peter Aronstam, certify that:

 

1. I have reviewed this Annual Report on Form 10-K of Immune Therapeutics, Inc.

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  (c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  (d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: May 14, 2020 By: /s/ Peter Aronstam
    Peter Aronstam
    Chief Financial Officer

 

 

 

Exhibit 32.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report of Immune Therapeutics, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kevin Phelps, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
     
  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: May 14, 2020 By: /s/ Kevin Phelps
    Kevin Phelps
    Chief Executive Officer