Biostax Corp. - Quarter Report: 2014 March (Form 10-Q)

tnib_10q.htm

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 March 31, 2014

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

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

(Address of principal executive offices)

888-613-8802

(Issuer's telephone number)

618 East South Street, Suite 500, Orlando, Florida 32801

(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 May 12, 2014 there were 86,371,347 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	22

Item 3	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4	Controls and Procedures	31

	PART II OTHER INFORMATION

Item 1	Legal Proceedings	32

Item 1A	Risk Factors	32

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 3	Default upon Senior Securities	32

Item 4	Mine Safety Disclosures	32

Item 5	Other Information	32

Item 6	Exhibits	33

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, 2013, the last day of our last fiscal year. We are electing to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.

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

●	being permitted to present only two years of audited financial statements and only two years of related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this quarterly report;

●	not being requested to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley Act”);

●	reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and

●	exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We will remain an emerging growth company until the earliest to occur of: (i) our reporting $1 billion or more in annual gross revenues; (ii) the last day of our fiscal year following the fifth anniversary of the date of first sale of our common stock pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"); (iii) our issuance, in a three year period, of more than $1 billion in non-convertible debt; and (iv) the end of the fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million on the last business day of our second fiscal quarter of 2013.

As an emerging growth company we are exempt from Section 404(b) of the Sarbanes-Oxley Act and Section 14A(a) and (b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 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 Exchange Act, implemented by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, require companies to hold shareholder advisory votes on executive compensation and golden parachute compensation.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

●

strategy;

●	new product discovery and development;

●	current or pending clinical trials;

●	our products’ ability to demonstrate efficacy or an acceptable safety profile;

●	actions by the FDA and other regulatory authorities;

●	product manufacturing , including our arrangements with third-party suppliers;

●	product introduction and sales;

●	royalties and contract revenues;

●	expenses and net income;

●	credit and foreign exchange risk management;

●	liquidity;

●	asset and liability risk management;

●	the outcome of litigation and other proceedings;

●	intellectual property rights and protection;

●	economic factors;

●	competition; and

●	legal risks

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

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

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

●	our lack of operating history;

●	our current and future capital requirements and our ability to satisfy our capital needs;

●	our inability to keep up with industry competition;

●	interpretations of current laws and the passages of future laws;

●	acceptance of our business model by investors and our ability to raise capital;

●	our drug discovery and development activities may not result in products that are approved by the applicable regulatory authorities. Even if our drug candidates do obtain regulatory approval they may never achieve market acceptance or commercial success;

●	our reliance on key personnel, including our ability to attract and retain scientists;

●	our reliance on third party manufacturing to supply drugs for clinical trials and sales;

●	our limited distribution organization with no sales and marketing staff;

●	our being subject to product liability claims;

●	legislation or regulation that may increase the cost of our business or limit our service and product offerings;

●	risks related to our intellectual property, including our ability to adequately protect intellectual property rights;

●

risks related to governmental regulation, including our ability to obtain approvals for the commercialization of some or all of our drug candidates, and ongoing regulatory obligations and continued regulatory review which may result in significant additional expense and subject us to penalties if we fail to comply with applicable regulatory requirements; and

●	our ability to obtain regulatory approvals in foreign jurisdictions to allow us to market our products internationally.

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

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TNI BIOTECH, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31, 2014			December 31, 013
ASSETS
Current Assets:
Cash and cash equivalents	$	233,692		$	406,596
Prepaids and other current assets		42,500			215,900
Total current assets		276,192			622,496

Fixed Assets:
Computer equipment, net of accumulated depreciation
of $1,868 and $1,293 respectively		5,032			5,607

Intangible Assets:
Patents and licenses, net of amortization
of $5,141,087 and $4,422,375, respectively (Note 6)		17,827,836			18,546,548

Deposits		10,183			17,435
Total assets	$	18,119,243		$	19,192,086

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable	$	1,012,088		$	$839,909
Payable to officer		76,000			76,000
Accrued liabilities		662,454			588,271
Current portion patent liability		68,333			118,333
Notes payable		1,417,197			817,197
Total current liabilities		3,236,072			2,439,710

Non-current Liabilities:
Notes payable related party		101,128			121,128
Total non-current liabilities		101,128			121,128
Commitments and contingencies (Note 7)
Total Liabilities		3,337,200			2,560,838

Stockholders' Equity:
Common stock - par value $0.001; 500,000,000 shares authorized;
86,371,347 and 74,161,639 shares issued and outstanding respectively		86,371			74,160
Additional paid in capital		322,570,898			308,113,375
Stock issuances due		1,302,113			4,893,499
Prepaid services		(8,509,722	)		(13,447,109	)
Accumulated deficit		(300,667,617	)		(283,002,677	)
Total stockholders' equity		14,782,043			16,631,248
Total liabilities and stockholders' equity	$	18,119,243		$	19,192,086

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

TNI BIOTECH, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	THREE MONTHS ENDED
	March 31, 2014			March 31, 2013

Revenues, net	$	-		$	-

Operating expenses:
Selling, general and administrative		12,612,953			7,702,170
Research and development expense		4,170,836			2,980,101
Depreciation and amortization expense		719,287			698,995
Total operating expenses		17,503,076			11,381,266

Loss from operations		(17,503,076	)		(11,381,266	)

Other income (expense):
Interest expense		(161,081	)		(239,912	)
Exchange (loss)		(783	)		-
Loss on settlement of debt		-			(3,068,496	)
Total other income (expense)		(161,864	)		(3,308,408	)
Net Loss	$	(17,664,940	)	$	(14,689,674	)

Basic and diluted loss per share	$	(0.22	)	$	(0.29	)

Weighted average number of shares outstanding		81,562,670			49,983,416

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

TNI BIOTECH, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE PERIOD ENDED MARCH 31, 2014

(Unaudited)

	Common Stock				Additional Paid		Stock to		Prepaid		Accumulated
	Shares		Amount		in Capital		Be Issued		Services		Deficit		Total
Balance, December 31, 2013		74,161,639	$	74,160	$	308,113,375	$	4,893,499	$	(13,447,109)	$	(283,002,677)	$	16,631,248

Issuance of common stock for prepaid services		5,490,000		5,490		7,960,010		-		(7,965,500)		-		-

Return of stock issued for charitable contributions		(100,000)		(100)		(749,900)		-		-		-		(750,000	)

Amortization of prepaid services										12,902,887				12,902,887

Issuance of common stock to employees and consultants		2,028,708		2,029		446,068		(1,697)		-		-		446,400

Issuance of common stock in exchange for debt		1,000,000		1,000		1,251,000		(1,252,000)		--		-		-

Issuance of common stock for loan expenses and interest		260,000		260		362,090		(217,000)		-		-		145,350

Issuance of common stock for cash and exercise of warrants		3,531,000		3,532		2,774,182		(2,120,689)		-		-		657,025

Issuance and modification of common stock warrants	-			-		2,414,073		-		-		-		2,414,073

Net loss		-		-		-		-		-		(17,664,940)		(17,664,940	)

Balance, March 31, 2014		86,371,347	$	86,371	$	322,570,898	$	1,302,113	$	(8,509,722)	$	(300,667,617)	$	14,782,043

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

TNI BIOTECH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	THREE MONTHS ENDED
	March 31, 2014			March 31, 2013

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(17,664,940	)	$	(14,689,674	)
Adjustments to reconcile net loss to net cash flows used in operating activities:
Depreciation		575			120
Amortization		718,712			696,124
Stock issued, and amortization of stock issued, for prepaid services		13,349,287			7,561,740
Loss on settlement of debt		-			3,068,496
Stock warrant expense		2,414,073			1,065,894
Stock issued for donation		(750,000	)		750,000
Stock issued for interest		145,350			232,250
Changes in operating assets and liabilities:
Accounts payable		175,441			75,676
Accrued liabilities		70,921			132,177
Prepaid and other current assets		180,652			(75,600	)

Net cash used in operating activities		(1,359,92	9)		(1,182,797	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of computer equipment		-			(1,170	)
Purchase of Penn State License		-			(160,539	)
Net cash used in investing activities		-			(161,709	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of stock and exercise of warrants		657,025			1,030,324
Proceeds from issuance of notes payable		600,000			249,000
Repayments of notes payable, related party		(20,000	)		-
Payments made on patent liability		(50,000	)		(71,667	)

Net cash provided by financing activities		1,187,025			1,207,657

Net decrease in cash		(172,904	)		(136,849	)
Cash and cash equivalents at beginning of period		406,596			313,095
Cash and cash equivalents at end of period	$	233,692		$	176,246

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

TNI BIOTECH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	THREE MONTHS ENDED
	March 31, 2014		March 31, 2013

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid for interest	$	-	$	-

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

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

Common shares issued for prepaid services	$	7,965,500	$	39,565,400

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

TNI BioTech, Inc.

Notes to the Consolidated Financial Statements

March 31, 2014

(Unaudited)

1. Organization and Description of Business

TNI BioTech, Inc., (“TNI BioTech” or “the Company”) was initially incorporated in Florida on December 2, 1993 as Resorts Club 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 10, 2004, Galliano merged with Resorts Club International, Inc. Resorts Club was the surviving corporation. On February 27, 2012, 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, IP. The Company currently operates out of Orlando, Florida and Frederick, Maryland. In July 2012, the Company’s focus turned to acquiring patents that would protect and advance the development of new uses of opioid-related immune- therapies, such as low-dose naltrexone (“LDN”) and Methionine [Met5]-enkephalin (“MENK”). The Company’s therapies are believed to stimulate and/or regulate the immune system in such a way that they provide the potential to treat a variety of diseases. We believe our therapies may be able to correct abnormalities or deficiencies in the immune system in diseases such as HIV infection, autoimmune disease, immune disorders, or cancer; all of which can lead to disease progression and life-threatening situations when the immune system is not functioning optimally.

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

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

In December 2013, the Company formed a new subsidiary, Cytocom Inc. ("Cytocom"), to focus on conducting LDN and MENK clinical trials in the United States. The Company expects that the manufacturing of TNI BioTech therapies and their subsequent distribution into emerging nations will continue to be operated directly through TNI BioTech. The Company initially entered into consultant arrangements with Dr. Graham Burton, M.D., Ph.D., and Mr. Gary G. Gemignani, to focus on the clinical advancement of LDN and MENK through Cytocom. Effective April 1, 2014, Dr. Burton was appointed President and Chief Executive Officer of Cytocom. On the same date, Mr. Gemignani was appointed Chief Operating Officer, Chief Financial Officer and Executive Vice President of Cytocom. Dr. Burton will be responsible for leading Cytocom’s global development, clinical research and medical initiatives. Mr. Gemignani will be responsible for operational and business development activities and financial management of Cytocom.

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

TNI BioTech is focused on the development and commercialization of therapeutic treatments for cancer, HIV/AIDS and autoimmune diseases and immune disorders by combating these severe and fatal diseases through the stimulation and/or regulation of the body’s immune system. TNI’s growth strategy includes the near-term commercialization of its existing immunotherapies targeting cancer, Crohn’s disease and/or HIV/AIDS. Phase II dose-response studies of LDN are anticipated to begin in late 2014 to early 2015, to be followed shortly by a Phase III study.

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 March 31, 2014 was not sufficient to meet the cash requirements to fund planned operations through December 31, 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 $17,664,940 and has used cash and cash equivalents for operations in the amount of $1,359,929 during the three months ended March 31, 2014, resulting in stockholders’ equity of $14,782,043.

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 March 31, 2014 is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 ("2013 10-K"). The unaudited interim financial statements should be read in conjunction with the 2013 10-K, 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, 2013 and 2012.

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 three months ended March 31, 2014 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.

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 three months ended March 31, 2014 and 2013 was $575 and $120, 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. Amortization expense for the three months ended March 31, 2014 and 2013 was $718,712 and $696,124, 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 three months ended March 31, 2014 or for the corresponding period in 2013.

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

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

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

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.

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

	For the three months ended March 31,
	2014			2013

Historical net loss per share:
Numerator
Net loss	$	(17,664,940	)	$	(14,689,674	)
Net loss attributed to Common stockholders	$	(17,664,940	)	$	(14,689,674	)

Denominator
Weighted-average common shares outstanding— Denominator for basic and diluted net loss per share		81,562,670			49,983,416
Basic and diluted net loss per share attributed to common stockholders	$	(0.22	)	$	(0.29	)

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

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

	For the three months ended March 31,
	2014		2013
Warrants to purchase Common stock		8,824,250		7,957,500
		8,824,250		7,957,500

Recent Accounting Standards

Any new accounting pronouncements issued by the FASB, 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

The Company has an outstanding note payable to K-C Operations (an unrelated party) issued on October 15, 2009. The balance as of March 31, 2014 and 2013 was $286,333 and $338,833, 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. In 2013, principal and interest aggregating $59,167 was converted to 295,833 shares. The shares issuable under this note are subject to the requirements of Rule 144 of the Securities Act.

The Company has an outstanding note payable to Robert Johnson (former officer and director) issued on September 30, 2006 with a balance as of March 31, 2014 and 2013 was $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 shares issuable under this note are subject to the requirements of Rule 144 of the Securities Act.

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 March 31, 2014 and 2013 was $10,317 and $10,317, 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 three months ended March 31, 2013, $2,500 of this note was converted to 250,000 shares. The shares issuable under this note are subject to the requirements of Rule 144 of the Securities Act of 1933.

The Company has an outstanding note payable to Robert J. Dailey, issued March 11, 2013 for $99,000, with a maturity date of March 25, 2013, and bearing an interest rate of 2% annually, an origination fee of 10,000 restricted common stock shares, a penalty of 10,000 restricted common stock shares if not paid by maturity and an additional 10,000 shares every 30 days after maturity if the loan is not satisfied in full.

The Company has an outstanding note payable to Robert J. Dailey, issued April 25, 2013 for $100,000, with a maturity date of May 9, 2013, and bearing an interest rate of 2% annually, an origination fee of 10,000 restricted common stock shares, a penalty of 10,000 restricted common stock shares if not paid by maturity and an additional 10,000 shares every 30 days after maturity if the loan is not satisfied in full.

The Company has an outstanding note payable to Joel Yanowitz, issued March 11, 2013 for $50,000, with a maturity date of March 25, 2013, and bearing an interest rate of 2% annually, an origination fee of 5,000 restricted common stock shares, a penalty of 5,000 restricted common stock shares if not paid by maturity and an additional 5,000 shares every 30 days after maturity if the loan is not satisfied in full.

The Company has an outstanding note payable to Roger D. Bozarth, issued April 5, 2013 for $100,000, with a maturity date of April 19, 2013 and bearing an interest rate of 2% annually, an origination fee of 10,000 restricted common stock shares, a penalty of 10,000 restricted common stock shares if not paid by maturity and an additional 10,000 shares every 30 days after maturity if the loan is not satisfied in full.

The Company has an outstanding note payable to Christine Dailey, issued August 30, 2013 for $50,000, with a maturity date of October 14, 2013, and bearing an interest rate of 2% annually, a penalty of 15,000 restricted common stock shares if not paid by maturity and an additional 5,000 shares every 30 days after maturity if the loan is not satisfied in full.

The Company has an outstanding note payable to First Choice International Company, issued December 23, 2013 for $100,000, with a maturity date of June 23, 2014, and bearing an interest rate of 10% annually, a penalty of 30,000 restricted common shares if not paid by maturity and an additional 10,000 shares every 30 days after maturity if the loan is not satisfied in full.

In the three months ended March 31, 2014, the company issued three promissory notes totaling $600,000. At March 31, 2014, $600,000 was outstanding respectively under these notes. The notes have the following terms and conditions:

●

Robert J. Dailey, issued February 6, 2014 for $200,000, with a maturity date of June 5, 2014, and bearing an interest rate of 2% annually, a penalty of 15,000 restricted common stock shares if not paid by maturity and an additional 5,000 shares every 30 days after maturity if the loan is not satisfied in full.

●

Robert J. Dailey, issued March 7, 2014 for $200,000, with a maturity date of July 6, 2014 and bearing an interest rate of 2% annually, a penalty of 15,000 restricted common stock shares if not paid by maturity and an additional 10,000 shares every 30 days after maturity if the loan is not satisfied in full.

●

Robert J. Dailey, issued March 28, 2014 for $200,000, with a maturity date of July 27, 2014, and bearing an interest rate of 2% annually, a penalty of 15,000 restricted common stock shares if not paid by maturity and an additional 10,000 shares every 30 days after maturity if the loan is not satisfied in full.

As of March 31, 2014 and 2013, the Company had accrued $39,222 and $9,718 in unpaid interest, respectively. For the three months ended March 31, 2014, the Company issued 260,000 shares with a fair market value of $362,250 for loan expenses and interest under promissory notes including shares for amounts which previously accrued.

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 March 31, 2014 and 2013, 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 $2,414,073 for common stock purchase warrants issued and modified during the three months ended March 31, 2014. Variables used in the Black-Scholes option-pricing model, include (1) a discount rate of 0.76%, (2) an expected remaining life of 5 years and (3) expected volatility of 179%.

During the first quarter of 2014, the Company issued 581,250 shares of its restricted common stock through the exercise of common stock purchase warrants. The warrants were exercised at a price of $0.50 per share and the Company received net proceeds of $290,625 for equity from the exercise of the warrants.

Following is a summary of outstanding stock warrants at March 31, 2014 and activity during the period then ended:

	Number of Shares		Exercise Price		Weighted Average Price

Warrants as of December 31, 2013		7,957,500	$	1.00 – 15.00	$	1.77

Issued in the three months ended March 31, 2014		1,448,000	$	1.00-1.50	$	1.33

Expired		–		–

Exercised		581,250	$	0.50	$	0.50

Warrants as of March 31, 2014		8,824,250	$	0.50-15.00	$	1.66

Summary of outstanding warrants as of March 31, 2014:

Expiration Date	Number of Shares		Exercise Price		Remaining Life (years)
Third Quarter 2015		745,000	$	1.50-2.00		1.50
Fourth Quarter 2015		268,750	$	1.50		1.75
Second Quarter 2016		37,500	$	3.00-5.00		2.25
Third Quarter 2016		525,000	$	0.50-5.00		2.50
Third Quarter 2017		1,500,000	$	1.00-1.50		3.50
Fourth Quarter 2017		2,941,666	$	1.00-9.00		3.75
First Quarter 2018		127,500	$	15.00		4.00
Second Quarter 2018		33,834	$	15.00		4.25
Third Quarter 2018		400,000	$	1.00		4.50
Fourth Quarter 2018		1,197,500	$	1.00-1.50		4.75
First Quarter 2019		1,048,000	$	1.50		5.00

5. Stock Compensation

Shares Issued for Services

During the three months ended March 31, 2014, the Company issued 5,490,000 shares of common stock for prepaid services. 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 issued common stock for prepaid services of $7,965,500 and $39,559,867 for the three months ended March 31, 2014 and 2013, respectively. The amortization of prepaid services totaled $12,902,887 and $7,561,740 for the three months ended March 31, 2014 and 2013, respectively.

6. Licenses and Supply Agreements

Patent and Subsidiary Acquisition

The Company entered into a share exchange agreement April 24, 2013 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

The Company entered into a share exchange agreement on 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 Naltraxone (“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 Met-enkephalin (referred to herein as MENK).

The Company entered into a Sale of Technology Agreement with Dr. Nicholas P. Plotnikoff on March 4, 2012, wherein Dr. Plotnikoff agreed to transfer and assign all of his rights, title and interest in: European Patent United Kingdom, Germany, France, Ireland EP 1401471 BI Methods for inducing sustained immune response; Russian Patent Russian Federation patent number 2313364; The Patent Office of the People’s Republic of China, Application No.: 200810165784.8 China Patent CN1015113407 A The Patent Office of the People’s Republic of China ISSN: 1006-2858 CN 21-1349/R; Patent Agencies Government of India Patent, Application number 1627/KOLNP/2003 number 220265 an Enkephalin Peptide Composition; and the US Patent Pending, US Patent Application 10/146.999 e. The Company received all the production formulations and technology designs from Dr. Plotnikoff necessary for the manufacturing, formulation, production and protocols of the MENK treatment of cancer and HIV/AIDS. As consideration for entering into the Sale of Technology Agreement, Dr. Plotnikoff received 8,000,000 shares of common stock, a royalty of a single-digit percentage on all sales of MENK and was granted the position of Non-Executive Chairman of the Board of Directors.

Patent License Agreements

On August 13, 2012, the Company signed an exclusive 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 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 March 31, 2014 totaled $68,333. 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 provide the licensor a position as non-executive chairman of the Company. The License Agreement is valid for the life of the patents and expires on a country by country basis in each country where patent rights exist, upon the expiration of the last to expire patent in each country or in the event the patent in such country is held to be invalid and/or unenforceable (by a court or government body of competent jurisdiction) or admitted to be invalid or unenforceable. Additionally, TNI can cancel the License Agreement upon 120 days’ written notice and shall pay all royalties and fees that have accrued under the Agreement. TNI has the exclusive rights to the intellectual property however, Licensor retains a right to practice the Licensed Patents solely for noncommercial, academic research purposes.

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. 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 payment of $165,384 (consisting of a $100,000 initial license fee and payment of $65,384 of expenses), which totaled $2,880,384. The Company is also required to pay an annual license fee of $100,000 and a minimum annual royalty of $100,000. 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.

Upon initiation of each Phase III trial, the Company will pay $350,000.

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.

When an NDA is accepted for review by the FDA, the Company will pay $250,000.

When FDA approval to market the NDA is approved, the Company will pay $750,000.

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.

Upon the first sale of each Licensed Product, the Company will issue 400,000 shares of the Company’s common stock.

Upon the achievement of $20 million 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, the Company 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”).

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.

As part of the Licensing Agreement, the Company 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 Company is in compliance with these requirements.

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, a total of $1,350,000 will be paid in milestone payments.

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.

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. 200910011030.1, Naltrexone as well as analougues being anticancer drug. Under this license, the Company must issue 500,000 shares to Prof. Shan upon final transfer of the licenses, 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.

7. Commitments and Contingencies

Malawi Treatment Facilities

On July 14, 2012, GB Oncology and Imaging Group LTD (“GBOIG”) in partnership with the Company signed a letter of intent agreement to collaborate with the Government of Malawi to assist in expanding the treatment of cancer, HIV/AIDS and other infectious diseases.

The Company and GB will work in connection with the government of Malawi to open and operate clinics that provide treatments for HIV/AIDS, cancer and other infectious diseases. GBOIG and the Company originally expected to have the oncology and infectious disease clinic fully operational within 12 months of the signing of the Agreement, and to begin treatment for HIV patients within 180 days thereafter. However, delays in obtaining approvals required for the importation of the Company’s products are likely to delay the start of the project until the second half of 2014. Under the letter of intent, the Company and GBOIG will begin by providing HIV/AIDS treatment to 10,000 patients and hopefully expanding to 500,000 within 24 months of project start. The Company shall contribute $1,000 in initial capital to the venture. The Company shall be allocated 50% of the net income from the venture. Either party may terminate the venture with 180 days’ notice to the other party prior to the one-year anniversary of the Agreement. After the one-year anniversary, the agreement may only be terminated with 180 days' notice to the other party if the other party has breached the Agreement.

GB Oncology and Imaging Group LTD., a subsidiary of GB Energie LLC is a Washington D.C. based minority woman-owned business managed by Dr. Gloria B. Herndon. Dr. Herndon is also a director of TNI BioTech, Inc.

Open an Oncology and Infectious Disease Center in Malawi at Queen Elizabeth Central Hospital

On September 25, 2012, GBOIG in partnership with the Company, signed an agreement with the Government of Malawi to open an outpatient clinic at Queen Elizabeth Central Hospital (in Malawi) for the treatment of cancer and infectious disease. The duration of the Agreement shall be for 25 years with an optional 10 year renewal to be indicated by the Government of Malawi at least three years prior to the expiration of the term. The Government of Malawi shall bear the upfront costs for the agreement of $2,500,000.

Distribution Agreements in Nigeria

Effective November 9, 2012, the Company signed an exclusive Distribution Agreement with G-Ex Technologies/St. Maris Pharma and GB Pharma Holdings, LLC for the Federal Republic of Nigeria. Under the terms of the Distribution Agreement, G-Ex Technologies/St. Maris Pharma and GB Pharma Holdings LLC will have exclusive marketing and distribution rights to IRT-103 LDN and IRT-104 LDN cream in Nigeria until the end of the term of the agreement on December 31, 2017. TNI BIOTECH will be responsible for the manufacture and supply of IRT-103 LDN and IRT-104 LDN cream. As part of the Distribution Agreement, G-Ex Technologies/St. Maris Pharma will provide TNI BIOTECH with a revolving letter of credit for the minimum purchase of 750,000 doses monthly of IRT-103 LDN or IRT-104 LDN cream priced at $1.00 per dose. There are no upfront fees.

The Distribution Agreement calls for G-Ex Technologies/St. Maris Pharma and GB Pharma Holdings, LLC to purchase a minimum of 15,000,000 doses monthly within 24 months to maintain the exclusivity of the Agreement. Once G-Ex Technologies/St. Maris Pharma and GB Pharma Holdings, LLC reach sales of 1,000,000 doses per day, TNI BIOTECH has agreed to joint venture a factory in the Federal Republic of Nigeria to meet local demands.

G-Ex Technologies/St. Maris Pharma is a consortium of companies organized under the laws of the Republic of Nigeria operated by management, a consultant, general pharmaceutical, clinical pharmacy and marketing executives, each with over 25 years of industry experience and well versed in the changing dynamics of the prescription and over-the-counter drug international marketplace. G-Ex Technologies/St. Maris Pharma has been actively supported by medical practice professionals in business and academia who have been involved in the management of related drug therapies for many years.

The parties have been unable to perform under the agreement because a certificate of free sale was not obtained by the Company until November of 2013, and no extension has been granted.

In October 2013, the Company announced the signing of a distribution agreement with AHAR Pharma, a Nigerian company, to market Lodonal™, in Nigeria for the treatment of autoimmune diseases and cancer. AHAR intends to distribute Lodonal™ through a local distributor network, an Internet client base and directly to hospitals, pharmacists and doctors in Nigeria. The Company expects to implement the agreement in 2014, and expects to treat up to 500,000 patients per day by March 2015. Under the agreement, the Company is obligated to provide delivery of an initial supply of between 1 million and 1.5 million doses of Lodonal™ product to cover AHAR Pharma’s first-year purchase commitment.

Strategic Framework Agreement with Hubei Qianjiang Pharmaceutical Company

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

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 initial term of the agreement is ten years commencing in September 2013, 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 $10 million penalty.

Operating Leases

The Company leases office space in White Plains, New York, Frederick, Maryland, and Orlando, Florida. Rental expense for the three months ended March 31, 2014 and 2013 was $31,207 and $16,259, respectively.

8. Related Party Transactions

In 2012, Webfoot, Inc. provided financing to the Company in the amount of $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 by the Company. At March 31, 2014, $101,128 owed under the agreement. The loan bears interest at an annual rate of 6%. The interest is repayable at maturity. The note matures on February 21, 2015.

In 2012, Noreen Griffin made payments totaling $30,000 on the Company's behalf covering the costs of incorporation and merger-related expenses. On February 13, 2013, the Company entered into a formal loan agreement to evidence repayment of the amount owed on December 31, 2012. At March 31, 2014, the Company owed Ms. Griffin $30,000 under the agreement. The loan bears interest at an annual rate of 6%. The note matures on February 13, 2015. 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 March 31, 2014, the company owed Griffin Enterprises, Inc. $46,000. 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 note matures on February 13, 2015. 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 is 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 terms of the agreement define her base salary, a grant of a common stock, and health insurance coverage. Ms. Wilson was issued 500,000 shares of common stock of the Company in January 2014. During the quarter ended March 31, 2014, the Company paid compensation to Ms. Wilson totaling $40,848.

9. Subsequent Events

The following is a schedule of shares issued subsequent to March 31, 2014.

		Shares
Shares issued for consulting expenses			650,000

On May 1, 2014, the Company announced a plan to spin off its wholly-owned subsidiary, Cytocom, an entity established to operate the Company's drug development business. Following the spin-off, Cytocom will initially focus on developing LDN and MENK (the "Drug Development Business"). The Company will continue to retain rights to certain intellectual property assets, and will focus on manufacturing, distribution and marketing of these LDN and MENK therapies for the treatment of both humans and animals in certain territories (the "Marketing and Distribution Business").

To affect the spin-off "distribution" (the "Distribution"), the Company will first undertake certain internal reorganizational steps, following which Cytocom will hold the Drug Development Business subject to certain terms and conditions. At the time of the Distribution, each Company stockholder will receive one common share of Cytocom for every one share of Company common stock held by such Company stockholder as of 5:00 p.m., Eastern Time, on July 15, 2014, which is the "record date" for the Distribution. However, to the extent that a Company stockholder sells a portion or all of that stockholder's shares of the Company’s common stock prior to the record date, such stockholder also will be pro-rata selling the right to receive common shares of Cytocom through the Distribution. Company stockholders will not be required to pay any consideration to participate in the Distribution; however, mandatory surrender of existing Company shares will be required to receive shares of Cytocom through the Distribution. Company shareholders as of the record date will continue to own shares in the Company in the same form and in the same quantity as of the record date.

The Company will continue to be quoted on the OTCQB Market after the Distribution is completed and will continue to trade under the symbol "TNIB." Cytocom will be a reporting company under the Securities Exchange Act of 1934, as amended, by the time of the Distribution, but will not initially be quoted on any securities marketplace or exchange.

The Distribution does not require Company stockholder approval. An information statement containing details regarding the Distribution and Cytocom's proposed business and management will be mailed to the Company stockholders prior to the Distribution. The consummation of the Distribution is subject to the effectiveness of a Form 10 registration statement filed by Cytocom and the satisfaction or waiver of certain conditions that will be described in the information statement.

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. ("TNI BioTech" or the “Company”) was initially incorporated in Florida on December 2, 1993 as Resorts Club 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 10, 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 February 27, 2012, pH Environmental completed a name change to TNI BioTech, Inc., and on April 24, 2012 the Company executed a share exchange agreement for the acquisition of all of the outstanding shares of TNI BioTech, IP., 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, White Plains, New York and Orlando, Florida.

Business Strategy

The Company’s short-term business strategy focuses on several key areas described below, all of which are being undertaken simultaneously.

●	Commencing by the end of the second quarter of 2014, the distribution of low-dose nultrexone ("IRT 103 LDN") to support the large scale treatment in emerging nations, initially in Africa and Central/South America as an immune-stimulating therapy for HIV/AIDS, cancer, autoimmune disease and immune disorders;

●	Commencing by the end of the second quarter of 2014, the distribution of IRT-103 LDN marketed under the name Lodonal™ through various distribution agreements;

●	Outsourcing of the manufacturing of IRT-103 LDN to Laboratorios Ramos in Managua, Nicaragua to provide LDN in capsule, tablet and/or cream form, throughout Africa and expanding to other developing nations. Work on the outsourcing commenced in the last quarter of 2013. Laboratorios Ramos has already produced LDN, and the Company will commence shipments when all regulatory approvals have been received in Africa for the importation of LDN; and

●	A cooperative venture with the Hubei Qianjiang Pharmaceutical Company (“Qianjiang”), to be in operation by the end of 2014, pursuant to which Qianjiang will provide the funding required for the clinical trials of the Company’s products in China in exchange for the Company providing exclusive licensing rights in China. The Company will also receive 6% of the gross revenue from sales of those products in China.

To further the business strategy, the Company has entered into relationships with a number of groups to promote the sale of its products outside the U.S., focusing initially on countries in Africa and Central/South America. They include: the Brewer Group; GB Oncology & Imaging Group, LLC; American Hospitals and Resorts Limited (“AHAR”), an advanced surgical and medical facility, as well as a number of U.S. doctors that own and operate clinics in the U.S. and Nigeria.

The Brewer Group, Inc. is an international business advisory firm engaged in the business of identifying and capitalizing on opportunities with international governments, non-government organizations and professional athletes. The CEO of The Brewer Group is also the founder and Executive Director of The Jack Brewer Foundation. The Jack Brewer Foundation seeks to provide the Company with medical equipment where it is needed. Under the Engagement Agreement for Corporate Advisory Services dated effective February 5, 2013, the Brewer Group agreed to evaluate the Company’s options for expansion and growth into certain international markets, including Africa and, upon request, markets in Haiti, the Dominican Republic and/or Panama. Pursuant to the Engagement Agreement, the Brewer Group agreed to endorse the Company publicly and assist the Company in securing strategic partnership deals to enhance brand and market awareness. The initial term of the Engagement Agreement was 12 months, with an option for either party to terminate upon 30 calendar days with written notice to the other party. The agreement has been extended through February 2015. The Company issued the Brewer Group 500,000 shares of its common stock in accordance with the Engagement Agreement.

GB Oncology and Imaging Group LTD. (“GBOIG”), a subsidiary of GB Energie LLC, is a Washington D.C.-based business managed by Dr. Gloria B. Herndon, a director of the Company. Dr. Herndon is committed to sourcing sustainable solutions in the field of health care in Africa, and has been involved since the 1990s on health-care related issues in Africa. The Company and GBOIG are working with the ministries of health in African countries to provide better access to and public awareness of the prevention, diagnosis and treatment of cancer and chronic infectious diseases. The Company plans to work with onsite clinics to complete patient assessments at little or no cost and prescribe treatments used to stimulate the immune system of the patients with various chronic diseases, especially HIV/AIDS and/or cancer.

In September 2012, the Company announced an agreement to open an outpatient's clinic at Queen Elizabeth Central Hospital in Malawi for the treatment of cancer and infectious diseases with GBOIG. Once the facility is operational, AHAR has agreed to assist in the operation of the clinic in Malawi and the implementation of the Company’s therapies. The contract with the Republic of Malawi calls for delivery of 25,000 pills a day, increasing to 500,000 pills a day within 24 months. The Company is still awaiting final approvals to import the drugs. The Company expects to commence operations in Malawi before the end of 2014.

In October 2013, the Company announced the signing of an exclusive distribution agreement with AHAR Pharma, a Nigerian company, to market Lodonal™, in Nigeria for the treatment of autoimmune diseases and cancer. Dr. Richard Afonja formed AHAR Pharma in 2013 for the sole purpose of marketing TNI BioTech therapies. Dr. Afonja is a Hematologist/Oncologist and the Founder and CEO of a number of medical operations in both the United States and Nigeria for the treatment of cancer and blood disorders. AHAR Pharma intends to distribute Lodonal™ through a local distributor network, an Internet client base and directly to hospitals, pharmacists and doctors in Nigeria. The Company expects to implement the agreement in 2014, and expects to treat up to 500,000 patients per day within a year of implementation.

In October 2012, the Company entered a Strategic Framework Agreement (“Strategic Framework Agreement”) with Hubei Qianjiang Pharmaceutical Company (“the China Partner”). The agreement calls for the parties to co-develop new cancer drugs based on the Company’s patents and licenses involving Methionine Enkephalin, which when approved will be marketed in China under the brand name IRT-101 and IRT-102.The Company signed a Supplementary Agreement in March 2014 (together with the Strategic Framework Agreement, the “China Agreements”), obligating the Company to provide to the China Partner with the Company’s research materials, data and trial results to date so that the China Partner can begin conducting basic studies and clinical trials in China. Under the China Agreements, the China Partner will fund the subsequent studies in China.

Management believes the pharmaceutical industry is eager to acquire advanced clinical-phase and approved products. However, despite the strong demand for advanced clinical-phase products, nearly 4,000 known compounds have had their development suspended in Phase II or earlier. Many of these are promising therapeutic drug candidates, but their development was discontinued because of strategic or financial constraints rather than for clinical reasons.

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

Distribution and Production

The Company 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 IRT-103 low-dose naltrexone (“LDN”) in Latin America. The initial term of the agreement is ten years commencing in September 2013, 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 $10 million penalty.

The Company executed a manufacturing agreement with 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/or cream in accordance with the technical specifications provided by TNI, current good manufacturing practices and the practices of Nicaragua and of any other regulatory body of the countries where the products will be exported. Laboratorios Ramos has obtained all permits and licenses necessary to carry out the manufacturing of LDN.

The manufacturing agreement has a five-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 current good manufacturing practices or those of any regulatory body of the importing countries. The Company will pay Laboratorios Ramos a low single digit cent amount per tablet or capsule and a low double-digit cent amount per each cream produced.

In October 2013, the Company announced the signing of a distribution agreement with AHAR Pharma, a Nigerian company, to market Lodonal™, in Nigeria for the treatment of autoimmune diseases and cancer. The agreement gives AHAR Pharma exclusive rights to sell to customers in the private sector, and non-exclusive rights to sell to customers in the public sector, AHAR Pharma intends to distribute Lodonal™ through a local distributor network, an Internet client base and directly to hospitals, pharmacists and doctors in Nigeria. Under the agreement, the Company is obligated to provide delivery of an initial supply of between 0.5 million and 1.0 million doses of Lodonal™ product per day to cover AHAR Pharma’s purchase commitments in 2015.

Subsidiaries

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

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

In December 2013, the Company formed a new subsidiary, Cytocom Inc. ("Cytocom"), to focus on conducting LDN and MENK clinical trials in the United States. The Company expects that the manufacturing of TNI BioTech therapies and their subsequent distribution into emerging nations will continue to be operated directly through TNI BioTech. The Company initially entered into consulting arrangements with Dr. Graham Burton, M.D., Ph.D., and Mr. Gary G. Gemignani, to focus on the clinical advancement of LDN and MENK through Cytocom. Effective April 1, 2014, Dr. Burton was appointed President and Chief Executive Officer of Cytocom. On the same date, Mr. Gemignani was appointed Chief Operating Officer, Chief Financial Officer and Executive Vice President of Cytocom. Dr. Burton will be responsible for leading Cytocom’s global development, clinical research and medical initiatives. Mr. Gemignani will be responsible for operational and business development activities and financial management of Cytocom.

In March 2014 the Company incorporated Airmed Biopharma Limited, an Irish corporation with an address in Dublin, Ireland (“Airmed”). Airmed was set up to benefit from incentives granted by the Irish government for the establishment of pharmaceutical companies (8 out of 10 of the world’s leading pharmaceutical companies have located in Ireland), and because Ireland is a member of the European Union and the European Economic Area (the “Euro Zone”). An Irish limited liability company enjoys a low corporate income tax rate of 12.5%, one of the lowest in the world. The Irish-domiciled company hopes to qualify for tax incentives for Irish holding/headquartered companies and to benefit from the network of double tax treaties that reduce withholding taxes. The BVI company will manage our international distribution, using product that is manufactured in Ireland and elsewhere.

Research and Development

The Company's research and development ("R&D") activities commenced in the third quarter of 2012, the Company having only completed the initial acquisition of MENK-related patents required for research in the second quarter of that year. In 2013 we continued to build R&D organization and capabilities focusing primarily on new uses for opioid-related immuno-therapies, such as LDN and MENK. Those activities continued in the first quarter of 2014.

Our R&D priorities include development of Methionine [Met5]-enkephalin (IRT-101 (MENK)), a small synthetic peptide that is naturally occurring in the body, and low dose naltrexone (IRT-103 (LDN)), an opioid receptor antagonist. Our pipeline provides two therapies with a wide range of indications that can be pursued. We believe that both molecules have the ability to stimulate the immune system in order to treat a variety of autoimmune diseases including multiple sclerosis, immune disorders such as Crohn’s disease, cancer, and viral infections such as HIV/AIDS.

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

Drug discovery and development is time-consuming, expensive and unpredictable. According to 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 March 31, 2014, 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 of which are expected to move into Phase 3 clinical trials in the first half of 2014.

Results of Operations – Three Months Ended March 31, 2014

Revenue

The Company reported no revenues in the three months ended March 31, 2014 and 2013.

The Company expects to derive revenues in 2014 from the sale of its products in Malawi, Nigeria, Equatorial Guinea, Burkina Faso and Niger under distribution and partnership agreements announced in 2012 and 2013.

Direct Expenses and Gross Margin

The Company incurred no direct expenses in the three months ended March 31, 2014 and 2013. In the future, direct expenses will include the cost of finished products to be purchased from the Company’s contract manufacturers, sales incentives, associated travel, and inventory return charges.

Gross margin, which is gross profit as a percent of revenue, will be affected by a number of factors, including the type of product sold and the geographic region in which the sale is made.

Research and Development

The Company makes significant investments in R&D in support of ongoing proprietary product development programs to support our pipeline of new drug candidates.

R&D expenses consist of salaries and benefits paid to employees directly engaged in research, payments made in cash or in kind to contractors for services directly related to research and product development, product development costs, payments made for patents and licenses to which the Company has acquired rights to use, and travel, telecommunications, facilities and external legal costs incurred in relation to research activities.

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

Operating Expenses

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

Other Expenses, Net

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

Loss on settlement of debt

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

Critical Accounting Policies

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

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

Cash and Cash Equivalents

We consider all highly liquid debt instruments and other short-term investments with a maturity of three months or less to be cash equivalents.

Net Loss Per Share of Common Stock

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

Uncertainty in Income Taxes

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

Three Months Ended March 31, 2014 Compared to Three Months Ended March 31, 2013

Revenues

We had no revenues from operations for the three months ended March 31, 2014 and 2013. We anticipate having revenues in the second half of 2014.

Operating Expenses

Selling, general and administrative

Selling, general and administrative expenses and related percentages for the three months ended March 31, 2014 and 2013 were as follows (dollar amounts in thousands):

	2014			2013
Selling, general and administrative	$	12,613		$	7,702
Increase from prior year	$	4,911		$	7,702
Percent increase from prior year		64	%		100	%

For the three months ended March 31, 2014 and 2013, selling, general and administrative expenses were made up as follows (dollar amounts in thousands):

	2014			2013
Prepaid consulting services	$	9,690		$	5,030
Stock listing and investor relations expenses		2,423			1,072
Consulting and contractors		491			286
Payroll		308			240
Professional fees		146			195
Travel		127			112
Insurance		42			-
Other expenses		136			17
Charitable donations		(750	)		750
	$	12,613		$	7,702

The increase year over year in selling, general and administrative expense was attributable primarily to increased sales and marketing activities to promote the manufacture and sale of the Company's products in Nicaragua and Africa, and the cost of raising additional equity to fund ongoing operations, and business development.

Prepaid consulting services in the three months ended March 31, 2014 consisted of the following:


Amortization of cost of stock issued prior to 2014 under consulting contracts	$	5,815,969
Amortization of cost incurred for new stock issued in the three months ended March 31, 2014 under consulting contracts entered into in 2013		2,581,333
Amortization of cost incurred for new stock issued in the three months ended March 31, 2014 under consulting contracts entered into in 2014		1,292,400

The cost of the new stock issued in the three months ended March 31, 2014 was for services provided as follows:

Product and market development services	$	2,174,667
Business development and strategy services		1,628,066
Investor and media relations services		71,000

The cost of the new stock issued in the three months ended March 31, 2014 arose from the issuance of 5,490,000 shares in the period, at a total cost of $7,965,500. The balance of the total cost ($4,091,767) will be amortized over the remaining lives of the contracts.

In the three months ended March 31, 2014, total cash and cash accruals for selling, general and administrative expense was $2,924 compared to $1,677 for the corresponding period in 2013, an increase of $1,247 or 74%. Significant cash items included:

●	consulting services obtained to assist the Company in raising capital, manage investor relations, and develop business in new markets, in the amount of $440 in 2014, an increase of $184 or 71% over the $256 spent in 2013;

●	professional fees for legal, tax and accounting services in the amount of $146 in 2014, an decrease of $50 or 25% over the $196 spent in 2013;

●	payroll in the amount of $308 in 2014, an increase of $68 or 28% over the $240 spent in 2013; and

●	travel in the amount of $127 in 2014, an increase of $15 or 14% over the $112 spent in 2013.

Research and development

R&D expenses and related percentages for the three months ended March 31, 2014 and 2013 were as follows (dollar amounts in thousands):

	2014			2013
Research and development	$	4,171		$	2,980
Increase/ (decrease) from prior year	$	1,191		$	2,980
Percent increase / (decrease) from prior year	40		%	100		%

Expenses for research and development in the three months ended March 31, 2014 increased by 40% compared to expenses in the same period in 2013. The increase occurred mainly as a result increases in the cost of stock payments for licenses, purchases of materials for R&D, legal fees paid to maintain patents and licenses.

In the three months ended March 31, 2014, total cash spent on R&D was $511, an increase of $192 or 60% over the $380 spent in the same period in 2013. Significant cash items included:

●	payments for contracted technical services ($143 in 2014, a decrease of $21 or 13% over the $164 spent in 2013), reflecting the increased use of contractors to perform some of our research activities;

●	purchases of supplies and materials used in research activities ($173 in 2014, an increase of $173 or 100% over the $0 spent in 2013); and

●	payroll ($92 in 2014, a decrease of $14 or 13% over the $106 spent in 2013), reflecting loss of our chief research officer in 2013.

Approximately 75% of the R&D spending in both 2014 and 2013 was on the development of LDN; the balance was spent on MENK.

Depreciation and amortization

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.

Depreciation and amortization expenses for the three months ended March 31, 2014 and 2013 were as follows (dollar amounts in thousands):

	2014		2013
Depreciation expense	$	1	$	0.1
Amortization expense	$	718	$	696
Increase from prior year	$	22	$	696
Percentage increase from prior year		3%		100%

Interest Expense

Interest expense for the three months ended March 31, 2014 and 2013 were as follows (dollar amounts in thousands):

	2014		2013
Interest expense	$	161	$	240
(Decrease) from prior year	$	(79)	$	240
Percentage decrease from prior year		(33)%		100%

Interest expenses are comprised of loan origination fees and interest owed by the Company. In 2013, interest expense included origination fees of $132. There were no origination fees paid in 2014.

Loss on settlement of debt

In three months ended March 31, 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 $3,068, reflecting the fair value of the shares of common stock issued in exchange for the notes. There was no corresponding expense in three months ended March 31, 2014.

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 $233,692 at March 31, 2014, compared to $176,246 at March 31, 2013.

We do not expect that our cash reserves will be sufficient to meet our operational needs and we will 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 $450,000 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 three months ended March 31, 2014 and 2013, net cash used in operating activities from operations was $1,359,929 and $1,182,797, respectively. For the three months ended March 31, 2014 and 2013, net cash used in investing activities from operations was $0 and $161,709, respectively. In the three months ended March 31, 2013, the Company spent $160,539 in payments for licenses from Penn State University

During the three months ended March 31, 2014 proceeds from the sale of stock and exercise of stock warrants totaled $657,025 compared to $1,030,324 for the corresponding period in 2013. We also generated $600,000 from the issuance of notes payable in three months ended March 31, 2014, compared to $249,000 in 2013.

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

Off-Balance Sheet Arrangements

During the three months ended March 31, 2014 and 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.

Evaluation of Disclosure Controls and Procedures

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

Management assessed the effectiveness of the internal controls over financial reporting as of March 31, 2014, 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 March 31, 2014, the internal controls over financial reporting were not effective. The reportable conditions and material weakness relate to a limited segregation of duties and lack of an audit committee. The limited segregation of duties within our company and the lack of an audit committee are due to the small number of employees. Management has determined that this control deficiency constitutes a material weakness. This material weakness could result in material misstatements of significant accounts and disclosures that would result in a material misstatement to our interim or annual financial statements that would not be prevented or detected. In addition, due to limited staffing, we are not always able to detect minor errors or omissions in reporting.

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

Limitations on the Effectiveness of Internal Controls

Readers are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our control have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed with the SEC on March 31, 2014. 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 January 1, 2014 and March 31, 2014, various warrant holders exercised their warrants for an aggregate of 627,250 shares of the Company at an exercise price of $0.50 per share. In addition, the Company sold an aggregate 627,250 shares of its common stock at $0.58 per share and 48,000 warrants in a private placement (the “Private Placement”). Thw warrants are exercisible for a period of five years at an exercise price of $1.50 per share. In total, the Company received $290,625 as consideration for the exercise of the previously-issued warrants and $366,400 for the purchase of common stock under the Private Placement, for an aggregate sum of $657,025.

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

In the three months ended March 31, 2014, the Company issued a total of 5,490,000 shares, at an average price of $1.45 per share, and 1,400,000 five-year warrants, with an average exercise price of $1.36, in accordance with consulting agreements entered into in 2013 and 2014. The consulting agreements cover the provision of product and market development services, business development and strategy services, and investor and media relations services to the Company.

The issuances of the Company’s common stock and warrants for consulting services were completed in private transactions by the Company not involving any public offering pursuant to Section 4(a)(2) and Rule 506 of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”). The securities were issued bearing restrictive legend and may not be resold by the holders unless such shares are registered or an exemption from registration is available.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

The Company will continue to be quoted on the OTCQB Market after the Distribution is completed and will continue to trade under the symbol "TNIB." Cytocom will be a reporting company under the Exchange Act, by the time of the Distribution, but will not initially be quoted on any securities marketplace or exchange.

The Company’s board of directors has determined that a strategic separation of the Company's two businesses is in the best interests of Company stockholders. The Company believes that spinning off the Drug Development Business will provide several opportunities and benefits, including the following:

●	Market Recognition: The investment community, including analysts, stockholders and prospective investors in each company, will be better able to realize the value of the Company and Cytocom fully and independently and enhance the market recognition of each company;

●	Business Focus: Each of the Company and Cytocom will be better able to focus efforts on and allocate resources towards its own business opportunities and challenges;

●	Improved Capital Flexibility: the Company and Cytocom will be able to deploy capital and access additional financing, if appropriate, in accordance with each company's particular needs and business model; and

●	Employee Incentives: Each of the Company and Cytocom will be better able to attract, retain and motivate employees by providing equity compensation tied more directly to its performance.

ITEM 6. EXHIBITS

Exhibit Number		Name of Exhibit

10.1		Promissory note to Robert J. Dailey, issued February 6, 2014 for $200,000.

10.2		Promissory note to Robert J. Dailey, issued March 7, 2014 for $200,000.

10.3		Promissory note to Robert J. Dailey, issued March 28, 2014 for $200,000.

10.4		Employment Agreement between Cytocom, Inc. and Dr. Graham Burton dated April 1, 2014.

10.5		Employment Agreement between Cytocom, Inc. and Gary Gemignani dated April 1, 2014.

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.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

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: May 15, 2014	By:	/s/ Noreen Griffin
		Noreen Griffin
		Chief Executive Officer

	By:	/s/ Peter Aronstam
		Peter Aronstam
		Chief Financial Officer