0001354488-13-006363.txt : 20131114 0001354488-13-006363.hdr.sgml : 20131114 20131114154748 ACCESSION NUMBER: 0001354488-13-006363 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20130930 FILED AS OF DATE: 20131114 DATE AS OF CHANGE: 20131114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TNI BIOTECH, INC. CENTRAL INDEX KEY: 0001559356 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 593226705 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-54933 FILM NUMBER: 131219735 BUSINESS ADDRESS: STREET 1: 477 SOUTH ROSEMARY AVENUE, SUITE 315 CITY: WEST PALM BEACH STATE: FL ZIP: 33401 BUSINESS PHONE: 407-680-3097 MAIL ADDRESS: STREET 1: 477 SOUTH ROSEMARY AVENUE, SUITE 315 CITY: WEST PALM BEACH STATE: FL ZIP: 33401 10-Q 1 tnib_10q.htm QUARTERLY REPORT 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 September 30, 2013
 
OR
 
oTRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934
 
From the transition period from ___________ to ____________
 
Commission File Number __________________
 
TNI BIOTECH, INC.
(Exact name of small business issuer as specified in its charter)
 
  Florida
 
  20-1968162
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)
 
618 East South Street #500, Orlando, Florida 32801
(Address of principal executive offices)
 
   888-613-8802
(Issuer's telephone number)
 
6701 Democracy Blvd., Suite 300, Bethesda, Maryland, 20817
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:  Yes þ   No o.
 
Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” ”accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
Large Accelerated Filer o
 
Accelerated Filer o
       
 
Non-Accelerated Filer   o
 
Smaller Reporting Company þ
 
Indicate by a check mark whether the company is a shell company (as defined by Rule 12b-2 of the Exchange Act:  Yes o   No þ.
 
As of November 14, 2013 there were 63,736,639 shares of Common Stock outstanding.
 


 
 
 
 
 
TABLE OF CONTENTS
 
 
PART I FINANCIAL STATEMENTS
 
     
Item 1
Financial Statements
4
     
Item 2
Management's Discussion and Analysis of Financial Conditions and Results of Operations
18
     
Item 3
Quantitative and Qualitative Disclosures About Market Risk
23
     
Item 4
Controls and Procedures
23
     
     
 
PART II OTHER INFORMATION
 
     
Item 1
Legal Proceedings
24
     
Item 1A
Risk Factors
24
     
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
24
     
Item 3
Default upon Senior Securities
24
     
Item 4
Mine Safety Disclosures
24
     
Item 5
Other Information
25
     
Item 6
Exhibits
26
 
 
 
2

 
 
JUMPSTART OUR BUSINESS STARTUPS ACT
 
The Company qualifies as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups Act (“JOBS Act”) as we do not have more than $1,000,000,000 in annual gross revenue and did not have such amount as of December 31, 2012, our last fiscal year. We are electing to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.
 
We may lose our status as an emerging growth company on the last day of our fiscal year during which (i) our annual gross revenue exceeds $1,000,000,000 or (ii) we issue more than $1,000,000,000 in non-convertible debt in a three-year period. We will lose our status as an emerging growth company (i) if at any time we are deemed to be a large accelerated filer. We will lose our status as an emerging growth company on the last day of our fiscal year following the fifth anniversary of the date of the first sale of common equity securities pursuant to an effective registration statement.
 
As an emerging growth company we are exempt from Section 404(b) of the Sarbanes-Oxley Act of 2002 and Section 14A(a) and (b) of the Securities Exchange Act of 1934. Such sections are provided below:
 
Section 404(b) of the Sarbanes-Oxley Act of 2002 requires a public company’s auditor to attest to, and report on, management’s assessment of its internal controls.
 
Sections 14A(a) and (b) of the Securities and Exchange Act, implemented by Section 951 of the Dodd-Frank Act, require companies to hold shareholder advisory votes on executive compensation and golden parachute compensation.
  
 
 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This following information specifies certain forward-looking statements of management of the Company. Forward-looking statements are statements that estimate the happening of future events and are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as may, shall, could, expect, estimate, anticipate, predict, probable, possible, should, continue, or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.
 
The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. We cannot guaranty that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.
 
 
3

 
 
PART I  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS 
TNI BIOTECH, INC.
BALANCE SHEETS
(Unaudited)
 
   
September 30,
2013
   
December 31,
2012
 
             
ASSETS
     
             
Current Assets:
           
Cash and cash equivalents
  $ 207,709     $ 313,095  
Prepaids and other current assets
    45,000       -  
     Total current assets
    252,709       313,095  
                 
Fixed Assets:
               
Computer equipment, net of accumulated depreciation
               
  of $800 and $118 respectively
    4,612       944  
                 
Intangible Assets:
               
Patents and licenses, net of amortization
               
  of $3,703,633 and $1,570,114, respectively (Note 7)
    19,265,260       18,688,270  
                 
Deposits
    17,435       24,928  
Total assets
  $ 19,540,016     $ 19,027,237  
                 
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
 
               
Current Liabilities:
               
Accounts payable
  $ 629,797     $ 286,698  
Payable to officer
    76,000       76,000  
Accrued liabilities
    654,892       427,211  
Current portion patent liability
    185,000       200,000  
Notes payable
    857,197       432,363  
     Total current liabilities
    2,402,886       1,422,272  
                 
Non-current Liabilities:
               
Notes payable related party
    121,128       121,128  
Long-term portion patent liability
    -       140,000  
     Total non-current liabilities
    121,128       261,128  
Commitments and contingencies (note 8)                
Total Liabilities
    2,524,014       1,683,400  
                 
Stockholders' Equity:
               
Common stock - par value $0.001; 500,000,000 shares authorized;
               
       62,589,869 and 45,489,368 shares issued and outstanding respectively
    62,589       45,489  
Additional paid in capital
    272,668,542       196,632,775  
Stock issuances due
    1,508,835       3,690,960  
Prepaid services
    (20,967,754 )     (6,082,771 )
Accumulated deficit
    (236,256,210 )     (176,942,616 )
     Total stockholders' equity
    17,016,002       17,343,837  
     Total liabilities and stockholders' equity
  $ 19,540,016     $ 19,027,237  
 
The accompanying notes are an integral part of these financial statements.
 
 
4

 
 
TNI BIOTECH, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
 
                         
                         
                         
                         
   
THREE MONTHS ENDED
   
NINE MONTHS ENDED
 
   
September, 30
2013
   
September 30,
2012
   
September, 30
2013
   
September 30,
2012
 
                         
                         
Revenues, net
  $ -     $ -     $ -     $ -  
                                 
Operating expenses:
                               
Selling, general and administrative
    12,608,401       280,456       33,461,690       569,121  
Research and development expense
    6,412,711       26,514       15,510,310       26,514  
Depreciation and amortization expense
    719,040       10,863       2,134,231       11,012  
     Total operating expenses
    19,740,152       317,833       51,106,231       606,647  
                                 
Loss from operations
    (19,740,152 )     (317,833 )     (51,106,231 )     (606,647 )
                                 
Other income (expense):
                               
Interest expense
    (205,416 )     -       (1,098,868 )     -  
Loss on settlement of debt
            -       (7,108,495 )     -  
     Total other income (expense)
    (205,416 )     -       (8,207,363 )     -  
                                 
Loss from continuing operations
    (19,945,568 )     (317,833 )     (59,313,594 )     (606,647 )
                                 
Gain from discontinued operations
                    -       260,746  
                                 
Net Loss
  $ (19,945,568 )   $ (317,833 )   $ (59,313,594 )   $ (345,901 )
                                 
                                 
Basic and diluted loss per share:
                               
Loss from continuing operations
  $ (0.34 )   $ (0.01 )   $ (1.08 )   $ (0.03 )
Gain from discontinued operations
    -       -       -       0.01  
    $ (0.34 )   $ (0.01 )   $ (1.08 )   $ (0.02 )
                                 
Weighted average number of shares outstanding
    59,334,545       30,853,117       55,127,859       19,706,741  
 
The accompanying notes are an integral part of these financial statements.
 
5

 
 
TNI BIOTECH, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED SEPTEMBER 30, 2013
(Unaudited)
 
   
Common Stock
   
Additional Paid
   
Stock to
   
Prepaid
   
Accumulated
       
   
Shares
   
Amount
   
in Capital
   
Be Issued
   
Services
   
Deficit
   
Total
 
                                           
                                           
Balance, December 31, 2012
    45,489,368       45,489       196,632,775       3,690,960       (6,082,771 )     (176,942,616 )     17,343,837  
                                                         
Issuance of common stock for prepaid services
    10,228,000       10,228       51,193,872               (51,204,100 )             -  
                                                         
Return of Stock for prepaid services
    (350,000 )     (350 )                                     (350 )
                                                         
Amortization of prepaid services
                                    36,319,117               36,319,117  
                                                         
Issuance of common stock for Jill Smith/LDN License
    300,000       300       2,714,700       (2,715,000 )                     -  
                                                         
Issuance of common stock for Penn State License
    300,000       300       2,549,700                               2,550,000  
                                                         
Issuance of common stock issued for Charitable Donation
    100,000       100       749,900                               750,000  
                                                         
Issuance of common stock in exchange for debt
    1,545,833       1,546       7,128,615                               7,130,161  
                                                         
Issuance of common stock for loan expenses and interest
    297,500       297       1,078,114       54,750                       1,133,162  
                                                         
Issuance of common stock for cash and exercise of warrants
    4,679,168       4,679       3,688,809                               3,693,488  
                                                         
Issuance and modification of common stock warrants
                  6,932,057                               6,932,057  
                                                         
Stock to be issued
                            478,125                       478,125  
                                                         
Net loss
                                            (59,313,594 )     (59,313,594 )
                                                         
Balance, September 30, 2013
    62,589,869     $ 62,589     $ 272,668,542     $ 1,508,835     $ (20,967,754 )   $ (236,256,210 )   $ 17,016,002  
 
The accompanying notes are an integral part of these financial statements.
 
6

 
 
TNI BIOTECH, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
 
   
NINE MONTHS ENDED
 
   
Sepember 30,
2013
   
September 30,
2012
 
             
CASH FLOWS FROM OPERATING ACTIVITIES
           
  Net loss
  $ (59,313,594 )   $ (342,671 )
  (Gain) loss from discontinued operations
    -       260,746  
  Loss from continuing operations
    (59,310,364 )     (606,647 )
                 
     Adjustments to reconcile loss from continuing operations to
               
       net cash flows used in operating activities:
               
              Depreciation
    682       327  
              Amortization
    2,133,549       10,685  
             Amortization of stock issued for prepaid services
    36,318,767       53,745  
              Loss on settlement of debt
    7,055,994          
              Stock warrant expense
    6,932,057          
              Stock issued for donation
    750,000          
              Stock issued for interest
    1,133,162          
              Changes in operating assets and liabilities:
               
                   Accrued liabilities
    227,681       125,876  
                   Prepaid and other current assets
    (37,507 )     27,700  
                   Accounts payable
    343,098       82,850  
Net cash used in operating activities
               
   from continuing operations
    (4,456,111 )     (305,464 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
  Purchase of computer equipment
    (4,350 )     (1,062 )
  Purchase of Penn State License
    (160,539 )        
Net cash used in investing activities
               
   from continuing operations
    (164,889 )     (1,062 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
  Proceeds from exercise of stock warrants
    3,640,363          
  Proceeds from sale of stock
    531,250       212,680  
  Proceeds from notes payable
    499,001       250,400  
  Payments made on patent liability
    (155,000 )     (15,000 )
Net cash provided by financing activities
               
   from continuing operations
    4,515,614       448,080  
                 
Net  increase (decrease)  in cash
    (105,386 )     141,554  
Cash at beginning of year
    313,095       12  
Cash at end of year
  $ 207,709     $ 141,566  
 
The accompanying notes are an integral part of these financial statements.
 
7

 
 
TNI BIOTECH, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
 
   
NINE MONTHS ENDED
 
   
September 30,
2013
 
September 30,
2012
             
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
         
             
Cash paid for interest
  $ -     $ -  
                 
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
         
                 
 Accrued liabilities for purchase of Smith LDN patent
  $ 2,715,000     $ -  
                 
 Conversion of debt and accrued interest to common stock
  $ 74,167     $ -  
                 
 Common shares issued for Penn State License
  $ 2,550,000     $ -  
                 
 Common shares issued for prepaid services
  $ 51,204,100     $ -  
 
 
 
7a

 
 
TNI BioTech, Inc.
Notes to the Financial Statements 
September 30, 2013
(Unaudited)
 
1. Organization and Description of Business

TNI BioTech, Inc. (the “Company” or “TNIB”) was initially incorporated in Florida on December 2, 1993 as Resorts Clubs International, Inc. (“Resorts Club”). It was formed to manage and market golf course properties in resort markets throughout the United States. Galliano International Ltd. (“Galliano”) was incorporated in Delaware on June 27, 1998. The Company began trading in November 1999 through the filing of a 15C-211. On November 3, 2004, Galliano merged with Resorts Club International, Inc. Resorts Club was the surviving corporation. On August 10, 2010, Resorts Club changed its name to pH Environmental Inc (“pH Environmental”). On April 23, 2012, pH Environmental completed a name change to TNI BioTech, Inc., and on April 24, 2012 pH Environmental executed a share exchange agreement for the acquisition of all of the outstanding shares of TNI BioTech, Inc.

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

Going Concern

The Company has incurred significant net losses since inception and has relied on its ability to fund its operations through private equity financings and short-term debt. Management expects operating losses and negative cash flows to continue at more significant levels in the future. As the Company continues to incur losses, transition to profitability is dependent upon the successful development, approval, and commercialization of its products and achieving a level of revenues adequate to support the Company’s cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional cash. Management intends to fund future operations through additional private or public debt or equity offerings, and may seek additional capital through arrangements with strategic partners or from other sources. Based on the Company’s operating plan, existing working capital at September 30, 2013 was not sufficient to meet the cash requirements to fund planned operations through September 30, 2014 without additional sources of cash. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business.

The Company has experienced a net loss from operations of $59,313,594 and has used cash and cash equivalents for operations in the amount of $4,456,111 during the nine months ended September 30, 2013, resulting in stockholders’ equity of $17,016,002.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”), as amended for interim financial information. The financial information as of December 31, 2012 is derived from the audited financial statements presented in the Company’s Form 10 Registration Statement filed with the Commission on April 22, 2013 and the Amended Registration Statements on Form 10-/A filed on June 7, 2013, July 18, 2013, August 23, 2013, September 25, 2013, and October 11, 2013 for the year ended December 31, 2012. The unaudited interim financial statements should be read in conjunction with the Company’s Form 10 Registration Statement, which contains the audited financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, for the years ended December 31, 2012 and 2011.
 
 
8

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

Use of Estimates

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

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

Concentration of Credit Risk

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

Fair Value of Financial Instruments

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

Computer Equipment

Computer equipment is stated at cost, less accumulated depreciation. Depreciation is determined on a straight-line basis over the estimated useful lives of the assets, which generally range from three to five years. Maintenance and repairs are charged against expense as incurred. Depreciation expense from continuing operations for the nine months ended September 2013 and 2012 was $682 and $327, respectively.
 
 
9

 
 
Intangible Assets

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

Impairment of Long-Lived Assets

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

Research and Development Costs

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

Income Taxes

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

The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. As of September 30, 2013, the Company has no accrued interest or penalties related to uncertain tax positions.
 
Share-Based Compensation and Issuance of Stock for Non-Cash Consideration
 
The Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors, including employee stock options, based on estimated fair values equaling either the market value of the shares issued or the value of consideration received, whichever is more readily determinable.

 
10

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

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method and the if-converted method. Dilutive common stock equivalents are comprised of common stock purchase warrants and options outstanding. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.
              
Recent Accounting Standards

The Company qualifies as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups Act (“JOBS Act”) as we do not have more than $1,000,000,000 in annual gross revenue and did not have such amount as of December 31, 2012, our last fiscal year. We are electing to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.

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

3. Promissory Notes

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

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

The Company has an outstanding note payable to K-C Operations (an unrelated party) issued on October 15, 2009. The balance as of September 30, 2013 and December 31, 2012 was $326,333 and $398,000, respectively. The note matured on October 31, 2010 and accrues interest at a rate of 6% per annum and is convertible to shares of common stock at a rate of $0.20 per share.
 
The Company has an outstanding note payable to Robert Johnson (former officer and director) issued on September 30, 2006 with a balance as of September 30, 2013 and December 31, 2012 of $21,547 and $21,547, respectively. The note matured on September 30, 2007 and is convertible to shares of common stock at a rate of $0.20 per share.
 
The Company has an outstanding note payable to Lexicon (an unrelated party) issued on January 15, 2009.  The note is due upon demand.  The balance as of September 30, 2013 and December 31, 2012 was $10,317 and $12,817, respectively.  The note bears an interest rate of 6% per annum and is convertible to shares of common stock at a rate of $0.01 per share.
 
 
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During the nine months ended September 30, 2013, the Company issued 1,545,833 shares of common stock for the retirement of $74,167 of promissory notes payable and accrued interest.  The Company recognized a loss on conversion of the above debt of $7,108,495 and $0 in the nine months ended September 30, 2013 and 2012 respectively.

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

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

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

Stock Warrants 

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

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

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

   
Number of
Shares
   
Exercise
Price
   
Weighted
Average Price
 
                         
Warrants as of December 31, 2012
   
7,260,000
   
$
1.00 – 1.50
   
$
1.02
 
                         
Issued in nine months ended September 30, 2013
   
2,567,918
    $
1.00 – 1.50
    $ 2.56  
                         
Expired
   
     
         
                         
Exercised
   
3,324,168
    $
0.50 – 0.75
    $ 0.63  
                         
Warrants as of September 30, 2013
   
6,503,750
    $
1.00 – 1.50
    $ 1.83  
 
Summary of outstanding warrants as of September 30, 2013:
 
 
Expiration Date
   
Number of
Shares
     
Exercise
Price
     
Remaining Life (years)
 
Second Quarter 2015
   
1,025,000
   
$
2.00-3.00
     
1.8
 
Third Quarter 2015
   
221,250
   
$
2.00-3.00
     
2.0
 
Second Quarter 2016
   
337,500
   
$
 1.50
     
2.8
 
Third Quarter 2017
   
985,416
   
$
1.00
     
4.0
 
Fourth Quarter 2017
   
3,491,666
   
$
1.00-1.50
     
4.3
 
First Quarter 2018
   
229,584
   
$
15.00
     
4.5
 
Second Quarter 2018
   
33,334
   
$
15.00
     
4.8
 
                         
 
5. Stock Compensation

Founders’ Shares and Shares Issued for Services

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

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

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

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

The net sales and earnings of discontinued operations were as follows:
 
   
Three Months Ended
September 30,
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2013
   
2012
   
2013
   
2012
 
                         
Net Sales
   
-
     
-
     
-
     
-
 
                                 
Earnings before Income Taxes
   
-
     
-
     
-
     
260,746
 
                                 
Income Taxes
   
-
     
-
     
-
     
-
 
                                 
Net Earnings from Discontinued Operations
   
-
     
-
     
-
     
260,746
 
 
Cash flows from operating and investing activities of discontinued operations for the nine months ended September 30, 2013 and 2012 were $0 and $260,746, respectively.

7. Licenses and Supply Agreements

Patent and Subsidiary Acquisition

The Company entered into a share exchange agreement April 24, 2012 to acquire all of the outstanding shares of TNI BioTech IP, Inc., (“TNI IP”) a biotechnology firm incorporated in Florida formed to acquire patents related to the treatment of cancer and HIV/AIDS and autoimmune diseases, using Met-enkephalin (“MENK”) and Naltrexone (“LDN”). The goal of TNI IP’s management is to enable mankind and civilization to combat fatal diseases by activating and mobilizing the body’s own immune system using TNI IP’s patented use of MENK. 
 
The first patents acquired by TNI IP were acquired from Dr. Nicholas P. Plotnikoff and Professor Fengping Shan in 2012.  Dr. Plotnikoff and Dr. Shan have been specializing in research activities directed toward the study of cytokines, which are hormones naturally produced by the immune system. The primary cytokine, among many others currently being studied by TNI IP, is MENK.  The Company is focused on the treatment of cancer, HIV/AIDS and other infectious diseases through the use of our lead compounds.

TNI IP changed its name from TNI BioTech, Inc., to TNI BioTech IP, Inc. on April 23, 2012.  TNI BioTech IP, Inc., is the wholly-owned subsidiary of the Company. TNI IP was acquired in exchange for 20,250,000 shares of the Company’s common stock of which 8,000,000 shares were issued for the acquisition of the patent and the remaining 12,250,000 shares were issued to the founders of TNI IP in exchange for all of their right, title and interest in their TNI IP shares. The goodwill arising on the acquisition of TNI BioTech IP, Inc. was valued at $98,000,000 and license agreements arising from the acquisition of TNI BioTech IP, Inc. was valued at $16,006,000.
 
 
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At the time of the acquisition, the valuation of goodwill and other intangible assets were determined using the fair market price for the Company’s common stock which were exchanged for shares of TNI BioTech IP, Inc.  In the fourth quarter of 2012, the Company performed an annual valuation to determine whether any goodwill or intangible assets that had been acquired by the Company were impaired. The result of this valuation was that material impairments were identified. The Company recognized an impairment of the goodwill arising on the acquisition of TNI BioTech IP, Inc. of $98,000,000.

Patent License Agreements

On August 13, 2012, the Company signed a License Agreement with Ms. Jacqueline Young for the intellectual property developed by Dr. Bernard Bihari relating to treatments with opioid antagonists such as naltrexone and Met-enkephalin for a variety of diseases and conditions including malignant lymphoma, chronic lymphocytic leukemia, Hodgkin’s lymphoma, and non-Hodgkin’s lymphoma, chronic herpes virus infections, chronic herpes viral infections such as chronic genital herpes caused by the herpes simplex virus Type 2 and chronic infections due to the Epstein-Barr virus and a treatment method for humans infected with HTLV-III (AIDS) virus including patients clinically diagnosed as suffering from AIDS and those suffering from AIDS-related complex (ARC).  The Bihari patents were acquired in exchange for 540,000 shares of the Company’s common stock with a fair market value of $972,000 and assumed liabilities of $400,000 which is payable to Ms. Young over a twenty-four month period in equal installments to reimburse her for the costs of a New York City office in accordance with the patent license agreement.  The patent liability at September 30, 2013 totaled $185,000. The cost of the patent totaled $1,372,000.  Additionally, the Company will pay the licensor a royalty payment of 1% of gross MENK sales and pay a 1% sublicense fee on any sublicense revenue.
 
On December 24, 2012, the Company signed an agreement for the acquisition of patent rights for the intellectual property of Dr. Jill Smith and LDN Research Group, LLC (the “Patent License Agreement”), whose members are Dr. Ian S. Zagon, Dr. Patricia J. McLaughlin and Moshe Rogosnitzky and orphan drug designation by the FDA to a novel late-stage drug, trademarked “LDN,” for the treatment of Pediatric Crohn’s disease. The patent covers methods and formulations for treatment of the inflammatory and ulcerative diseases of the bowel, using naltrexone in low doses as an opioid antagonist. Endogenous opioids and opioid antagonists have been shown to play a role in stimulating and rebalancing the immune system and the healing and repair of tissues. These patents were acquired in exchange for 300,000 shares of the Company’s common stock with a fair value of $2,715,000 and expenses of $165,384, which totaled $2,880,384.  The Company has an exclusive, worldwide license to make, have made, use, lease, import, offer for sale and sell Licensed Products and to use the method under the patent rights. The agreement will terminate on the expiration or abandonment of the last patent to expire or ten years after the sale of the first licensed product. The Company may terminate the agreement upon 90 days’ written notice, provided all sublicenses are terminated and all amounts due and owing are paid to the licensor parties. The licensor parties may terminate the agreement ten days' after notice to the Company if the Company is ten days late in payment or there is a breach that remains uncured for ten days after written notice of such breach.

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

A.  
Upon initiation of each phase III trial, the Company will pay $350,000.
B.  
Upon positive completion of each phase III clinical trial of the therapeutic use of an LDN compound in the field of Use, the Company will pay $150,000.
C.  
When an NDA is accepted for review by the FDA, the Company will pay $250,000.
D.  
When FDA approval to market the NDA is approved, the Company will pay $750,000.
E.  
Upon the first dosing of the first patient in a phase III clinical trial for each Licensed Product, the Company will pay 250,000 shares of the Company’s common stock.
F.  
Upon the first sale of each Licensed Product, the Company will issue 400,000 shares of the Company’s common stock.
G.  
Upon the achievement of $20 Million USD in cumulative sales for each licensed product covered by NDAs, the Company will issue 500,000 shares of the Company’s common stock.
 
 
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The Company must pay an annual license fee in the low six-figure range and mid single digit percentage royalties on the net sales of each licensed product with an annual minimum royalty payment in the low six-figure range. The Company will pay a sublicense fee between 10-20% calculated on the payments the Company receives from any such sublicense.

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

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

Naltrexone in low dose is a platform immunomodulatory technology that the Company expects to clinically test in the treatment of other immune-mediated or immune-deficient diseases for which it has previously acquired additional patents.
 
The Company signed an exclusive licensing agreement with The Penn State Research Foundation on January 18, 2013 to license all of the intellectual property developed by Dr. Ian S. Zagon, Dr. Patricia J. McLaughlin and Dr. Jill P. Smith for the treatment of cancer titled “Opioid Growth Factor and Cancer” and “Combination Therapy with Opioid Growth Factor and Taxanes for the Treatment of Cancer” (the “Licensing Agreement”).  These licenses were acquired in exchange for 300,000 shares of the Company’s common stock with a fair value of $2,550,000 and expenses of $160,539, which totaled $2,710,539.

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

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

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

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

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

The Licensing Agreement terminates on the expiration or abandonment of the last patent to expire or become abandoned. The Company may terminate the Licensing Agreement at any time upon 60 days’ prior written notice and ceasing to make and sell all licensed products, the termination of all sublicenses and payment of all monies owed under the Licensing Agreement. The licensor may terminate the agreement 30 days after notice to the Company if the Company is 30 days late in payment or a breach that remains uncured for 45 days after written notice of such breach.
 
In confirmation letters dated April 3, 2013, the Company received acknowledgement from the Department of Health and Human Services confirming the Food and Drug Administration’s (FDA) receipt of the change in sponsorship of the investigational new drug application (IND) for Naltrexone HCL and the orphan drug designation for [met5]-enkephalin and the orphan drug designation for the use of low dose naltrexone in the treatment of pediatric patients with Crohn’s Disease.

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

8. Commitments and Contingencies

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

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

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

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

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

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

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

The following is a schedule of shares issued subsequent to September 30, 2013.
 
   
Shares
 
       
Shares issued for default on promissory notes
   
90,000
 
Shares issued to investors
   
48,000
 
Shares issued for warrant exercise
   
837,500
 
Shares issued for debt conversion
   
150,000
 
 
 
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
 
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended.  The Company’s actual results could differ materially from those set forth on the forward looking statements as a result of the risks set forth in the Company’s filings with the Securities and Exchange Commission, general economic conditions, and changes in the assumptions used in making such forward looking statements.
 
General
 
TNI BioTech, Inc. (the “Company”) was initially incorporated in Florida on December 2, 1993 as Resorts Clubs International, Inc. (“Resorts Club”). It was formed to manage and market golf course properties in resort markets throughout the United States. Galliano International Ltd. (“Galliano”) was incorporated in Delaware on June 27, 1998. The Company began trading in November 1999 through the filing of a 15C-211. On November 3, 2004, Galliano merged with Resorts Club International, Inc. Resorts Club was the surviving corporation. On August 10, 2010, Resorts Club changed its name to pH Environmental, Inc. (“pH Environmental”). On April 23, 2012, pH Environmental completed a name change to TNI BioTech, Inc., and on April 24, 2012 pH Environmental executed a share exchange agreement for the acquisition of all of the outstanding shares of TNI BioTech, Inc. (“TNI”).

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

We have invested a significant portion of our time and financial resources in the acquisition and development of our most advanced drug candidate, IRT-103 low-dose naltrexone (“LDN”). While we currently have 3 other drug candidates in clinical trials, we anticipate that our ability to generate significant product revenues in the near term will depend primarily on the successful development, regulatory approval, marketing and commercialization of IRT-103 (LDN) by us or by one of our potential partners. It is uncertain whether IRT-103 (LDN) will have successful results in its development, regulatory approval, marketing and commercialization.
 
The Company has incurred significant net losses since inception and has relied on its ability to fund its operations through private equity financings. Management expects operating losses and negative cash flows to continue at more significant levels in the future. As the Company continues to incur losses, the transition to profitability is dependent upon the successful development, approval, and commercialization of its product candidate and achieving a level of revenue adequate to support the Company’s cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional funds. Management intends to fund future operations through additional private or public debt or equity offerings, and may seek additional capital through arrangements with strategic partners or from other sources.
 
 
18

 
 
Business Strategy
 
The Company’s business strategy focuses on several key areas:
 
  
The establishment of treatment facilities throughout Africa, the Caribbean and South America for cancer, HIV/AIDS and other autoimmune diseases that can benefit from IRT-101, IRT-102 and IRT-103 patented technology and therapies;
 
  
The large scale treatment in emerging nations for HIV/AIDS as an immune-enhancing therapy using IRT-103 LDN;
 
  
The large scale (outsourced) manufacturing and distribution of IRT-103 LDN, either in pill form, or cream for those unable to handle the medication in pill form, throughout Africa and expanding to other developing nations; and
 
  
The Joint Venture with the Hubei Qianjiang Pharmaceutical Company that will provide the funding required for the Phase III trials in China in exchange for TNIB providing exclusive licensing rights in China. TNIB will also receive a percentage of the gross revenue from sales in China.
 
The Company has entered into a relationship with a number of groups including: GB Oncology & Imaging Group, LLC, the Brewer Group, AHAR Pharma, as well as a number of United States doctors that own and operate clinics in the United States and Nigeria. We are also working with large employers who operate on-site clinics.
 
In November 2012, TNI signed an exclusive distributor agreement with G-Ex Technologies/St. Maris Pharma and GB Pharma Holdings LLC for the Federal Republic of Nigeria. Under the terms of the agreement, G-Ex Technologies/St. Maris Pharma & GB Pharma Holdings LLC will have exclusive marketing and distribution rights to IRT-103 LDN and LDN cream in Nigeria.
 
The Government of Malawi has been remodeling a section of the Queens's Hospital as an oncology center. Once it is complete, TNI BioTech, with the assistance of GB Oncology & Imaging Group, LLC and the other groups, is ready to ship the equipment to the oncology center within the next 90 to 120 days.  Once the facility is operational, American Hospital Resort has agreed to assist in the operation of the clinic in Malawi and the implementation of TNI BioTech therapies. In the case of Malawi, a number of not-for-profits are funding the project through donations. There is no need to build a facility as we are currently working with known operators.
 
Operations in Nigeria will be operational within 90 days and operations in Malawi should be operational by 2014.  
 
TNI, in conjunction with GB Energie LLC, under the leadership of Dr. Gloria B. Herndon, established GB Oncology and Imaging Group LTD (“GBOIB”) to meet the demands for oncological and infectious diseases expertise. Dr. Herndon has been involved in healthcare related issues in Africa since the mid 1990s and is a consulting resource for the National Institute of Health (“NIH”) regarding the impact of the HIV/AIDS pandemic on the insurance industry and the dissemination of AIDS-related information to the United States Department of State. The goal of TNI/GBOIG, together with the ministries of health across Africa, is to provide better access to and public awareness of the prevention, diagnosis and treatment of cancer and chronic infectious diseases. TNI plans to work with onsite clinics which will permit TNI to complete patient assessments at little or no cost and prescribe treatments used to modulate the immune system of the patients with various chronic diseases, especially HIV/AIDS and/or cancer so that it decreases the inflammatory attack on normal cells and allows an improvement in normal functions of the nerves or gastrointestinal cells. As a result, treatment with LDN is potentially synergistic in combination with current drugs for autoimmune diseases such as Crohn’s disease. In advanced cases, the patients can be transferred to TNI’s offsite treatment facility for further evaluation and treatment, where they can benefit from TNI’s patented technology and therapies.
 
 
19

 
 
Through these clinics, TNI intends to begin delivery of Lodonal IRT-103, the Company’s proprietary LDN, for the treatment of HIV/AIDS and/or cancer in 2013. The contract with the Republic of Malawi calls for 25,000 pills a day, increasing to 500,000 pills a day within 24 months. TNI anticipates people will take IRT-103 365 days a year. The contracts with Equatorial Guinea will begin with about 10,000 people per day growing to about 125,000 people per day over the next two years.
 
TNI is focused on our lead therapies designed for the treatment of cancer, HIV/AIDS, Crohn’s disease, fibromyalgia and MS. Management believes there are clear market opportunities with a significant amount of unmet needs and a robust potential for partnering activities.
 
Distribution and Production
 
On April 23, 2013, TNI has entered into a contract for the supervision and inspection of manufacturing processes with ViPharma. The supervision and manufacturing agreement provides ViPharma with exclusive rights to supervise and inspect all manufacturing processes of LDN in Latin America. The initial term of the agreement is ten years with automatic five-year renewal terms provided neither party is in breach. The agreement may be terminated by (i) mutual agreement, (ii) in the event of a breach after a 45 day cure period or (iii) by either party upon provision of written notice at least 90 days before the end of the agreement, provided however that if TNI terminates the contract without cause it will be required to pay ViPharma a penalty.
 
TNI executed a manufacturing agreement with Laboratorios Ramos, S.A. (“Laboratorios Ramos”), a current good manufacturing practice (“cGMP”) facility, for IRT-103 LDN effective August 16, 2013. Under the agreement, Laboratorios Ramos will produce LDN tablets, capsules and cream in accordance with the technical specifications provided by TNI, the FDA’s good manufacturing practices and the practices of Nicaragua and of any other regulatory body governing the countries where the products will be exported. Laboratorios Ramos must obtain all permits and licenses necessary to carry out the manufacturing and packaging of LDN. The manufacturing agreement has a one-year term, renewable by a signed agreement by the parties at least 60 days before the expiration of the agreement. The agreement may be terminated earlier through mutual agreement or upon expiration of a 30-day cure period following notice from the non-breaching party to the breaching party of a material failure of the obligations under the agreement. Additionally, TNI may terminate the agreement upon at least 30 days written notice if Laboratorios Ramos does not act in strict accordance with the technical specifications provided by TNI and with the FDA’s good manufacturing practices or those of any regulatory body of the importing countries.
 
Meeting with FDA Regarding LDN
 
In May 2013, the Company received confirmation of a Type C meeting with the FDA to discuss the Phase 3 clinical development program for a proposed 505(b)(2) application for Low Dose Naltrexone (“LDN”) in the treatment of adults and pediatric patients with Crohn’s disease. The meeting was held on June 26, 2013 and the Company received the minutes from the meeting on July 17, 2013. The Company presented its development plan to the FDA that supports its Phase III clinical studies and NDA filing. After conclusion of the Type C meeting, the Company plans to move into Phase III clinical studies in early 2014.
 
Meeting with FDA Regarding MENK
 
The Company received confirmation of a Type B meeting with the FDA on August 20, 2013 to discuss the Phase 3 clinical development program and CMC plans for Met-enkephalin in combination with gemcitabine in the treatment of pancreatic cancer.
 
Subsidiaries
 
TNI, a Florida corporation, formed its United Kingdom subsidiary, TNI BioTech, LTD (the “Subsidiary”) on August 6, 2013. TNI BioTech, LTD received approval to be considered an enterprise micro, small or medium-sized enterprise (“SME”) with the European Medicines Agency (“EMA”) on August 21, 2013. The designation provides the Company with significant discounts when holding meetings or submitting filings to the EMA. On September 19, 2013, TNI BioTech, LTD submitted a pre-submission package to the EMA regarding Crohn’s Disease. The EMA granted the Company a meeting that took place on September 27, 2013. The Company is eligible to benefit from the provisions for administrative and financial assistance for SMEs set out in Regulation (EC) No 2049/2005.
 
 
20

 
 
Agreements
 
TNI BioTech International, Ltd., a wholly-owned subsidiary of TNI executed a Distribution Agreement effective September 17, 2013 with AHAR Pharma, a company formed under the laws of the Federal Republic of Nigeria (the “Distributer”). Subject to the terms and conditions of the Agreement, the Distributer will distribute the Company’s low-dose naltrexone under the name Lodonal™ throughout Nigeria on an exclusive basis.
 
Results of Operations – Six Months Ended June 30, 2013
 
Revenues
 
We had no revenues from operations for the period ending September 30, 2013 and for the years ended December 31, 2012 and 2011. We do not anticipate having any significant future revenues until we have sufficiently funded operations.

Operating Expenses
 
Selling, general and administrative
 
Selling, general and administrative ("SG&A") expenses were $33,461,690 for the nine months ended September 2013, compared to $565,891 for the corresponding period in 2012.
 
In the nine months ended 2013, total cash spent on SG&A was $3,371,286, compared to $565,891 for the corresponding period in 2012.  Significant cash items included consulting services ($1,003,133 in 2013, compared to $76,745 for the nine months ended September 30, 2012), professional fees ($827,282 in 2013, compared to $54,816 in 2012), payroll ($795,308 in 2013, compared to $283,253 in 2012), and travel ($315,710 in 2013, compared to $290 in 2012).  In addition, the Company recorded non-cash SG&A expenses of $30,087,174 in the nine months ended September 2013 ($4,230 in 2012), comprised mainly of costs of issuance of shares for services ($22,388,033 in 2013, compared to $0 in 2012) and stock warrants ($6,950,655 in 2013, compared to $0 in 2012). The increase year over year in SG&A expense was attributable primarily to increased sales and marketing activities to promote the sale of the Company's products in South America and Africa, and the cost of raising additional equity to fund ongoing operations and business development.
 
Research and development
 
Research and development ("R&D") expenses were $15,510,310 for the nine months ended September 2013, compared to $26,514 for the corresponding period in 2012.
 
In the nine months ended 2013, total cash spent on R&D was $1,460,816, compared to $26,514 for the corresponding period in 2012.   Significant cash items included contracted technical services ($823,984 in 2013, compared to $22,500 for the nine months ended September 30, 2012), professional fees ($71,592 in 2013, compared to $0 in 2012), payroll ($327,335 in 2013, compared to $0 in 2012), and travel ($40,931 in 2013, compared to $1,503 in 2012). In addition, the Company recorded non-cash R&D expenses of $14,049,394 in the nine months ended September 2013 ($0 in 2012), comprised mainly of costs of issuance of shares for services. The increase year over year in R&D expense was attributable primarily to the increase in R&D required to launch new clinical trials and implement the Company's product development program.
 
Depreciation and amortization
 
Depreciation and amortization expense was $2,134,231 for the nine months ended September 2013, compared to $11,012 for the corresponding period in 2012.  The Company amortizes the costs incurred to acquire patents and licenses over the period of the related agreements.  The increase year over year in depreciation and amortization expense reflects the fact that most of the Company's patents and licenses were acquired after October 1, 2012.
 
Interest Expense

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

Loss on settlement of debt

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

 
 
21

 
 
Liquidity
 
Liquidity is measured by our ability to secure enough cash to meet our contractual and operating needs as they arise. We do not anticipate generating sufficient net positive cash flows from our operations to fund the next twelve months. We had cash of $207,709 at September 30, 2013, compared to $313,095 at December 31, 2012.
 
Our cash reserves will not be sufficient to meet our operational needs and we need to raise additional capital to pay for our operational expenses and provide for capital expenditures. In addition to the Company's operational expenses, which are estimated at $400,000 per month, we estimate that we need approximately $7-15 Million in the next twelve months to fully develop our products and for Phase III clinical trials for Crohn’s disease. If we are not able to raise additional working capital, we may have to cease operations altogether.
 
For the nine months ended September 30, 2013 and 2012, net cash used in operating activities from continuing operations of $4,456,111 and $305,464, respectively. For the nine months ended September 30, 2013 and 2012, net cash used in investing activities from continued operations of $164,889 and $1,062, respectively. The change in 2013 is due to the purchase of computer equipment and payment for the Penn State License.
 
During  the nine months ended September 30, 2013 proceeds from the exercise of stock warrants totalled $3,640,363 compared to $0 for the corresponding period in 2012. Proceeds from stock sales were $531,250 in 2013 compared to $212,680 in 2012. We also generated $449,001 from the sale of notes payable for the nine months ended September 30, 2013 compared to $250,400 for the same period in 2012.
 
Research Operations

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

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

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

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

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

Research and Development (R&D) Expenses
 
   
Three Months Ended
   
Six Months Ended
 
(in US Dollar Millions)
 
September 30,
2013
   
September 30,
2012
   
%
 Change
   
June 30,
2013
   
June 30,
2012
   
%
 Change
 
Research and development expenses
  $ 6,413     $ 27       23,519 %   $ 15,510     $ 27       57,344 %
 
The Company's R&D activities commenced in the third quarter of 2012, the Company having only completed the initial acquisition of MENK-related patents required for research in the second quarter of that year.
 
The Company's R&D efforts were focused in the first nine months of 2013 on the development of two products - LDN and MENK - for use in opioid-related immunomodulatory therapies.  In the first nine months of 2013, the Company reported R&D expenditures of $15,510,310.  Approximately 75% of that amount was spent on the development of LDN, the balance on MENK.
 
 
22

 
 
The following table provides information about significant regulatory actions by, and filings pending with the FDA and regulatory authorities in the European Union, as well as additional indications and new drug candidates in late-stage development.
 
NEW DRUG CANDIDATES IN LATE-STAGE DEVELOPMENT
 
CANDIDATE
INDICATION
   
IRT-101
Pancreatic Cancer
IRT-103
Crohn’s Disease
 
Summary
 
Our ability to continue as a going concern is dependent entirely on raising funds through the sale of equity or debt. We anticipate that we will continue our attempt to raise capital through private equity and debt transactions, develop a credit facility with a lender, or the exercise of options and warrants; however, such additional capital may not be available to us at acceptable terms or available at all. In the event that we are unable to obtain additional capital, we would be forced to cease operations altogether.
 
Off-Balance Sheet Arrangements
 
During the nine months ended September 30, 2013, we did not engage in any off balance sheet arrangements as defined in item 303(a)(4) of the SEC’s Regulation S-K.
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEM 4.  CONTROLS AND PROCEDURES
 
Changes in Internal Controls over Financial Reporting
 
There were no changes in our internal controls over financial reporting that occurred during the period covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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

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

Going forward, management anticipates that additional staff will be necessary to mitigate these weaknesses, as well as to implement other planned improvements. Additional staff will enable us to document and apply transactional and periodic controls procedures, permit a better review and approval process and improve quality of financial reporting. However, the potential addition of new staff is contingent on obtaining additional financing, and there is no assurance that we will be able to do so.
 
 
23

 
 
PART II OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

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

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

Between July 1, 2013 and September 30, 2013, various warrant holders purchased an aggregate total of 1,652,500 shares of TNI BioTech, Inc. (the “Company”) at an exercise price of $0.50 per share. In addition, the Company sold an aggregate sum of 465,000 shares of its common stock at $1.25 and $1.00 per share pursuant to a private placement (the “Private Placement”). In total, the Company received $826,250 as consideration for the exercise of the previously-issued warrants (the “Warrants”) and $531,250 for the purchase of common stock under the Private Placement, for an aggregate sum of $1,357,500.
 
The issuance of the Company’s common stock in connection with the Warrants and Private Placement was completed in a private transaction by the Company not involving any public offering pursuant to Section 4(a)(2) and Rule 506 of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”). The shares purchased under the Warrants and Private Placement were issued bearing restrictive legend and may not be resold by the purchasers unless such shares are registered or an exemption from registration is available. The Company determined, based on representations of the investors, that the investors were “accredited investors” as defined under Rule 501(a) of the Securities Act.
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

 
24

 
 
ITEM 5. OTHER INFORMATION

African Contracts

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

Confirmation of Transfer of IND Application and Orphan Drug Designation

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

Meeting with FDA Regarding LDN

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

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

ITEM 6.  EXHIBITS
 
Exhibit Number 
 
Name of Exhibit
     
 
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.
     
 
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.
     
 
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.
 
 
25

 
 
SIGNATURES
 
In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
TNI BioTech, Inc.
 
       
Date: November 14, 2013
By:
/s/ Noreen Griffin  
   
Noreen Griffin
 
   
Chief Executive Officer
 
       
 
 
26
EX-31.1 2 tnib_ex311.htm CERTIFICATION tnib_ex311.htm
EXHIBIT 31.1
 
CHIEF EXECUTIVE OFFICER CERTIFICATION
 
I, Noreen Griffin, certify that:
 
1. I have reviewed this quarterly report on Form 10-Q of TNI BioTech, Inc.
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
a)        Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
b)        Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
c)        Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
d)        Disclosed in this report any change to the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of a quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
 
 
a)        all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
b)        any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
       
Date: November 14, 2013
By:
/s/ Noreen Griffin  
   
Noreen Griffin
 
   
Chief Executive Officer
 
       
EX-31.2 3 tnib_ex312.htm CERTIFICATION tnib_ex312.htm
EXHIBIT 31.2
 
CHIEF FINANCIAL OFFICER CERTIFICATION
 
I, Peter Aronstam, certify that:
 
1. I have reviewed this quarterly report on Form 10-Q of TNI BioTech, Inc.
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
a)        Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
b)        Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
c)        Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
d)        Disclosed in this report any change to the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of a quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
 
 
a)        all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
b)        any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
       
Date: November 14, 2013
By:
/s/ Peter Aronstam  
   
Peter Aronstam
 
   
Chief Financial Officer
 
       
EX-32.1 4 tnib_ex321.htm CERTIFICATION tnib_ex321.htm
EXHIBIT 32.1
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the quarterly report of TNI BioTech, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2013 as filed with the Securities and Exchange Commission (the “Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
 
       
Date: November 14, 2013
By:
/s/ Noreen Griffin  
   
Noreen Griffin
 
   
Chief Executive Officer
 
       
EX-32.2 5 tnib_ex322.htm CERTIFICATION tnib_ex322.htm
 EXHIBIT 32.2
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the quarterly report of TNI BioTech, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2013 as filed with the Securities and Exchange Commission (the “Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
 
 
       
Date: November 14, 2013
By:
/s/ Peter Aronstam  
   
Peter Aronstam
 
   
Chief Financial Officer
 
       
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Entity Filer Category Entity Common Stock, Shares Outstanding Document Fiscal Period Focus Document Fiscal Year Focus Statement of Financial Position [Abstract] ASSETS Current Assets: Cash and cash equivalents Prepaids and Other Current assets Total current assets Fixed Assets: Computer equipment, net of accumulated depreciation of of $800 and $118 respectively Intangible Assets: Patents and licenses, net of amortization of $3,703,633 and $1,570,114, respectively (Note 8) Deposits Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable Payable to officer Accrued liabilities Current portion patent liability Notes payable Total current liabilities Non-current Liabilities: Notes payable related party Long-term portion patent liability Total non-current liabilities Total Liabilities Stockholders' Equity: Common stock - par value $0.001; 500,000,000 shares authorized; 62,589,869 and 45,489,368 shares issued and outstanding respectively Additional paid in capital Stock issuances due Prepaid services Accumulated deficit Total stockholders' equity Total liabilities and stockholders' equity Accumulated depreciation Amortization Common Stock, Par Value Common Stock, Shares Authorized Common Stock, Shares Issued Common Stock, Shares Outstanding Income Statement [Abstract] Revenues, net Operating expenses: Selling, general and administrative Research and development expense Depreciation and amortization expense Total operating expenses Loss from operations Other income (expense): Interest expense Loss on settlement of debt Total other income (expense) Loss from continuing operations Gain from discontinued operations Net loss Basic and diluted loss per share: Loss from continuing operations Gain from discontinued operations Basic and diluted loss per share Weighted average number of shares outstanding Statement [Table] Statement [Line Items] Beginning Balance, Shares Beginning Balance, Amount Return of Stock for prepaid services, Shares Return of Stock for prepaid services, Amount Issuance of common stock in exchange for debt, Shares Issuance of common stock in exchange for debt, Amount Issuance of common stock for prepaid services, Shares Issuance of common stock for prepaid services, Amount Amortization of prepaid services Issuance of common stock for Jill Smith/LDN license, Shares Issuance of common stock for Jill Smith/LDN license, Amount Issuance of common stock for Penn State License, Shares Issuance of common stock for Penn State License, Amount Issuance of common stock issued for charitable donation, Shares Issuance of common stock issued for charitable donation, Amount Issuance of common stock for loan expenses and interest, Shares Issuance of common stock for loan expenses and interest, Amount Issuance and modification of common stock warrants Issuance of common stock for cash and exercise of warrants, Shares Issuance of common stock for cash and exercise of warrants, Amount Stock to be issued Net loss Ending Balance, Shares Ending Balance, Amount Statement of Cash Flows [Abstract] CASH FLOWS FROM OPERATING ACTIVITIES (Gain) loss from discontinued operations Loss from continuing operations Adjustments to reconcile loss from continuing operations to net cash flows used in operating activities: Depreciation Amortization Amortization of stock issued for prepaid services Loss on settlement of debt Stock warrant expense Stock issued for donation Stock issued for interest Changes in operating assets and liabilities: Accrued liabilities Prepaid and other current assets Accounts payable Net cash used in operating activities from continuing operations CASH FLOWS FROM INVESTING ACTIVITIES Purchase of computer equipment Purchase of Penn State License Net cash used in investing activities from continuing operations CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from exercise of stock warrants Proceeds from sale of stock Proceeds from notes payable Payments made on patent liability Net cash provided by financing activities from continuing operations Net Increase (decrease) in cash Cash, beginning of period Cash, end of period SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Accrued liabilities for purchase of Smith LDN patent Conversion of debt and accrued interest to common stock Common Shares issued for Penn State License Common shares issued for prepaid services Organization, Consolidation and Presentation of Financial Statements [Abstract] 1. Organization and Description of Business Accounting Policies [Abstract] 2. Summary of Significant Accounting Policies Debt Disclosure [Abstract] 3. Promissory Notes Notes to Financial Statements 4. Capital Structure-Common Stock and Common Stock Purchase Warrants Equity [Abstract] 5. Stock Compensation 6. Discontinued Operations 7. Lincenses and Supply Agreements Commitments and Contingencies Disclosure [Abstract] 8. Commitments and Contingencies Related Party Transactions [Abstract] 9. Related Party Transactions Subsequent Events [Abstract] 10. Subsequent Events Summary Of Significant Accounting Policies Policies Basis of Presentation Use of Estimates Cash, Cash Equivalents, and Short-Term Investments Concentration of Credit Risk Fair Value of Financial Instruments Computer Equipment Intangible Assets Impairment of Long-Lived Assets Research and Development Costs Income Taxes Share-Based Compensation and Issuance of Stock for Non-Cash Consideration Net Loss per Share Recent Accounting Standards Capital Structure-Common Stock And Common Stock Purchase Warrants Tables Schedule of outstanding stock warrants Summary of outstanding warrants Discontinued Operations Tables Schedule of discontinued operations Subsequent Events Tables Schedule of shares issued Depreciation expense Amortization expense Warrants outstanding beginning balance Warrants issued Warrants expired Warrants exercised Warrants outstanding ending balance Exercise price Warrants outstanding beginning balance Exercise price Warrants issued Exercise price Warrants expired Exercise price Warrants exercised Exercise price Warrants outstanding ending balance Discontinued Operations Details Narrative Cash flows from operating and investing activities of discontinued operations custom:AccruedLiabilities1 custom:AmortizationExpense custom:AmortizationOfPrepaidServices custom:AmortizationOfStockIssuedForPrepaidServices custom:CapitalStructurecommonStockAndCommonStockPurchaseWarrantsTextBlock custom:CommonSharesIssuedForPennStateLicense custom:CommonSharesIssuedForPrepaidServices custom:ConversionOfDebtAndAccruedInterestToCommonStock custom:CurrentPortionPatentLiability custom:EffectOfReverseStockSplitAmount custom:EffectOfReverseStockSplitShares custom:FixedAssets custom:GainLossFromDiscontinuedOperations custom:IssuanceOfCommonStockForJillSmithldnLicenseAmount custom:IssuanceOfCommonStockForJillSmithldnLicenseShares custom:IssuanceOfCommonStockForLoanExpensesAmount custom:IssuanceOfCommonStockForLoanExpensesShares custom:IssuanceOfCommonStockForPennStateLicenseAmount custom:IssuanceOfCommonStockForPennStateLicenseShares custom:IssuanceOfCommonStockInExchangeForDebtAmount custom:IssuanceOfCommonStockInExchangeForDebtShares custom:IssuanceOfCommonStockIssuedForCharitableDonationAmount custom:IssuanceOfCommonStockIssuedForCharitableDonationShares custom:IssuanceOfCommonStockIssuedForPrepaidServicesAmount custom:IssuanceOfCommonStockIssuedForPrepaidServicesShares custom:LincenseAndSupplyAgreementsTextBlock custom:LongtermPortionPatentLiability custom:LossFromContinuingOperations custom:LossOnSettlementOfDebt custom:NotesToFinancialStatementsAbstract custom:PaymentsMadeOnPatentLiability custom:PrepaidServices custom:PrepaidServicesMember custom:PurchaseOfPennStateLicense custom:StockIssuancesDue custom:StockIssuedForDonation custom:StockIssuedForInterest custom:StockToBeIssuedMember custom:StockWarrantExpense1 custom:IssuanceOfCommonStockForCashAndExerciseOfWarrantsShares custom:IssuanceOfCommonStockForCashAndExerciseOfWarrantsAmount custom:IssuanceOfCommonStockForWarrantsAmount custom:StockToBeIssued custom:AccruedLiabilitiesForPurchaseOfSmithLdnPatent custom:Warrants1Member custom:Warrants2Member custom:Warrants3Member custom:Warrants4Member custom:Warrants5Member custom:Warrants6Member custom:Warrants7Member Liabilities, Current Liabilities, Noncurrent Liabilities Stockholders' Equity Attributable to Parent Liabilities and Equity Interest Expense Nonoperating Income (Expense) Net Income (Loss) Attributable to Parent LossFromContinuingOperations GainLossFromDiscontinuedOperations Shares, Outstanding Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest Discontinued Operation, Gain (Loss) on Disposal of Discontinued Operation, Net of Tax Depreciation, Amortization and Accretion, Net LossOnSettlementOfDebt AccruedLiabilities1 Increase (Decrease) in Accounts Payable Payments to Acquire Property, Plant, and Equipment PurchaseOfPennStateLicense Net Cash Provided by (Used in) Investing Activities PaymentsMadeOnPatentLiability Net Cash Provided by (Used in) Financing Activities Cash Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price EX-101.PRE 11 tnib-20130930_pre.xml XML 12 R17.htm IDEA: XBRL DOCUMENT v2.4.0.8
2. Summary of Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2013
Summary Of Significant Accounting Policies Policies  
Basis of Presentation

Basis of Presentation

 

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

 

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

Use of Estimates

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

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

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

Fair Value of Financial Instruments

 

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

Computer Equipment

Computer Equipment

 

Computer equipment is stated at cost, less accumulated depreciation. Depreciation is determined on a straight-line basis over the estimated useful lives of the assets, which generally range from three to five years. Maintenance and repairs are charged against expense as incurred. Depreciation expense from continuing operations for the nine months ended September 2013 and 2012 was $682 and $327, respectively.

Intangible Assets

Intangible Assets

 

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

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

 

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

Research and Development Costs

Research and Development Costs

 

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

Income Taxes

 

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

 

The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. As of September 30, 2013, the Company has no accrued interest or penalties related to uncertain tax positions.

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

The Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors, including employee stock options, based on estimated fair values equaling either the market value of the shares issued or the value of consideration received, whichever is more readily determinable.

 

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

Net Loss per Share

Net Loss per Share

 

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method and the if-converted method. Dilutive common stock equivalents are comprised of common stock purchase warrants and options outstanding. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.

Recent Accounting Standards

Recent Accounting Standards

 

The Company qualifies as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups Act (“JOBS Act”) as we do not have more than $1,000,000,000 in annual gross revenue and did not have such amount as of December 31, 2012, our last fiscal year. We are electing to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.

 

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

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Statements of Operations (Unaudited) (USD $)
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Income Statement [Abstract]        
Revenues, net            
Operating expenses:        
Selling, general and administrative 12,608,401 280,456 33,461,690 569,121
Research and development expense 6,412,711 26,514 15,510,310 26,514
Depreciation and amortization expense 719,040 10,863 2,134,231 11,012
Total operating expenses 19,740,152 317,833 51,106,231 606,647
Loss from operations (19,740,152) (317,833) (51,106,231) (606,647)
Interest expense (205,416)    (1,098,868)   
Loss on settlement of debt      (7,108,495)   
Total other income (expense) (205,416)    (8,207,363)   
Loss from continuing operations (19,945,568) (317,833) (59,313,594) (606,647)
Gain from discontinued operations        260,746
Net loss $ (19,945,568) $ (317,833) $ (59,313,594) $ (345,901)
Loss from continuing operations $ (0.34) $ (0.01) $ (1.08) $ (0.03)
Gain from discontinued operations          $ 0.01
Basic and diluted loss per share $ (0.34) $ (0.01) $ (1.08) $ (0.02)
Weighted average number of shares outstanding 59,334,545 30,853,117 55,127,859 19,706,741

XML 15 R10.htm IDEA: XBRL DOCUMENT v2.4.0.8
4. Capital Structure-Common Stock and Common Stock Purchase Warrants
9 Months Ended
Sep. 30, 2013
Notes to Financial Statements  
4. Capital Structure-Common Stock and Common Stock Purchase Warrants

 

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

 

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

 

Stock Warrants 

 

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

 

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

 

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

 

  Number of   Exercise   Weighted
  Shares   Price   Average Price
           
Warrants as of December 31, 2012 7,260,000 $ 1.00 – 1.50 $ 1.02
           
Issued in nine months ended September 30, 2013 2,567,918 $ 1.00-1.50 $ 2.56
           
Expired      
           
Exercised 3,324,168 $ 0.50-0.75 $ 0.63
           
Warrants as of September 30, 2013 6,503,750 $ 1.00 – 15.00  $ 1.83 

  

Summary of outstanding warrants as of September 30, 2013:

 

 

Expiration Date

    Number of Shares      

Exercise

Price

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

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4. Capital Structure-Common Stock and Common Stock Purchase Warrants (Tables)
9 Months Ended
Sep. 30, 2013
Capital Structure-Common Stock And Common Stock Purchase Warrants Tables  
Schedule of outstanding stock warrants

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

 

   Number of   Exercise    Weighted
  Shares   Price   Average Price
                 
Warrants as of December 31, 2012 7,260,000 $ 1.00 – 1.50 $ 1.02
           
Issued in nine months ended September 30, 2013 2,567,918 $ 1.00-1.50 $ 2.56
        
Expired      
            
Exercised 3,324,168 $ 0.50-0.75 $ 0.63
            
Warrants as of September 30, 2013 6,503,750 $ 1.00 – 15.00  $ 1.83 

Summary of outstanding warrants

 

Expiration Date

    Number of Shares      

Exercise

Price

      Remaining Life (years)  
Second Quarter 2015     1,025,000     $ 2.00-3.00       1.8  
Third Quarter 2015     221,250     $ 2.00-3.00       2.0  
Second Quarter 2016     337,500     $  1.50       2.8  
Third Quarter 2017     985,416     $ 1.00       4.0  
Fourth Quarter 2017     3,491,666     $ 1.00-1.50       4.3  
First Quarter 2018     229,584     $ 15.00       4.5  
Second Quarter 2018     33,334     $ 15.00       4.8  
XML 18 R6.htm IDEA: XBRL DOCUMENT v2.4.0.8
Statements of Cash Flows (Unaudited) (USD $)
9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES    
Net loss $ (59,313,594) $ (342,671)
(Gain) loss from discontinued operations    260,746
Loss from continuing operations (59,313,594) (606,647)
Adjustments to reconcile loss from continuing operations to net cash flows used in operating activities:    
Depreciation 682 327
Amortization 2,133,549 10,685
Amortization of stock issued for prepaid services 36,318,767 53,745
Loss on settlement of debt 7,055,994  
Stock warrant expense 6,932,057  
Stock issued for donation 750,000  
Stock issued for interest 1,133,162  
Changes in operating assets and liabilities:    
Accrued liabilities 227,681 125,876
Prepaid and other current assets (37,507) 27,700
Accounts payable 343,098 82,850
Net cash used in operating activities from continuing operations (4,456,111) (305,464)
CASH FLOWS FROM INVESTING ACTIVITIES    
Purchase of computer equipment (4,350) (1,062)
Purchase of Penn State License (160,539)  
Net cash used in investing activities from continuing operations (164,889) (1,062)
CASH FLOWS FROM FINANCING ACTIVITIES    
Proceeds from exercise of stock warrants 3,640,363  
Proceeds from sale of stock 531,250 212,680
Proceeds from notes payable 499,001 250,400
Payments made on patent liability (155,000) (15,000)
Net cash provided by financing activities from continuing operations 4,515,614 448,080
Net Increase (decrease) in cash (105,386) 141,554
Cash, beginning of period 313,095 12
Cash, end of period 207,709 141,566
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:    
Cash paid for interest      
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:    
Accrued liabilities for purchase of Smith LDN patent $ 2,715,000   
Conversion of debt and accrued interest to common stock 74,167   
Common Shares issued for Penn State License 2,550,000   
Common shares issued for prepaid services 51,204,100   
XML 19 R8.htm IDEA: XBRL DOCUMENT v2.4.0.8
2. Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2013
Accounting Policies [Abstract]  
2. Summary of Significant Accounting Policies

Basis of Presentation

 

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

 

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

 

Use of Estimates

 

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

           

Cash, Cash Equivalents, and Short-Term Investments

 

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

 

Concentration of Credit Risk

 

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

 

Fair Value of Financial Instruments

 

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

 

Computer Equipment

 

Computer equipment is stated at cost, less accumulated depreciation. Depreciation is determined on a straight-line basis over the estimated useful lives of the assets, which generally range from three to five years. Maintenance and repairs are charged against expense as incurred. Depreciation expense from continuing operations for the nine months ended September 2013 and 2012 was $682 and $327, respectively.

 

Intangible Assets

 

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

 

Impairment of Long-Lived Assets

 

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

 

Research and Development Costs

 

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

 

Income Taxes

 

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

 

The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. As of September 30, 2013, the Company has no accrued interest or penalties related to uncertain tax positions.

 

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

 

The Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors, including employee stock options, based on estimated fair values equaling either the market value of the shares issued or the value of consideration received, whichever is more readily determinable.

 

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

             

Net Loss per Share

 

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method and the if-converted method. Dilutive common stock equivalents are comprised of common stock purchase warrants and options outstanding. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.

              

Recent Accounting Standards

 

The Company qualifies as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups Act (“JOBS Act”) as we do not have more than $1,000,000,000 in annual gross revenue and did not have such amount as of December 31, 2012, our last fiscal year. We are electing to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.

 

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

 

XML 20 R11.htm IDEA: XBRL DOCUMENT v2.4.0.8
5. Stock Compensation
9 Months Ended
Sep. 30, 2013
Equity [Abstract]  
5. Stock Compensation

Founders’ Shares and Shares Issued for Services

 

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

XML 21 R9.htm IDEA: XBRL DOCUMENT v2.4.0.8
3. Promissory Notes
9 Months Ended
Sep. 30, 2013
Debt Disclosure [Abstract]  
3. Promissory Notes

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

 

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

 

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

 

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

 

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

 

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

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Balance Sheets (Parenthetical) (USD $)
Sep. 30, 2013
Dec. 31, 2012
Statement of Financial Position [Abstract]    
Accumulated depreciation $ 800 $ 118
Amortization $ 3,703,633 $ 1,570,114
Common Stock, Par Value $ 0.001 $ 0.001
Common Stock, Shares Authorized 500,000,000 500,000,000
Common Stock, Shares Issued 62,589,869 45,489,368
Common Stock, Shares Outstanding 62,589,869 45,489,368
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8. Commitments and Contingencies
9 Months Ended
Sep. 30, 2013
Commitments and Contingencies Disclosure [Abstract]  
8. Commitments and Contingencies

 

Distribution and Production

 

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

 

Supervision and Inspection of Manufacturing in Nicaragua

 

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

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Statements of Shockholders Equity (Unaudited) (USD $)
Common Stock
Additional Paid-In Capital
Stock To Be Issued
Prepaid Services
Accumulated Deficit
Total
Beginning Balance, Amount at Dec. 31, 2012 $ 45,489 $ 196,632,775 $ 3,690,960 $ (6,082,771) $ (176,945,847) $ 17,343,837
Beginning Balance, Shares at Dec. 31, 2012 45,489,368          
Return of Stock for prepaid services, Shares (350,000)          
Return of Stock for prepaid services, Amount (350)         (350)
Issuance of common stock in exchange for debt, Shares 1,545,833          
Issuance of common stock in exchange for debt, Amount 1,546 7,128,615       7,130,161
Issuance of common stock for prepaid services, Shares 10,228,000          
Issuance of common stock for prepaid services, Amount 10,228 51,193,872   (51,204,100)     
Amortization of prepaid services       36,319,117   36,319,117
Issuance of common stock for Jill Smith/LDN license, Shares 300,000          
Issuance of common stock for Jill Smith/LDN license, Amount 300 2,714,700 (2,715,000)       
Issuance of common stock for Penn State License, Shares 300,000          
Issuance of common stock for Penn State License, Amount 300 2,549,700       2,550,000
Issuance of common stock issued for charitable donation, Shares 100,000          
Issuance of common stock issued for charitable donation, Amount 100 749,900       750,000
Issuance of common stock for loan expenses and interest, Shares 297,500          
Issuance of common stock for loan expenses and interest, Amount 297 1,078,114 54,750     1,133,162
Issuance and modification of common stock warrants   6,932,057       6,932,057
Issuance of common stock for cash and exercise of warrants, Shares 4,679,168          
Issuance of common stock for cash and exercise of warrants, Amount 4,679 3,688,809       3,693,488
Stock to be issued     478,125     478,125
Net loss         (59,313,594) (59,313,594)
Ending Balance, Amount at Sep. 30, 2013 $ 62,589 $ 272,668,542 $ 1,508,835 $ (20,967,754) $ (236,256,210) $ 17,016,002
Ending Balance, Shares at Sep. 30, 2013 62,589,869          
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Balance Sheets (Unaudited) (USD $)
Sep. 30, 2013
Dec. 31, 2012
Current Assets:    
Cash and cash equivalents $ 207,709 $ 313,095
Prepaids and Other Current assets 45,000   
Total current assets 252,709 313,095
Computer equipment, net of accumulated depreciation of of $800 and $118 respectively 4,612 944
Intangible Assets:    
Patents and licenses, net of amortization of $3,703,633 and $1,570,114, respectively (Note 8) 19,265,260 18,688,270
Deposits 17,435 24,928
Total assets 19,540,016 19,027,237
Current Liabilities:    
Accounts payable 629,797 286,698
Payable to officer 76,000 76,000
Accrued liabilities 654,892 427,211
Current portion patent liability 185,000 200,000
Notes payable 857,197 432,363
Total current liabilities 2,402,886 1,422,272
Non-current Liabilities:    
Notes payable related party 121,128 121,128
Long-term portion patent liability    140,000
Total non-current liabilities 121,128 261,128
Total Liabilities 2,524,014 1,683,400
Stockholders' Equity:    
Common stock - par value $0.001; 500,000,000 shares authorized; 62,589,869 and 45,489,368 shares issued and outstanding respectively 62,589 45,489
Additional paid in capital 272,668,542 196,632,775
Stock issuances due 1,508,835 3,690,960
Prepaid services (20,967,754) (6,082,771)
Accumulated deficit (236,256,210) (176,942,616)
Total stockholders' equity 17,016,002 17,343,837
Total liabilities and stockholders' equity $ 19,540,016 $ 19,027,237
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6. Discontinued Operations (Details Narrative) (USD $)
9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Discontinued Operations Details Narrative    
Cash flows from operating and investing activities of discontinued operations $ 0 $ 260,746
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7. Lincenses and Supply Agreements
9 Months Ended
Sep. 30, 2013
Notes to Financial Statements  
7. Lincenses and Supply Agreements

Patent and Subsidiary Acquisition

 

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

 

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

 

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

 

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

 

Patent License Agreements

 

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

 

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

 

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

 

A.   Upon initiation of each phase III trial, the Company will pay $350,000.
B.   Upon positive completion of each phase III clinical trial of the therapeutic use of an LDN compound in the field of Use, the Company will pay $150,000.
C.   When an NDA is accepted for review by the FDA, the Company will pay $250,000.
D.   When FDA approval to market the NDA is approved, the Company will pay $750,000.

 

E.   Upon the first dosing of the first patient in a phase III clinical trial for each Licensed Product, the Company will pay 250,000 shares of the Company’s common stock.
F.   Upon the first sale of each Licensed Product, the Company will issue 400,000 shares of the Company’s common stock.
G.   Upon the achievement of $20 Million USD in cumulative sales for each licensed product covered by NDAs, the Company will issue 500,000 shares of the Company’s common stock.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

XML 30 R16.htm IDEA: XBRL DOCUMENT v2.4.0.8
10. Subsequent Events
9 Months Ended
Sep. 30, 2013
Subsequent Events [Abstract]  
10. Subsequent Events

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

 

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

XML 31 R12.htm IDEA: XBRL DOCUMENT v2.4.0.8
6. Discontinued Operations
9 Months Ended
Sep. 30, 2013
Notes to Financial Statements  
6. Discontinued Operations

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

 

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

 

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

 

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

 

   

Three Months Ended

September 30,

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

   

Nine Months Ended

September 30,

 
    2013     2012     2013     2012  
                         
Net Sales     -       -       -       -  
                                 
Earnings before Income Taxes     -       -       -       260,746  
                                 
Income Taxes     -       -       -       -  
                                 
Net Earnings from Discontinued Operations     -       -       -       260,746  

 

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

XML 32 R7.htm IDEA: XBRL DOCUMENT v2.4.0.8
1. Organization and Description of Business
9 Months Ended
Sep. 30, 2013
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
1. Organization and Description of Business

TNI BioTech, Inc. (the “Company” or “TNIB”) was initially incorporated in Florida on December 2, 1993 as Resorts Clubs International, Inc. (“Resorts Club”). It was formed to manage and market golf course properties in resort markets throughout the United States. Galliano International Ltd. (“Galliano”) was incorporated in Delaware on June 27, 1998. The Company began trading in November 1999 through the filing of a 15C-211. On November 3, 2004, Galliano merged with Resorts Club International, Inc. Resorts Club was the surviving corporation. On August 10, 2010, Resorts Club changed its name to pH Environmental Inc (“pH Environmental”). On April 23, 2012, pH Environmental completed a name change to TNI BioTech, Inc., and on April 24, 2012 pH Environmental executed a share exchange agreement for the acquisition of all of the outstanding shares of TNI BioTech, Inc.

 

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

 

Going Concern

 

The Company has incurred significant net losses since inception and has relied on its ability to fund its operations through private equity financings and short-term debt. Management expects operating losses and negative cash flows to continue at more significant levels in the future. As the Company continues to incur losses, transition to profitability is dependent upon the successful development, approval, and commercialization of its products and achieving a level of revenues adequate to support the Company’s cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional cash. Management intends to fund future operations through additional private or public debt or equity offerings, and may seek additional capital through arrangements with strategic partners or from other sources. Based on the Company’s operating plan, existing working capital at September 30, 2013 was not sufficient to meet the cash requirements to fund planned operations through September 30, 2014 without additional sources of cash. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business. 

The Company has experienced a net loss from operations of $59,313,594 and has used cash and cash equivalents for operations in the amount of $4,456,111 during the nine months ended September 30, 2013, resulting in stockholders’ equity of $17,016,002.

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6. Discontinued Operations (Tables)
9 Months Ended
Sep. 30, 2013
Discontinued Operations Tables  
Schedule of discontinued operations

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

 

   

Three Months Ended

September 30,

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

   

Nine Months Ended

September 30,

 
    2013     2012     2013     2012  
                         
Net Sales     -       -       -       -  
                                 
Earnings before Income Taxes     -       -       -       260,746  
                                 
Income Taxes     -       -       -       -  
                                 
Net Earnings from Discontinued Operations     -       -       -       260,746  
XML 35 R15.htm IDEA: XBRL DOCUMENT v2.4.0.8
9. Related Party Transactions
9 Months Ended
Sep. 30, 2013
Related Party Transactions [Abstract]  
9. Related Party Transactions

 

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

 

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

 

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

 

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

 

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

XML 36 R22.htm IDEA: XBRL DOCUMENT v2.4.0.8
4. Capital Structure-Common Stock and Common Stock Purchase Warrants (Details) (Warrants, USD $)
9 Months Ended
Sep. 30, 2013
Warrants outstanding beginning balance 7,260,000
Warrants issued 2,567,918
Warrants expired   
Warrants exercised 3,324,168
Warrants outstanding ending balance 6,503,750
Exercise price Warrants outstanding beginning balance $ 1.02
Exercise price Warrants issued $ 2.56
Exercise price Warrants expired   
Exercise price Warrants exercised $ 0.63
Exercise price Warrants outstanding ending balance $ 1.83
Minimum
 
Exercise price Warrants outstanding beginning balance $ 1.00
Exercise price Warrants issued $ 1.00
Exercise price Warrants exercised $ 0.50
Exercise price Warrants outstanding ending balance $ 1.00
Maximum
 
Exercise price Warrants outstanding beginning balance $ 1.50
Exercise price Warrants issued $ 1.50
Exercise price Warrants exercised $ 0.75
Exercise price Warrants outstanding ending balance $ 1.50
XML 37 R20.htm IDEA: XBRL DOCUMENT v2.4.0.8
11. Subsequent Events (Tables)
9 Months Ended
Sep. 30, 2013
Subsequent Events Tables  
Schedule of shares issued

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

 

    Shares  
       
Shares issued for default on promissory notes     90,000  
Shares issued to investors     48,000  
Shares issued for warrant exercise     837,500  
Shares issued for debt conversion     150,000  
XML 38 R1.htm IDEA: XBRL DOCUMENT v2.4.0.8
Document and Entity Information
9 Months Ended
Sep. 30, 2013
Nov. 14, 2013
Document And Entity Information    
Entity Registrant Name TNI BIOTECH, INC.  
Entity Central Index Key 0001559356  
Document Type 10-Q  
Document Period End Date Sep. 30, 2013  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Is Entity a Well-known Seasoned Issuer? No  
Is Entity a Voluntary Filer? No  
Is Entity's Reporting Status Current? Yes  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   63,736,639
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2013  
XML 39 R21.htm IDEA: XBRL DOCUMENT v2.4.0.8
2. Summary of Significant Accounting Policies (Details Narrative) (USD $)
9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Amortization expense $ 2,133,549 $ 10,685
Computer equipment
   
Depreciation expense $ 682 $ 327
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