Notes to the Condensed Consolidated Financial Statements

September 30, 2020

(Unaudited)

1. Organization and Description of Business

Immune Therapeutics, Inc. (the “Company”) was initially incorporated in Florida on December 2, 1993 as Resort Clubs International, Inc. (“Resort Clubs”). On November 10, 2004, Galliano International Ltd. merged with Resort Clubs; Resort Clubs was the surviving corporation. On August 23, 2010, Resort Clubs changed its name to pH Environmental Inc. (“pH Environmental”). On April 23, 2012, pH Environmental completed a name change to TNI BioTech, Inc., and on April 24, 2012, it executed a share exchange agreement for the acquisition of all of the outstanding shares of TNI BioTech IP, Inc. In October 2014, the name was changed to Immune Therapeutics, Inc.

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

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

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

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

On February 27, 2020, the Company entered into a license agreement (the “License Agreement”) with Forte Biotechnology International Corp. (“Forte”), which granted Forte an exclusive license to develop and commercialize pharmaceutical products consisting of Lodonal and MENK for use in veterinary applications for all indications world-wide. Forte is managed by Noreen Griffin, a former Chief Executive Officer of the Company.

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

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

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

Going Concern

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

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

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

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

2. Summary of Significant Accounting Policies

Basis of Presentation

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

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

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

Shares Issued and Outstanding

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

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

The financial statements accompanying this Form 10-Q are presented based on the implementation of the reverse stock split.

Use of Estimates

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

Cash, Cash Equivalents, and Short-Term Investments

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

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. The Company is exposed to credit risk, subject to federal deposit insurance, in the event of a default by the financial institutions holding its cash and cash equivalents to the extent of amounts recorded on the condensed consolidated balance sheets. The cash accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. At September 30, 2020, the Company has no cash balances in excess of insured limits.

Segment and Geographic Information

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

Fair Value of Financial Instruments

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

Derivative Financial Instruments

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

Fixed Assets

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

Impairment of Long-Lived Assets

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

Research and Development Costs

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

Income Taxes

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

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

The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. As of September 30, 2020, and 2020, the Company has not accrued any interest or penalties related to uncertain tax positions.

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

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

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

Net Income/Loss per Share

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

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

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

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

Recent Accounting Standards

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

3. Accrued Liabilities

Accrued expenses and other liabilities consist of the following:

4. Notes payable

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

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

Notes payable consist of the following: