Immune Therapeutics, Inc. - FORM 10-Q

Attached files

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EX-32.1 - CERTIFICATION - Immune Therapeutics, Inc.	tnib_ex321.htm
EX-32.2 - CERTIFICATION - Immune Therapeutics, Inc.	tnib_ex322.htm
EX-31.1 - CERTIFICATION - Immune Therapeutics, Inc.	tnib_ex311.htm
EX-31.2 - CERTIFICATION - Immune Therapeutics, Inc.	tnib_ex312.htm
EXCEL - IDEA: XBRL DOCUMENT - Immune Therapeutics, Inc.	Financial_Report.xls

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2013

oTRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934

From the transition period from ___________ to ____________

Commission File Number __________________

TNI BIOTECH, INC.

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

Florida		20-1968162
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

618 East South Street #500, Orlando, Florida 32801

(Address of principal executive offices)

888-613-8802

(Issuer's telephone number)

6701 Democracy Blvd., Suite 300, Bethesda, Maryland, 20817

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

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

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

	Large Accelerated Filer o		Accelerated Filer o

	Non-Accelerated Filer o		Smaller Reporting Company þ

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

As of November 14, 2013 there were 63,736,639 shares of Common Stock outstanding.

TABLE OF CONTENTS

	PART I FINANCIAL STATEMENTS

Item 1	Financial Statements	4

Item 2	Management's Discussion and Analysis of Financial Conditions and Results of Operations	18

Item 3	Quantitative and Qualitative Disclosures About Market Risk	23

Item 4	Controls and Procedures	23


	PART II OTHER INFORMATION

Item 1	Legal Proceedings	24

Item 1A	Risk Factors	24

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 3	Default upon Senior Securities	24

Item 4	Mine Safety Disclosures	24

Item 5	Other Information	25

Item 6	Exhibits	26

JUMPSTART OUR BUSINESS STARTUPS ACT

The Company qualifies as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups Act (“JOBS Act”) as we do not have more than $1,000,000,000 in annual gross revenue and did not have such amount as of December 31, 2012, 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.

We may lose our status as an emerging growth company on the last day of our fiscal year during which (i) our annual gross revenue exceeds $1,000,000,000 or (ii) we issue more than $1,000,000,000 in non-convertible debt in a three-year period. We will lose our status as an emerging growth company (i) if at any time we are deemed to be a large accelerated filer. We will lose our status as an emerging growth company on the last day of our fiscal year following the fifth anniversary of the date of the first sale of common equity securities pursuant to an effective registration statement.

As an emerging growth company we are exempt from Section 404(b) of the Sarbanes-Oxley Act of 2002 and Section 14A(a) and (b) of the Securities Exchange Act of 1934. Such sections are provided below:

Section 404(b) of the Sarbanes-Oxley Act of 2002 requires a public company’s auditor to attest to, and report on, management’s assessment of its internal controls.

Sections 14A(a) and (b) of the Securities and Exchange Act, implemented by Section 951 of the Dodd-Frank Act, require companies to hold shareholder advisory votes on executive compensation and golden parachute compensation.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This following information specifies certain forward-looking statements of management of the Company. Forward-looking statements are statements that estimate the happening of future events and are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as may, shall, could, expect, estimate, anticipate, predict, probable, possible, should, continue, or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.

The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. We cannot guaranty that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TNI BIOTECH, INC.

BALANCE SHEETS

(Unaudited)

	September 30, 2013			December 31, 2012

ASSETS

Current Assets:
Cash and cash equivalents	$	207,709		$	313,095
Prepaids and other current assets		45,000			-
Total current assets		252,709			313,095

Fixed Assets:
Computer equipment, net of accumulated depreciation
of $800 and $118 respectively		4,612			944

Intangible Assets:
Patents and licenses, net of amortization
of $3,703,633 and $1,570,114, respectively (Note 7)		19,265,260			18,688,270

Deposits		17,435			24,928
Total assets	$	19,540,016		$	19,027,237



LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable	$	629,797		$	286,698
Payable to officer		76,000			76,000
Accrued liabilities		654,892			427,211
Current portion patent liability		185,000			200,000
Notes payable		857,197			432,363
Total current liabilities		2,402,886			1,422,272

Non-current Liabilities:
Notes payable related party		121,128			121,128
Long-term portion patent liability		-			140,000
Total non-current liabilities		121,128			261,128
Commitments and contingencies (note 8)
Total Liabilities		2,524,014			1,683,400

Stockholders' Equity:
Common stock - par value $0.001; 500,000,000 shares authorized;
62,589,869 and 45,489,368 shares issued and outstanding respectively		62,589			45,489
Additional paid in capital		272,668,542			196,632,775
Stock issuances due		1,508,835			3,690,960
Prepaid services		(20,967,754	)		(6,082,771	)
Accumulated deficit		(236,256,210	)		(176,942,616	)
Total stockholders' equity		17,016,002			17,343,837
Total liabilities and stockholders' equity	$	19,540,016		$	19,027,237

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

TNI BIOTECH, INC.

STATEMENTS OF OPERATIONS

(Unaudited)





	THREE MONTHS ENDED						NINE MONTHS ENDED
	September, 30 2013			September 30, 2012			September, 30 2013			September 30, 2012


Revenues, net	$	-		$	-		$	-		$	-

Operating expenses:
Selling, general and administrative		12,608,401			280,456			33,461,690			569,121
Research and development expense		6,412,711			26,514			15,510,310			26,514
Depreciation and amortization expense		719,040			10,863			2,134,231			11,012
Total operating expenses		19,740,152			317,833			51,106,231			606,647

Loss from operations		(19,740,152	)		(317,833	)		(51,106,231	)		(606,647	)

Other income (expense):
Interest expense		(205,416	)		-			(1,098,868	)		-
Loss on settlement of debt					-			(7,108,495	)		-
Total other income (expense)		(205,416	)		-			(8,207,363	)		-

Loss from continuing operations		(19,945,568	)		(317,833	)		(59,313,594	)		(606,647	)

Gain from discontinued operations								-			260,746

Net Loss	$	(19,945,568	)	$	(317,833	)	$	(59,313,594	)	$	(345,901	)


Basic and diluted loss per share:
Loss from continuing operations	$	(0.34	)	$	(0.01	)	$	(1.08	)	$	(0.03	)
Gain from discontinued operations		-			-			-			0.01
	$	(0.34	)	$	(0.01	)	$	(1.08	)	$	(0.02	)

Weighted average number of shares outstanding		59,334,545			30,853,117			55,127,859			19,706,741

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

TNI BIOTECH, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE PERIOD ENDED SEPTEMBER 30, 2013

(Unaudited)

	Common Stock						Additional Paid		Stock to			Prepaid			Accumulated
	Shares			Amount			in Capital		Be Issued			Services			Deficit			Total


Balance, December 31, 2012		45,489,368			45,489			196,632,775		3,690,960			(6,082,771	)		(176,942,616	)		17,343,837

Issuance of common stock for prepaid services		10,228,000			10,228			51,193,872					(51,204,100	)					-

Return of Stock for prepaid services		(350,000	)		(350	)													(350	)

Amortization of prepaid services													36,319,117						36,319,117

Issuance of common stock for Jill Smith/LDN License		300,000			300			2,714,700		(2,715,000	)								-

Issuance of common stock for Penn State License		300,000			300			2,549,700											2,550,000

Issuance of common stock issued for Charitable Donation		100,000			100			749,900											750,000

Issuance of common stock in exchange for debt		1,545,833			1,546			7,128,615											7,130,161

Issuance of common stock for loan expenses and interest		297,500			297			1,078,114		54,750									1,133,162

Issuance of common stock for cash and exercise of warrants		4,679,168			4,679			3,688,809											3,693,488

Issuance and modification of common stock warrants								6,932,057											6,932,057

Stock to be issued										478,125									478,125

Net loss																(59,313,594	)		(59,313,594	)

Balance, September 30, 2013		62,589,869		$	62,589		$	272,668,542	$	1,508,835		$	(20,967,754	)	$	(236,256,210	)	$	17,016,002

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

TNI BIOTECH, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

	NINE MONTHS ENDED
	Sepember 30, 2013			September 30, 2012

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(59,313,594	)	$	(342,671	)
(Gain) loss from discontinued operations		-			260,746
Loss from continuing operations		(59,310,364	)		(606,647	)

Adjustments to reconcile loss from continuing operations to
net cash flows used in operating activities:
Depreciation		682			327
Amortization		2,133,549			10,685
Amortization of stock issued for prepaid services		36,318,767			53,745
Loss on settlement of debt		7,055,994
Stock warrant expense		6,932,057
Stock issued for donation		750,000
Stock issued for interest		1,133,162
Changes in operating assets and liabilities:
Accrued liabilities		227,681			125,876
Prepaid and other current assets		(37,507	)		27,700
Accounts payable		343,098			82,850
Net cash used in operating activities
from continuing operations		(4,456,111	)		(305,464	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of computer equipment		(4,350	)		(1,062	)
Purchase of Penn State License		(160,539	)
Net cash used in investing activities
from continuing operations		(164,889	)		(1,062	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock warrants		3,640,363
Proceeds from sale of stock		531,250			212,680
Proceeds from notes payable		499,001			250,400
Payments made on patent liability		(155,000	)		(15,000	)
Net cash provided by financing activities
from continuing operations		4,515,614			448,080

Net increase (decrease) in cash		(105,386	)		141,554
Cash at beginning of year		313,095			12
Cash at end of year	$	207,709		$	141,566

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

TNI BIOTECH, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

	NINE MONTHS ENDED
	September 30, 2013		September 30, 2012

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid for interest	$	-	$	-

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Accrued liabilities for purchase of Smith LDN patent	$	2,715,000	$	-

Conversion of debt and accrued interest to common stock	$	74,167	$	-

Common shares issued for Penn State License	$	2,550,000	$	-

Common shares issued for prepaid services	$	51,204,100	$	-

TNI BioTech, Inc.

Notes to the Financial Statements

September 30, 2013

(Unaudited)

1. Organization and Description of Business

TNI BioTech, Inc. (the “Company” or “TNIB”) was initially incorporated in Florida on December 2, 1993 as Resorts Clubs International, Inc. (“Resorts Club”). 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 June 27, 1998. The Company began trading in November 1999 through the filing of a 15C-211. On November 3, 2004, Galliano merged with Resorts Club International, Inc. Resorts Club was the surviving corporation. On August 10, 2010, Resorts Club 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 pH Environmental executed a share exchange agreement for the acquisition of all of the outstanding shares of TNI BioTech, Inc.

TNI BioTech is a biopharmaceutical company focused on developing and commercializing therapeutics to treat cancer, HIV/AIDS and autoimmune diseases by combating these chronic and often life-threatening diseases through the activation and rebalancing of the body’s immune system. The Company has been developing active and adoptive forms of immunotherapies through the acquisition of patents, INDs (investigational new drug) and clinical data and all proprietary technical information, know-how, procedures, protocols, methods, prototypes, designs, data and reports, which are not readily available to others through public means, and which are owned, generated or developed through experiments or testing by Dr. Plotnikoff, Professor Shan, Dr. Bernard Bihari, Dr. Ian Zagon, Dr. Jill Smith, Dr. Patricia J. McLaughlin and Moshe Rogosnitzky. The Company currently has offices in Frederick, Maryland and Orlando, Florida.

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 and short-term debt. 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 products and achieving 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 September 30, 2013 was not sufficient to meet the cash requirements to fund planned operations through September 30, 2014 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 has experienced a net loss from operations of $59,313,594 and has used cash and cash equivalents for operations in the amount of $4,456,111 during the nine months ended September 30, 2013, resulting in stockholders’ equity of $17,016,002.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”), as amended for interim financial information. The financial information as of December 31, 2012 is derived from the audited financial statements presented in the Company’s Form 10 Registration Statement filed with the Commission on April 22, 2013 and the Amended Registration Statements on Form 10-/A filed on June 7, 2013, July 18, 2013, August 23, 2013, September 25, 2013, and October 11, 2013 for the year ended December 31, 2012. The unaudited interim financial statements should be read in conjunction with the Company’s Form 10 Registration Statement, which contains the audited financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, for the years ended December 31, 2012 and 2011.

Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management’s opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The interim results for the nine months ended September 30, 2013 are not necessarily indicative of results for the full fiscal year.

Use of Estimates

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

Cash, Cash Equivalents, and Short-Term Investments

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

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. The Company is exposed to credit risk, subject to federal deposit insurance, in the event of a default by the financial institutions holding its cash and cash equivalents to the extent of amounts recorded on the balance sheets.

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, accounts payable, payable to officer, and patent liability are accounted for at cost which approximates fair value due to the relatively short maturity of these instruments. The carrying value of notes payable to a related party also approximate fair value since they bear market rates of interest and other terms. None of these instruments are held for trading purposes.

Computer Equipment

Computer equipment is 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 from continuing operations for the nine months ended September 2013 and 2012 was $682 and $327, respectively.

Intangible Assets

Costs incurred to acquire and/or develop the Company’s product licenses and patents are capitalized and amortized by straight-line methods over estimated useful lives of seven to sixteen years. Intangible assets are stated at the lower of cost or estimated fair market value. During the nine months ended September 30, 2013, the Company capitalized $2,710,539 of such costs incurred for the acquisition of the Company’s patents. (See Note 10 of the Company’s Form 10 Registration Statement). Amortization expense for the nine months ended September 30, 2013 and 2012 was $2,133,549 and $10,685, respectively. The Company estimates its amortization expense related to these assets will approximate $2,800,000 each year for the next five years.

Impairment of Long-Lived Assets

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable as prescribed by ASC Topic 360, “Property, Plant and Equipment.” If the carrying amount of the asset, including any intangible assets associated with that asset, exceeds its estimated undiscounted net cash flow, before interest, the Company will recognize an impairment loss equal to the difference between its carrying amount and its estimated fair value. No impairment losses were recognized for the nine months ended September 30, 2013 or for the corresponding period in 2012.

Research and Development Costs

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

Income Taxes

The Company follows FASB ASC Topic 740, “Income Taxes,” which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement 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 Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. As of September 30, 2013, the Company has no accrued interest or penalties related to uncertain tax positions.

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

Recent Accounting Standards

Any new accounting pronouncements issued by the Financial Accounting Standards Board, as applicable, have been or will be adopted by the Company upon or before the expiration of the extended transition period provided under Section 102(b)(1) of the JOBS Act.

3. Promissory Notes

In April 2013 the Company issued two short-term promissory notes to third party investors totaling $200,000. Under the terms of the notes, the Company was required to issue a total of 20,000 shares of restricted common stock to the note holders as loan origination fees. The notes matured 14 days from the date of issuance. Under the terms of the notes, if the loans were not repaid, the note holders would collectively receive 20,000 shares of restricted common stock on the maturity date and every 30 days thereafter that the notes remain unpaid. As of the date of this filing, the notes have not been repaid.

On March 11, 2013 the Company issued four short-term promissory notes to third party investors totaling $249,000. Under the terms of the notes, the Company was required to issue a total of 25,000 shares of restricted common stock to the note holders as loan origination fees. The notes matured on March 25, 2013. Under the terms of the notes, if the loans were not repaid, the note holders would collectively receive 25,000 shares of restricted common stock on the maturity date and every 30 days thereafter that the notes remain unpaid. As of the date of this filing, the notes have not been repaid.

The Company has an outstanding note payable to K-C Operations (an unrelated party) issued on October 15, 2009. The balance as of September 30, 2013 and December 31, 2012 was $326,333 and $398,000, respectively. The note matured on October 31, 2010 and accrues interest at a rate of 6% per annum and is convertible to shares of common stock at a rate of $0.20 per share.

The Company has an outstanding note payable to Robert Johnson (former officer and director) issued on September 30, 2006 with a balance as of September 30, 2013 and December 31, 2012 of $21,547 and $21,547, respectively. The note matured on September 30, 2007 and is convertible to shares of common stock at a rate of $0.20 per share.

The Company has an outstanding note payable to Lexicon (an unrelated party) issued on January 15, 2009. The note is due upon demand. The balance as of September 30, 2013 and December 31, 2012 was $10,317 and $12,817, respectively. The note bears an interest rate of 6% per annum and is convertible to shares of common stock at a rate of $0.01 per share.

During the nine months ended September 30, 2013, the Company issued 1,545,833 shares of common stock for the retirement of $74,167 of promissory notes payable and accrued interest. The Company recognized a loss on conversion of the above debt of $7,108,495 and $0 in the nine months ended September 30, 2013 and 2012 respectively.

4. 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 September 30, 2013 and September 30, 2012, the Company was authorized to issue 500,000,000 common shares at a par value of $0.001 per share.

Stock Warrants

Using the Black-Scholes Model, the Company calculated the fair value of $6,932,057 for stock warrants issued during the nine months ended September 30, 2013. Variables used in the Black-Scholes option-pricing model, include (1) a discount rate of 0.71%, (2) an expected remaining life between 2 and 5 years and (3) expected volatility of 130%.

During the third quarter of 2013, the Company issued 1,652,500 shares of its restricted common stock through common stock purchase warrant exercises. The warrants were exercised at a price of $0.50 per share and the Company received proceeds of $826,250 for equity from the exercise of the warrants.

Following is a summary of outstanding stock warrants at September 30, 2013 and December 31, 2012 and activity during the periods then ended:

	Number of Shares		Exercise Price		Weighted Average Price

Warrants as of December 31, 2012		7,260,000	$	1.00 – 1.50	$	1.02

Issued in nine months ended September 30, 2013		2,567,918	$	1.00 – 1.50	$	2.56

Expired		–		–

Exercised		3,324,168	$	0.50 – 0.75	$	0.63

Warrants as of September 30, 2013		6,503,750	$	1.00 – 1.50	$	1.83

Summary of outstanding warrants as of September 30, 2013:

Expiration Date	Number of Shares		Exercise Price	Remaining Life (years)
Second Quarter 2015	1,025,000	$	2.00-3.00	1.8
Third Quarter 2015	221,250	$	2.00-3.00	2.0
Second Quarter 2016	337,500	$	1.50	2.8
Third Quarter 2017	985,416	$	1.00	4.0
Fourth Quarter 2017	3,491,666	$	1.00-1.50	4.3
First Quarter 2018	229,584	$	15.00	4.5
Second Quarter 2018	33,334	$	15.00	4.8

5. Stock Compensation

Founders’ Shares and Shares Issued for Services

During the nine months ended September 30, 2013, the Company issued 10,228,000 shares of common stock for prepaid services, which included founder shares. The Company valued these shares based upon the fair value of the common stock at the date of the agreements. The consulting fees are amortized over the contract periods, which are typically twelve months. The Company recognized an expense from common stock issued for services of $17,101,965 and $0 for the nine months ended September 30, 2013 and 2012, respectively. The amortization of prepaid services totaled $36,318,767 and $0 for the nine months ended September 30, 2013 and 2012, respectively.

6. Discontinued Operations

In April 2012, TNI BioTech, Inc., divested itself of certain assets and liabilities related to its previous activities in the hospitality business (“Resorts Club”) by transferring them to Resorts Club International Corporation Georgia. Accordingly, the operations of that business have been reflected as discontinued operations in the financial statements.

The result of this transfer was a Gain from discontinued operations in 2012 of $260,746. This transfer is not expected to affect the cash flow of the remaining operations.

These financial statements reflect the results of Resorts Club as a discontinued operation for all periods presented.

The net sales and earnings of discontinued operations were as follows:

	Three Months Ended September 30,		Three Months Ended September 30,		Nine Months Ended September 30,		Nine Months Ended September 30,
	2013		2012		2013		2012

Net Sales		-		-		-		-

Earnings before Income Taxes		-		-		-		260,746

Income Taxes		-		-		-		-

Net Earnings from Discontinued Operations		-		-		-		260,746

Cash flows from operating and investing activities of discontinued operations for the nine months ended September 30, 2013 and 2012 were $0 and $260,746, respectively.

7. Licenses and Supply Agreements

Patent and Subsidiary Acquisition

The Company entered into a share exchange agreement April 24, 2012 to acquire all of the outstanding shares of TNI BioTech IP, Inc., (“TNI IP”) a biotechnology firm incorporated in Florida formed to acquire patents related to the treatment of cancer and HIV/AIDS and autoimmune diseases, using Met-enkephalin (“MENK”) and Naltrexone (“LDN”). The goal of TNI IP’s management is to enable mankind and civilization to combat fatal diseases by activating and mobilizing the body’s own immune system using TNI IP’s patented use of MENK.

The first patents acquired by TNI IP were acquired from Dr. Nicholas P. Plotnikoff and Professor Fengping Shan in 2012. Dr. Plotnikoff and Dr. Shan have been specializing in research activities directed toward the study of cytokines, which are hormones naturally produced by the immune system. The primary cytokine, among many others currently being studied by TNI IP, is MENK. The Company is focused on the treatment of cancer, HIV/AIDS and other infectious diseases through the use of our lead compounds.

TNI IP changed its name from TNI BioTech, Inc., to TNI BioTech IP, Inc. on April 23, 2012. TNI BioTech IP, Inc., is the wholly-owned subsidiary of the Company. TNI IP was acquired in exchange for 20,250,000 shares of the Company’s common stock of which 8,000,000 shares were issued for the acquisition of the patent and the remaining 12,250,000 shares were issued to the founders of TNI IP in exchange for all of their right, title and interest in their TNI IP shares. The goodwill arising on the acquisition of TNI BioTech IP, Inc. was valued at $98,000,000 and license agreements arising from the acquisition of TNI BioTech IP, Inc. was valued at $16,006,000.

At the time of the acquisition, the valuation of goodwill and other intangible assets were determined using the fair market price for the Company’s common stock which were exchanged for shares of TNI BioTech IP, Inc. In the fourth quarter of 2012, the Company performed an annual valuation to determine whether any goodwill or intangible assets that had been acquired by the Company were impaired. The result of this valuation was that material impairments were identified. The Company recognized an impairment of the goodwill arising on the acquisition of TNI BioTech IP, Inc. of $98,000,000.

Patent License Agreements

On August 13, 2012, the Company signed a License Agreement with Ms. Jacqueline Young for the intellectual property developed by Dr. Bernard Bihari relating to treatments with opioid antagonists such as naltrexone and Met-enkephalin for a variety of diseases and conditions including malignant lymphoma, chronic lymphocytic leukemia, Hodgkin’s lymphoma, and non-Hodgkin’s lymphoma, chronic herpes virus infections, chronic herpes viral infections such as chronic genital herpes caused by the herpes simplex virus Type 2 and chronic infections due to the Epstein-Barr virus and a treatment method for humans infected with HTLV-III (AIDS) virus including patients clinically diagnosed as suffering from AIDS and those suffering from AIDS-related complex (ARC). The Bihari patents were acquired in exchange for 540,000 shares of the Company’s common stock with a fair market value of $972,000 and assumed liabilities of $400,000 which is payable to Ms. Young over a twenty-four month period in equal installments to reimburse her for the costs of a New York City office in accordance with the patent license agreement. The patent liability at September 30, 2013 totaled $185,000. The cost of the patent totaled $1,372,000. Additionally, the Company will pay the licensor a royalty payment of 1% of gross MENK sales and pay a 1% sublicense fee on any sublicense revenue.

On December 24, 2012, the Company signed an agreement for the acquisition of patent rights for the intellectual property of Dr. Jill Smith and LDN Research Group, LLC (the “Patent License Agreement”), whose members are Dr. Ian S. Zagon, Dr. Patricia J. McLaughlin and Moshe Rogosnitzky and orphan drug designation by the FDA to a novel late-stage drug, trademarked “LDN,” for the treatment of Pediatric Crohn’s disease. The patent covers methods and formulations for treatment of the inflammatory and ulcerative diseases of the bowel, using naltrexone in low doses as an opioid antagonist. Endogenous opioids and opioid antagonists have been shown to play a role in stimulating and rebalancing the immune system and the healing and repair of tissues. These patents were acquired in exchange for 300,000 shares of the Company’s common stock with a fair value of $2,715,000 and expenses of $165,384, which totaled $2,880,384. The Company has an exclusive, worldwide license to make, have made, use, lease, import, offer for sale and sell Licensed Products and to use the method under the patent rights. The agreement will terminate on the expiration or abandonment of the last patent to expire or ten years after the sale of the first licensed product. The Company may terminate the agreement upon 90 days’ written notice, provided all sublicenses are terminated and all amounts due and owing are paid to the licensor parties. The licensor parties may terminate the agreement ten days' after notice to the Company if the Company is ten days late in payment or there is a breach that remains uncured for ten days after written notice of such breach.

In partial consideration of the Patent License Agreement, the Company agreed to pay to the members the applicable milestone payments listed below after substantial achievement of each milestone event is achieved by the Company, its Affiliates or Sublicensees.

A.	Upon initiation of each phase III trial, the Company will pay $350,000.
B.	Upon positive completion of each phase III clinical trial of the therapeutic use of an LDN compound in the field of Use, the Company will pay $150,000.

C.	When an NDA is accepted for review by the FDA, the Company will pay $250,000.
D.	When FDA approval to market the NDA is approved, the Company will pay $750,000.

E.	Upon the first dosing of the first patient in a phase III clinical trial for each Licensed Product, the Company will pay 250,000 shares of the Company’s common stock.
F.	Upon the first sale of each Licensed Product, the Company will issue 400,000 shares of the Company’s common stock.

G.	Upon the achievement of $20 Million USD in cumulative sales for each licensed product covered by NDAs, the Company will issue 500,000 shares of the Company’s common stock.

The Company must pay an annual license fee in the low six-figure range and mid single digit percentage royalties on the net sales of each licensed product with an annual minimum royalty payment in the low six-figure range. The Company will pay a sublicense fee between 10-20% calculated on the payments the Company receives from any such sublicense.

As part of the Patent License Agreement, TNI BioTech has the right to apply to the Food and Drug Administration (FDA) for the transfer of the orphan drug status, the investigational new drug applications (INDs), and the right to acquire the relevant clinical data set from Dr. Smith. The FDA has designated orphan drug status for the use of low dose naltrexone in the treatment of pediatric patients with Crohn’s disease and ulcerative colitis.

The Patent License Agreement calls for the formation of a Development Committee to monitor the clinical progress of the Licensed Products and will consist of independent scientific and technical leaders who are highly regarded by the scientific community in the Field of Use of each Licensed Product. The development committee consists of at least one representative from the Licensor Parties and one representative from the Company in addition to outside experts in the field.

Naltrexone in low dose is a platform immunomodulatory technology that the Company expects to clinically test in the treatment of other immune-mediated or immune-deficient diseases for which it has previously acquired additional patents.

The Company signed an exclusive licensing agreement with The Penn State Research Foundation on January 18, 2013 to license all of the intellectual property developed by Dr. Ian S. Zagon, Dr. Patricia J. McLaughlin and Dr. Jill P. Smith for the treatment of cancer titled “Opioid Growth Factor and Cancer” and “Combination Therapy with Opioid Growth Factor and Taxanes for the Treatment of Cancer” (the “Licensing Agreement”). These licenses were acquired in exchange for 300,000 shares of the Company’s common stock with a fair value of $2,550,000 and expenses of $160,539, which totaled $2,710,539.

The patent covers methods and formulations related to the treatment and prevention of different cancers. More specifically, the present inventions describe the use of drugs that interact with opioid receptors (naltrexone, naloxone and the pentapeptide growth factor Met-enkephalin) to inhibit and arrest the growth of cancer. Endogenous opioids and opioid antagonists have been shown to play a role in stimulating and rebalancing the immune system and the healing and repair of tissues. Such efficacy has been discovered to be partially due to the functional manipulation of the zeta opioid receptor through exogenous and endogenous Met-enkephalin. This receptor has been determined to be present in a variety of cancers, including pancreatic and colon cancer.

As part of the Licensing Agreement, TNI BioTech is working to acquire the orphan drug designation (IND) and clinical data set from Dr. Jill Smith.

The Licensing Agreement calls for TNI BioTech to (a) use commercially reasonable efforts to develop, commercialize, market and sell Licensed Products in a manner consistent with the Business Plan; (b) expend a minimum of $110,000 (per annum) to develop and commercialize Licensed Products as soon as practicable, consistent with sound business practices and judgment; (c) be responsible for obtaining all requisite regulatory approvals needed to use or sell Licensed Products in the Field of Use; and (d) make the first commercial sale of a Licensed Product by December 31, 2016.

The Licensing Agreement provides that the Company must make an initial license fee of $100,000 and the issuance of 300,000 shares and an annual license maintenance fee in the low ten thousand dollar amount range. The Company will also make payments to licensor upon the achievement of certain milestone events such as initiations of Phase II or Phase III clinical trials in a low hundred thousand dollar amount, acceptance of the NDA by the FDA in a low hundred thousand amount and FDA approvals in a high hundred thousand dollar amount. The Company will issue shares upon reaching certain milestones including the issuance of a mid ten thousand amount of shares upon the first dosing of patients in clinical trials, the issuances of a low hundred thousand number of shares upon the initial sale of a licensed product and a milestone fee of a low hundred thousand share amount upon reaching sales of $20 million in cumulative sales. If the Company achieves all of the milestones, an additional $1,350,000 will be paid and an additional 375,000 shares will be issued.

The Company will also pay the licensor a percentage of net sales in the mid single digit range of the licensed products each quarter subject to a minimum royalty payment in the low hundred thousand dollar range. The Company must also pay the licensor a low double-digit percentage of any payments received from any sublicenses.

The Licensing Agreement calls for the formation of a Development Committee to monitor the clinical progress of the Licensed Products, which will consist of independent scientific and technical leaders who are highly regarded by the scientific community in the Field of Use of each Licensed Product.

The Licensing Agreement terminates on the expiration or abandonment of the last patent to expire or become abandoned. The Company may terminate the Licensing Agreement at any time upon 60 days’ prior written notice and ceasing to make and sell all licensed products, the termination of all sublicenses and payment of all monies owed under the Licensing Agreement. The licensor may terminate the agreement 30 days after notice to the Company if the Company is 30 days late in payment or a breach that remains uncured for 45 days after written notice of such breach.

In confirmation letters dated April 3, 2013, the Company received acknowledgement from the Department of Health and Human Services confirming the Food and Drug Administration’s (FDA) receipt of the change in sponsorship of the investigational new drug application (IND) for Naltrexone HCL and the orphan drug designation for [met5]-enkephalin and the orphan drug designation for the use of low dose naltrexone in the treatment of pediatric patients with Crohn’s Disease.

On March 15, 2013 the Company executed a Patent License Agreement with Professor Fengping Shan. The Company obtained exclusive rights to develop and commercialize the licensed technology. The licensed technology is the intellectual property developed and owned by Professor Shan (i) relating to the treatment of a variety of diseases and conditions with MENK including multiple forms of lymphoma and cancer and (ii) a treatment method for humans infected with the HLTV-III (AIDS) virus including AIDS and AIDS related complex (ARC). The licensed technology includes the methods and formulations for these treatments including but not limited to all INDs, communications with regulatory agencies, patient data, and letters relating to these treatments. The licensed technology also includes the following patents: 200710158742.7 MENK, its application is in treating leukemia and other blood cancers; No. 200710051586.4 MENK, its application is in preparation of human and animal vaccines; No. 200610046249.1, a nasal spray formulation containing MENK; No. 201210290150.1 LDN, combined with MENK, its application is in preparation of an anticancer drug (Pending); No. 201210302259.2 LDN, combined with MENK, its application is in preparation of leukophoresis for anticancer (Pending); No. 200810229085.5 Compound MENK as a drug for colon cancer and pancreatic cancer; No. o. 200910011030.1, Naltrexone as well as analougues being anticancer drug. Under this license, the Company must issue a mid six-figure number of shares to Prof. Shan and a low hundred thousand dollar amount for the upfront license fee, and reimburse Prof. Shan for all out of pocket expenses in connection with the patents in mid five figure range. The Company will pay Prof. Shan a mid single digit percentage running royalty of gross sales subject to decreases if third party intellectual property is needed to complete such sale or product but in no event less than a high percentage of a low single digit percentage and a low single digit percentage of all sublicense revenue. This agreement shall last for the duration of each of the licensed patents however the Company may terminate the license agreement on 120 days' written notice to Professor Shan.

8. Commitments and Contingencies

Distribution and Production

Effective August 16, 2013, the Company executed a manufacturing agreement with Laboratorios Ramos, S.A. (“Laboratorios Ramos”) a current good manufacturing practice (“cGMP”) facility for IRT-103 low-dose naltrexone (“LDN”). Under the agreement, Laboratorios Ramos will produce LDN tablets, capsules and cream in accordance with the technical specifications provided by TNI, the FDA’s good manufacturing practices and the practices of Nicaragua and of any other regulatory governing body countries where the products will be exported. Laboratorios Ramos must obtain all permits and licenses necessary to carry out the manufacturing and packaging of LDN.

Supervision and Inspection of Manufacturing in Nicaragua

On April 23, 2013, the Company signed a contract with ViPharma for the Supervision and Inspection of Manufacturing Processes as part of its negotiations for a contract for the manufacturing of LDN in a tablet, capsule and/or cream. The contract sets out the terms and conditions under which ViPharma will carry out the services of inspecting and supervising the manufacturing and packaging processes of LDN and ensure compliance with the FDA’s good manufacturing practices and the Company’s specifications. ViPharma will carry out its obligations in whatever Latin American country the Company ultimately decides to manufacture LDN within. Under the contract, ViPharma has the exclusive rights to supervise and inspect all manufacturing processes of LDN in Latin America. The Contract began on April 23, 2013 and has a duration of 10 years, with automatic renewal every 5 years thereafter unless either party is in breach of the contract or either party terminates the agreement, without cause, with 90-days’ written notice. In the event of a breach by either party, the non-breaching party must give notice to the breaching party and the breaching party has a 45-day period to cure.

9. Related Party Transactions

Effective September 15, 2012, TNI BioTech, Inc. entered into a one-year employment agreement with Joseph Griffin, the brother of the Company's Chief Executive Officer, in which base salary, the grant of a common stock, and health insurance coverage were defined. As a signing bonus, Mr. Griffin received 250,000 shares of restricted common stock of the Company. For the nine months ended September 30, 2013, the Company paid gross compensation totaling $62,338.

In 2012, Webfoot, Inc., provided financing to the Company and as of September 30, 2013, the Company owed Webfoot, Inc. $121,128. Webfoot, Inc., is owned by the son of Noreen Griffin. On February 21, 2013, the Company entered into a formal loan agreement to evidence the amount owed on December 31, 2012. The loan bears interest at an annual rate of 6%. The interest is repayable at maturity. The note matures on February 21, 2014.

In 2012, Noreen Griffin made payments on the Company's behalf covering the costs of incorporation and merger-related expenses. At September 30, 2013, the Company owed Ms. Griffin $30,000. On February 13, 2013, the Company entered into a formal loan agreement to evidence repayment of the amount owed on December 31, 2012. The loan bears interest at an annual rate of 6%. The interest is repayable at maturity.

In 2012, Griffin Enterprises, Inc. made payments on the Company's behalf covering the cost of incorporation and merger-related expenses. Griffin Enterprises, Inc. is wholly-owned by Noreen Griffin. At September 30, 2013, the company owed Griffin Enterprises, Inc. $46,000. On February 21, 2013, the Company entered into a formal loan agreement to evidence repayment of the amount owed on December 31, 2012. The loan bears interest at an annual rate of 6%. The interest is repayable at maturity.

On January 3, 2013, the Company formalized the terms under which Kelly O’Brien Wilson, the daughter-in-law of the Company's Chief Executive Officer has been employed. Ms. Wilson had been working with the Company in 2012 and her three-year employment agreement is effective as of December 1, 2012. The agreement was amended on September 1, 2013. The terms of the agreement define her base salary, a grant of a common stock, and health insurance coverage. As a signing bonus, Ms. Wilson is entitled to receive 50,000 shares of common stock of the Company. For the nine months ended September 30, 2013, the Company paid gross compensation totaling $63,903. Ms. Wilson has not received the 50,000 shares of common stock that were part of her original agreement and previously disclosed in our Form 10 Registration Statement.

10. Subsequent Events

The following is a schedule of shares issued subsequent to September 30, 2013.

	Shares

Shares issued for default on promissory notes		90,000
Shares issued to investors		48,000
Shares issued for warrant exercise		837,500
Shares issued for debt conversion		150,000

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

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. The Company’s actual results could differ materially from those set forth on the forward looking statements as a result of the risks set forth in the Company’s filings with the Securities and Exchange Commission, general economic conditions, and changes in the assumptions used in making such forward looking statements.

General

TNI BioTech, Inc. (the “Company”) was initially incorporated in Florida on December 2, 1993 as Resorts Clubs International, Inc. (“Resorts Club”). 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 June 27, 1998. The Company began trading in November 1999 through the filing of a 15C-211. On November 3, 2004, Galliano merged with Resorts Club International, Inc. Resorts Club was the surviving corporation. On August 10, 2010, Resorts Club 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 pH Environmental executed a share exchange agreement for the acquisition of all of the outstanding shares of TNI BioTech, Inc. (“TNI”).

We have invested a significant portion of our time and financial resources in the acquisition and development of our most advanced drug candidate, IRT-103 low-dose naltrexone (“LDN”). While we currently have 3 other drug candidates in clinical trials, we anticipate that our ability to generate significant product revenues in the near term will depend primarily on the successful development, regulatory approval, marketing and commercialization of IRT-103 (LDN) by us or by one of our potential partners. It is uncertain whether IRT-103 (LDN) will have successful results in its development, regulatory approval, marketing and commercialization.

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, the transition to profitability is dependent upon the successful development, approval, and commercialization of its product candidate and achieving a level of revenue 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 funds. 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.

Business Strategy

The Company’s business strategy focuses on several key areas:

●	The establishment of treatment facilities throughout Africa, the Caribbean and South America for cancer, HIV/AIDS and other autoimmune diseases that can benefit from IRT-101, IRT-102 and IRT-103 patented technology and therapies;

●	The large scale treatment in emerging nations for HIV/AIDS as an immune-enhancing therapy using IRT-103 LDN;

●	The large scale (outsourced) manufacturing and distribution of IRT-103 LDN, either in pill form, or cream for those unable to handle the medication in pill form, throughout Africa and expanding to other developing nations; and

●	The Joint Venture with the Hubei Qianjiang Pharmaceutical Company that will provide the funding required for the Phase III trials in China in exchange for TNIB providing exclusive licensing rights in China. TNIB will also receive a percentage of the gross revenue from sales in China.

The Company has entered into a relationship with a number of groups including: GB Oncology & Imaging Group, LLC, the Brewer Group, AHAR Pharma, as well as a number of United States doctors that own and operate clinics in the United States and Nigeria. We are also working with large employers who operate on-site clinics.

In November 2012, TNI signed an exclusive distributor agreement with G-Ex Technologies/St. Maris Pharma and GB Pharma Holdings LLC for the Federal Republic of Nigeria. Under the terms of the agreement, G-Ex Technologies/St. Maris Pharma & GB Pharma Holdings LLC will have exclusive marketing and distribution rights to IRT-103 LDN and LDN cream in Nigeria.

The Government of Malawi has been remodeling a section of the Queens's Hospital as an oncology center. Once it is complete, TNI BioTech, with the assistance of GB Oncology & Imaging Group, LLC and the other groups, is ready to ship the equipment to the oncology center within the next 90 to 120 days. Once the facility is operational, American Hospital Resort has agreed to assist in the operation of the clinic in Malawi and the implementation of TNI BioTech therapies. In the case of Malawi, a number of not-for-profits are funding the project through donations. There is no need to build a facility as we are currently working with known operators.

Operations in Nigeria will be operational within 90 days and operations in Malawi should be operational by 2014.

TNI, in conjunction with GB Energie LLC, under the leadership of Dr. Gloria B. Herndon, established GB Oncology and Imaging Group LTD (“GBOIB”) to meet the demands for oncological and infectious diseases expertise. Dr. Herndon has been involved in healthcare related issues in Africa since the mid 1990s and is a consulting resource for the National Institute of Health (“NIH”) regarding the impact of the HIV/AIDS pandemic on the insurance industry and the dissemination of AIDS-related information to the United States Department of State. The goal of TNI/GBOIG, together with the ministries of health across Africa, is to provide better access to and public awareness of the prevention, diagnosis and treatment of cancer and chronic infectious diseases. TNI plans to work with onsite clinics which will permit TNI to complete patient assessments at little or no cost and prescribe treatments used to modulate the immune system of the patients with various chronic diseases, especially HIV/AIDS and/or cancer so that it decreases the inflammatory attack on normal cells and allows an improvement in normal functions of the nerves or gastrointestinal cells. As a result, treatment with LDN is potentially synergistic in combination with current drugs for autoimmune diseases such as Crohn’s disease. In advanced cases, the patients can be transferred to TNI’s offsite treatment facility for further evaluation and treatment, where they can benefit from TNI’s patented technology and therapies.

Through these clinics, TNI intends to begin delivery of Lodonal IRT-103, the Company’s proprietary LDN, for the treatment of HIV/AIDS and/or cancer in 2013. The contract with the Republic of Malawi calls for 25,000 pills a day, increasing to 500,000 pills a day within 24 months. TNI anticipates people will take IRT-103 365 days a year. The contracts with Equatorial Guinea will begin with about 10,000 people per day growing to about 125,000 people per day over the next two years.

TNI is focused on our lead therapies designed for the treatment of cancer, HIV/AIDS, Crohn’s disease, fibromyalgia and MS. Management believes there are clear market opportunities with a significant amount of unmet needs and a robust potential for partnering activities.

Distribution and Production

On April 23, 2013, TNI has entered into a contract for the supervision and inspection of manufacturing processes with ViPharma. The supervision and manufacturing agreement provides ViPharma with exclusive rights to supervise and inspect all manufacturing processes of LDN in Latin America. The initial term of the agreement is ten years with automatic five-year renewal terms provided neither party is in breach. The agreement may be terminated by (i) mutual agreement, (ii) in the event of a breach after a 45 day cure period or (iii) by either party upon provision of written notice at least 90 days before the end of the agreement, provided however that if TNI terminates the contract without cause it will be required to pay ViPharma a penalty.

TNI executed a manufacturing agreement with Laboratorios Ramos, S.A. (“Laboratorios Ramos”), a current good manufacturing practice (“cGMP”) facility, for IRT-103 LDN effective August 16, 2013. Under the agreement, Laboratorios Ramos will produce LDN tablets, capsules and cream in accordance with the technical specifications provided by TNI, the FDA’s good manufacturing practices and the practices of Nicaragua and of any other regulatory body governing the countries where the products will be exported. Laboratorios Ramos must obtain all permits and licenses necessary to carry out the manufacturing and packaging of LDN. The manufacturing agreement has a one-year term, renewable by a signed agreement by the parties at least 60 days before the expiration of the agreement. The agreement may be terminated earlier through mutual agreement or upon expiration of a 30-day cure period following notice from the non-breaching party to the breaching party of a material failure of the obligations under the agreement. Additionally, TNI may terminate the agreement upon at least 30 days written notice if Laboratorios Ramos does not act in strict accordance with the technical specifications provided by TNI and with the FDA’s good manufacturing practices or those of any regulatory body of the importing countries.

Meeting with FDA Regarding LDN

In May 2013, the Company received confirmation of a Type C meeting with the FDA to discuss the Phase 3 clinical development program for a proposed 505(b)(2) application for Low Dose Naltrexone (“LDN”) in the treatment of adults and pediatric patients with Crohn’s disease. The meeting was held on June 26, 2013 and the Company received the minutes from the meeting on July 17, 2013. The Company presented its development plan to the FDA that supports its Phase III clinical studies and NDA filing. After conclusion of the Type C meeting, the Company plans to move into Phase III clinical studies in early 2014.

Meeting with FDA Regarding MENK

The Company received confirmation of a Type B meeting with the FDA on August 20, 2013 to discuss the Phase 3 clinical development program and CMC plans for Met-enkephalin in combination with gemcitabine in the treatment of pancreatic cancer.

Subsidiaries

TNI, a Florida corporation, formed its United Kingdom subsidiary, TNI BioTech, LTD (the “Subsidiary”) on August 6, 2013. TNI BioTech, LTD received approval to be considered an enterprise micro, small or medium-sized enterprise (“SME”) with the European Medicines Agency (“EMA”) on August 21, 2013. The designation provides the Company with significant discounts when holding meetings or submitting filings to the EMA. On September 19, 2013, TNI BioTech, LTD submitted a pre-submission package to the EMA regarding Crohn’s Disease. The EMA granted the Company a meeting that took place on September 27, 2013. The Company is eligible to benefit from the provisions for administrative and financial assistance for SMEs set out in Regulation (EC) No 2049/2005.

Agreements

TNI BioTech International, Ltd., a wholly-owned subsidiary of TNI executed a Distribution Agreement effective September 17, 2013 with AHAR Pharma, a company formed under the laws of the Federal Republic of Nigeria (the “Distributer”). Subject to the terms and conditions of the Agreement, the Distributer will distribute the Company’s low-dose naltrexone under the name Lodonal™ throughout Nigeria on an exclusive basis.

Results of Operations – Six Months Ended June 30, 2013

Revenues

We had no revenues from operations for the period ending September 30, 2013 and for the years ended December 31, 2012 and 2011. We do not anticipate having any significant future revenues until we have sufficiently funded operations.

Operating Expenses

Selling, general and administrative

Selling, general and administrative ("SG&A") expenses were $33,461,690 for the nine months ended September 2013, compared to $565,891 for the corresponding period in 2012.

In the nine months ended 2013, total cash spent on SG&A was $3,371,286, compared to $565,891 for the corresponding period in 2012. Significant cash items included consulting services ($1,003,133 in 2013, compared to $76,745 for the nine months ended September 30, 2012), professional fees ($827,282 in 2013, compared to $54,816 in 2012), payroll ($795,308 in 2013, compared to $283,253 in 2012), and travel ($315,710 in 2013, compared to $290 in 2012). In addition, the Company recorded non-cash SG&A expenses of $30,087,174 in the nine months ended September 2013 ($4,230 in 2012), comprised mainly of costs of issuance of shares for services ($22,388,033 in 2013, compared to $0 in 2012) and stock warrants ($6,950,655 in 2013, compared to $0 in 2012). The increase year over year in SG&A expense was attributable primarily to increased sales and marketing activities to promote the sale of the Company's products in South America and Africa, and the cost of raising additional equity to fund ongoing operations and business development.

Research and development

Research and development ("R&D") expenses were $15,510,310 for the nine months ended September 2013, compared to $26,514 for the corresponding period in 2012.

In the nine months ended 2013, total cash spent on R&D was $1,460,816, compared to $26,514 for the corresponding period in 2012. Significant cash items included contracted technical services ($823,984 in 2013, compared to $22,500 for the nine months ended September 30, 2012), professional fees ($71,592 in 2013, compared to $0 in 2012), payroll ($327,335 in 2013, compared to $0 in 2012), and travel ($40,931 in 2013, compared to $1,503 in 2012). In addition, the Company recorded non-cash R&D expenses of $14,049,394 in the nine months ended September 2013 ($0 in 2012), comprised mainly of costs of issuance of shares for services. The increase year over year in R&D expense was attributable primarily to the increase in R&D required to launch new clinical trials and implement the Company's product development program.

Depreciation and amortization

Depreciation and amortization expense was $2,134,231 for the nine months ended September 2013, compared to $11,012 for the corresponding period in 2012. The Company amortizes the costs incurred to acquire patents and licenses over the period of the related agreements. The increase year over year in depreciation and amortization expense reflects the fact that most of the Company's patents and licenses were acquired after October 1, 2012.

Interest Expense

Interest expenses are comprised of loan origination fees and interest owed by the Company. Interest expense for the nine months ended September 30, 2013 was $1,098,868 compared to $0 for the corresponding period in 2012. Higher interest expense in 2013 reflects the increase in the amount of interest-bearing notes payable outstanding in 2013.

Loss on settlement of debt

In the nine months ended September 30, 2013, certain lenders to the Company exercised their rights to convert all or a portion of their notes payable to equity. The Company recorded an expense of $7,108,495, reflecting the fair value of the stock issued in exchange for the notes. There was no expense in the corresponding period in 2012.

Liquidity

Liquidity is measured by our ability to secure enough cash to meet our contractual and operating needs as they arise. We do not anticipate generating sufficient net positive cash flows from our operations to fund the next twelve months. We had cash of $207,709 at September 30, 2013, compared to $313,095 at December 31, 2012.

Our cash reserves will not be sufficient to meet our operational needs and we need to raise additional capital to pay for our operational expenses and provide for capital expenditures. In addition to the Company's operational expenses, which are estimated at $400,000 per month, we estimate that we need approximately $7-15 Million in the next twelve months to fully develop our products and for Phase III clinical trials for Crohn’s disease. If we are not able to raise additional working capital, we may have to cease operations altogether.

For the nine months ended September 30, 2013 and 2012, net cash used in operating activities from continuing operations of $4,456,111 and $305,464, respectively. For the nine months ended September 30, 2013 and 2012, net cash used in investing activities from continued operations of $164,889 and $1,062, respectively. The change in 2013 is due to the purchase of computer equipment and payment for the Penn State License.

During the nine months ended September 30, 2013 proceeds from the exercise of stock warrants totalled $3,640,363 compared to $0 for the corresponding period in 2012. Proceeds from stock sales were $531,250 in 2013 compared to $212,680 in 2012. We also generated $449,001 from the sale of notes payable for the nine months ended September 30, 2013 compared to $250,400 for the same period in 2012.

Research Operations

We continue to build our research and development (“R&D”) organization and capabilities focusing primarily on new uses for opioid-related immunomodulatory therapies, such as low-dose naltrexone (“LDN”) and Met-enkephalin (“MENK”). These therapies stimulate and otherwise alter the immune system in such a way that provide the potential to treat a variety of diseases that have abnormalities in the immune system.

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

Our R&D is overseen and managed internally, working with individuals, universities, and Contract Research Organizations (CROs) in order to utilize patents that we have licensed or acquired since our inception. We continue to seek to expand our pipeline 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.

Drug discovery and development is time-consuming, expensive and unpredictable. According to the Pharmaceutical Research and Manufacturers of America (PhRMA), out of 5,000-10,000 screened compounds, only 250 enter preclinical testing, five enter human clinical trials and one is approved by the FDA. The process from early discovery or design to development to regulatory approval can take more than 10 years. Drug candidates can fail at any stage of the process, and candidates may not receive regulatory approval even after many years of research.

As of June 30, 2013, we had two compounds (IRT-101 and IRT-103) in research and development. We currently have two active development programs in oncology and Crohn’s disease; both moving into Phase 3 clinical trials in early 2014.

Research and Development (R&D) Expenses

	Three Months Ended							Six Months Ended
(in US Dollar Millions)	September 30, 2013		September 30, 2012		% Change			June 30, 2013		June 30, 2012		% Change
Research and development expenses	$	6,413	$	27		23,519	%	$	15,510	$	27		57,344	%

The Company's R&D activities commenced in the third quarter of 2012, the Company having only completed the initial acquisition of MENK-related patents required for research in the second quarter of that year.

The Company's R&D efforts were focused in the first nine months of 2013 on the development of two products - LDN and MENK - for use in opioid-related immunomodulatory therapies. In the first nine months of 2013, the Company reported R&D expenditures of $15,510,310. Approximately 75% of that amount was spent on the development of LDN, the balance on MENK.

The following table provides information about significant regulatory actions by, and filings pending with the FDA and regulatory authorities in the European Union, as well as additional indications and new drug candidates in late-stage development.

NEW DRUG CANDIDATES IN LATE-STAGE DEVELOPMENT

CANDIDATE	INDICATION

IRT-101	Pancreatic Cancer
IRT-103	Crohn’s Disease

Summary

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

Off-Balance Sheet Arrangements

During the nine months ended September 30, 2013, 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES

Changes in Internal Controls over Financial Reporting

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

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of our disclosure controls and procedures as defined in Rules 13(a)-15(e) under the Securities Exchange Act of 1934 (“the Exchange Act”). Based on this evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures are ineffective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Management assessed the effectiveness of the internal controls over financial reporting as of September 30, 2013, using the framework set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon this assessment, our management concluded that, as of September 30, 2013, the internal controls over financial reporting were not effective. The reportable conditions and material weakness relate to a limited segregation of duties and lack of an audit committee. The limited segregation of duties within our company and the lack of an audit committee are due to the small number of employees. Management has determined that this control deficiency constitutes a material weakness. This material weakness could result in material misstatements of significant accounts and disclosures that would result in a material misstatement to our interim or annual financial statements that would not be prevented or detected. In addition, due to limited staffing, we are not always able to detect minor errors or omissions in reporting.

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

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Registration Statement on Form 10, filed with the SEC on April 22, 2013 and the Amended Registration Statements on Form 10-/A filed on June 7, 2013, July 18, 2013, August 23, 2013, September 25, 2013 and October 11, 2013. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

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

Between July 1, 2013 and September 30, 2013, various warrant holders purchased an aggregate total of 1,652,500 shares of TNI BioTech, Inc. (the “Company”) at an exercise price of $0.50 per share. In addition, the Company sold an aggregate sum of 465,000 shares of its common stock at $1.25 and $1.00 per share pursuant to a private placement (the “Private Placement”). In total, the Company received $826,250 as consideration for the exercise of the previously-issued warrants (the “Warrants”) and $531,250 for the purchase of common stock under the Private Placement, for an aggregate sum of $1,357,500.

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

African Contracts

In the African countries where the Company currently has contracts, international laws require the exporting company provide a certificate of Free Sale. It has taken TNI BioTech longer than anticipated to obtain the certificate of Free Sale, which has delayed the shipments of products to Africa.

Confirmation of Transfer of IND Application and Orphan Drug Designation

Meeting with FDA Regarding LDN

In May 2013, the Company received confirmation of a Type C meeting with the FDA to discuss the Phase III clinical development program for a proposed 505(b)(2) application for Low Dose Naltrexone (“LDN”) in the treatment of adults and pediatric patients with Crohn’s disease. The meeting was held on June 26, 2013 and the Company received the minutes from the meeting on July 17, 2013. The Company presented its development plan to the FDA that supports its Phase III clinical studies and NDA filing. After conclusion of the Type C meeting, the Company plans to move into Phase III clinical studies in early 2014.

Meeting with FDA Regarding MENK

The Company received confirmation of a Type B meeting with the FDA on August 20, 2013 to discuss the Phase III clinical development program and CMC plans for Met-enkephalin in combination with gemcitabine in the treatment of pancreatic cancer.

ITEM 6. EXHIBITS

Exhibit Number		Name of Exhibit

31.1		Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

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

	TNI BioTech, Inc.

Date: November 14, 2013	By:	/s/ Noreen Griffin
		Noreen Griffin
		Chief Executive Officer

Immune Therapeutics, Inc. - FORM 10-Q - November 14, 2013

Attached files

Immune Therapeutics, Inc. Reports