SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

For the quarterly period ended September 30, 2014March 31, 2015

 

OR

 

 

From the transition period from ___________ to ____________

 

Commission File Number __________________

 

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

 

 

(Address of principal executive offices)

 

(Issuer's telephone number)

 

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

 

 

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.

 

 

 

As of November 13, 2014May 12, 2015 there were 132,929,195144,553,712 shares of Common Stock outstanding. 

 

 

TABLE OF CONTENTS

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

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

 

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

 

We caution you that a number of important factors could cause actual results or outcomes to differ materially from those expressed in, or implied by, the forward-looking statements, and therefore you should not place too much reliance on them. These factors include, among others, those described in the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2013herein, under "Risk Factors" and elsewhere in this reportAnnual Report and in our other public reports filed with the U.S. Securities and Exchange Commission. It is not possible to predict or identify all such factors, and therefore the factors that are noted are not intended to be a complete discussion of all potential risks or uncertainties that may affect forward-looking statements. If these or other risks and uncertainties materialize, or if the assumptions underlying any of the forward-looking statements prove incorrect, our actual performance and future actions may be materially different from those expressed in, or implied by, such forward-looking statements. We can offer no assurance that our estimates or expectations will prove accurate or that we will be able to achieve our strategic and operational goals.

 

By their nature, forward-lookingForward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics and industry change, and depend on the economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. Although forward-looking statements contained in this report are based on information we have when those statements are made or management’s good faith belief as of that time with respect to future events, we caution you that forward-looking statementsand are subject to significant risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements.  Important factors that could cause such differences include, but are not limited to:

 

 

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

PART I FINANCIAL INFORMATION

TNI BIOTECH,IMMUNE THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

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

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

 

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

 

 

TNI BIOTECH,IMMUNE THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSSTOCKHOLDERS' EQUITY

(Unaudited)

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

 

 

IMMUNE THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

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

 

 

TNI BioTech,Immune Therapeutics, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements 

(Unaudited)

 

1. Organization and Description of Business

TNI BioTech,Immune Therapeutics, Inc. (“we”(collectively, the “Company,” “us” or the “Company”“we”) 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.  We werewas initially incorporated in Florida on December 2, 1993 as Resort Clubs International, Inc. (“Resort Clubs”). It was formed to manage and market golf course properties in resort markets throughout the United States. Galliano International Ltd. (“Galliano”) was incorporated in Delaware on May 27, 1998 and began trading in November 1999 through the filing of a 15C-211. On November 10, 2004, Galliano merged with Resort Clubs.  Resort Clubs was the surviving corporation. On August 23, 2010, Resort Clubs changed its name to pH Environmental Inc. (“pH Environmental”).

 

On April 23, 2012, pH Environmental completed a name change to TNI BioTech, Inc., and on April 24, 2012, we executed a share exchange agreement for the acquisition of all of the outstanding shares of TNI BioTech IP, Inc. On September 4, 2014, a majority of our shareholders approved an amendment to our Amended and Restated Articles of Incorporation, as amended, to change our name to Immune Therapeutics, Inc.   We filed our name change amendment with the Secretary of State of Florida on October 27, 2014 changing our name to Immune Therapeutics, Inc.

The Company currently operates out ofresides in Orlando, Florida and Frederick, Maryland.Florida. In July 2012, the Company’s focus turned to acquiring patents that would protect and advance the development of new uses of opioid-related immune- therapies, such as low-doselow dose naltrexone (“LDN”) and Methionine [Met5]-enkephalin (“MENK”). The Company’s therapies are believed to stimulate and/or regulate the immune system in such a way that they provide the potential to treat a variety of diseases.  We believe our therapies may be able to correct abnormalities or deficiencies in the immune system in diseases such as HIV infection, autoimmune disease, immune disorders, or cancer; all of which can lead to disease progression and life-threatening situations when the immune system is not functioning optimally.

 

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

 

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

 

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

 

The Company’sWe are focused on the development and commercialization of therapeutic treatments for cancer, HIV/AIDS and autoimmune diseases and immune disorders by combating these severe and fatal diseases through the stimulation and/or regulation of the body’s immune system. Our growth strategy includes the near-term commercialization of itsour existing immunotherapies targeting cancer, Crohn’s disease and/or HIV/AIDS.

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.financings. Management expects operating losses and negative cash flows to continue at more significant levels in the future. As the Company continues to incur losses, transition to profitability is dependent upon the successful development, approval, and commercialization of its productsproduct candidate and achievingthe achievement of a level of revenues adequate to support the Company’s cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional cash. Management intends to fund future operations through additional private or public debt or equity offerings, and may seek additional capital through arrangements with strategic partners or from other sources. Based on the Company’s operating plan, existing working capital at September 30,December 31, 2014 was not sufficient to meet the cash requirements to fund planned operations through December 31, 20142015 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 $35,454,263$2,887,360 and has used cash and cash equivalents for operations in the amount of $3,089,097$757,110 during the nine monthsquarter ended September 30, 2014,March 31, 2015, resulting in stockholders’stockholder’s equity of $13,884,388.$1,703,586.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interimconsolidated financial statements have been prepared in accordance with United States (U.S.) generally accepted accounting principles generally accepted in(U.S. GAAP) and include all adjustments necessary for the United States of America (“GAAP”) and the rules and regulationsfair presentation of the U.S. Securities and Exchange CommissionCompany’s financial position for the periods presented.

The Company qualifies as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups Act (“SEC”JOBS Act”), as amended for interim financial information. The financial information as of September 30, 2014 and September 30, 2013 is derived from the audited financial statements presentedwe do not have more than $1,000,000,000 in the Company’s Annual Report on Form 10-Kannual gross revenue for the year ended December 31, 2013 ("2013 10-K"). The unaudited interim financial statements should be read in conjunction2014. We are electing to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the 2013 10-K, which contains the audited financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, for the years ended December 31, 2013 and 2012.JOBS Act.

 

The preparation of the Company’s financial statements in conformity with GAAPU.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. The cash accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. At March 31, 2015, the Company has no uninsured cash balances.

Fair Value of Financial Instruments

Property and Equipment

ComputerProperty and equipment isare 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 monthsquarters ended September 30,March 31, 2015 and March 31, 2014 was $668 and 2013 was $1,817 and $682,$575, 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 quarters ended March 31, 2015 and March 31, 2014, the Company did not capitalize any such costs. (See Note 10).  Amortization expense for the nine monthsquarters ended September 30,March 31, 2015 and March 31, 2014 was $148,059 and 2013 was $2,158,943 and $2,134,231,$718,712, 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

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.

 

 

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

             

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.

BasicA calculation of basic and diluted net loss per share is as follows:

 

 

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

Recent Accounting Standards

AnyDuring the quarter ended March 31, 2015, there were several new accounting pronouncements issued by the FASB,Financial Accounting Standards Board.  Each of these pronouncements, as applicable, havehas been or will be adopted by the Company.  Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements.

The Company upon or beforequalifies as an “emerging growth company” as defined in Section 101 of the expirationJumpstart 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, 2014, our last fiscal year. We are electing to use the extended transition period providedfor complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.

3. PromissoryProperty and Equipment

5. Notes Payable

As of June 30, 2014,March 31, 2015, the Company had accrued $67,863$15,353 in unpaid interest on those notes.interest. During the quarter ended March 31, 2015, no shares were issued by the Company for origination fees and loan expenses under promissory notes (compared to 260,000 shares with a fair value $362,250 in the quarter ended March 31, 2014).

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,March 31, 2015 and 2014, and 2013, the Company was authorized to issue 500,000,000 common shares at a par value of $0.001$0.0001 per share.

 

Stock Warrants 

UsingIn the Black-Scholes Model, the Company calculated the fair value of $2,101,856 for common stock purchase warrants issued and modified during the nine monthsquarter ended September 30, 2014. Variables used in the Black-Scholes option-pricing model, include (1) a discount rate of 0.98%, (2) an expected remaining life of 5 years and (3) expected volatility of 130%.

There were no modifications of its restricted common stock through the exerciseterms of common stock purchase warrants. Theany warrants were exercised at a price of $0.50 per share andissued by the Company received net proceeds of $459,375 for equity fromin the exercise of the warrants.quarters ended March 31, 2015 and 2014.  

Following is a summary of outstanding stock warrants at September 30, 2014March 31, 2015 and activity during the periodthree months then ended:

 

Summary of outstanding warrants as of September 30, 2014:March 31, 2015:

7. Stock Compensation

Shares Issued for Services

During the nine monthsquarters ended September 30,March 31, 2015 and 2014, the Company issued 16,390,0009,272,502 and 5,490,000 shares of common stock respectively for prepaid services (10,228,000 for the corresponding period in 2013).consulting fees.  The Company valued these shares at $1,712,876 and $7,965,500 respectively, based upon the fair market value of the common stock at the datedates of the agreements.  The consulting fees are amortized over the contract periods which are typically twelvebetween 12 and 24 months. The Company issued common stock for prepaid services of $12,662,001 and $51,204,100 for the nine months ended September 30, 2014 and 2013, respectively.   The amortization of prepaid services totaled $19,771,875$1,762,184 and $36,319,117$12,902,887 for the nine monthsquarters ended September 30,March 31, 2015 and 2014.

Our effective tax rate for fiscal years 2014 and 2013 respectively.was 0%. Our tax rate can be affected by recurring items, such as tax rates in foreign jurisdictions and the relative amount of income we earn in jurisdictions. It may also be affected by discrete items that may occur in any given year, but are not consistent from year to year.

10. Licenses and Supply Agreements

Patent License Agreementsand Subsidiary Acquisition

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

 

On December 18,24, 2012, the Company signed an agreement for the acquisition of patent rights (the “Smith Agreement”) for the intellectual property of Dr. Jill Smith and LDN Research Group, LLC (collectively, the “Licensor Parties”), whose members are Dr. Ian S. Zagon, Dr. Patricia J. McLaughlin and Moshe Rogosnitzky and orphan drug designation by the U.S. Food and Drug Administration (“FDA”)FDA to a novel late-stage drug, trademarked “LDN,” for the treatment of Pediatric Crohn’s disease. The patent covers methods and formulations for treatment of the inflammatory and ulcerative diseases of the bowel, using naltrexone in low doses as an opioid antagonist. These patents were acquired in exchange for 300,000 shares of the Company’sour common stock with a fair market value of $2,715,000 and payment of $165,384 (consisting of ana $100,000 initial license fee and payment of $65,384 of expenses), which totaled $2,880,384.

The Smith Agreement requires the Company to (i) use commercially reasonable efforts to develop, commercialize, market and sell licensed products in a manner consistent with a business plan, (ii) expend a minimum amount of funds per annum to develop and commercialize licensed products as soon as practicable, (iii) obtain all requisite regulatory approvals needed to use or sell licensed products in the field of use, and (iv) make the first commercial sale of a licensed product by March of 2017.

The Company is required to pay an annual license fee, an annual running royalty on net sales of each licensed product or a minimum royalty, whichever is greater, and a sublicense fee on payments received by the Company from sublicensees. 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 Smith 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 Smith 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.

 

The Company is also required to pay milestone payments after substantial achievement of certain milestone events for each licensed product including payment: upon initiation of each Phase III trial; upon positive completion of each Phase III clinical trial of the therapeutic use of an LDN compound in the field of use; when a New Drug Application (“NDA”) is accepted for review by the FDA; and when FDA approval to market the NDA is approved. The Company will issue shares upon reaching certain milestones including upon the first dosing of the first patient in a Phase III clinical trial for each licensed product, upon the first sale of each licensed product, and upon the achievement of a set dollar amount in cumulative sales for each licensed product covered by NDAs.

 

As part of the Smith Agreement, the Company has the right to apply to the FDA for the transfer of the orphan drug status for the use of naltrexone for the treatment of pediatric Crohn’s disease and ulcerative colitis, the Investigation New Drug Application (“IND”), and the right to acquire the relevant clinical data set from Dr. Jill Smith.  Dr. Jill Smith made arrangements to transfer the IND to the Company as well as the relevant clinical data set, and the FDA has acknowledged that the Company is now the sponsor for this IND.

On September 24, 2014, the Company and the Licensor Parties jointly agreed to terminate the Smith Agreement, and in place thereof, have the Licensor Parties grant a similar license in their patent rights to Cytocom Inc. pursuant to a Patent License Agreement between the Licensor Parties, Cytocom Inc. and the Company with substantially similar terms as set forth in the Smith Agreement.  Pursuant to this agreement, the Company issued 1,000,000 shares of its common stock valued at $270,000, upon execution to the Licensor Parties and the Company guaranteed the obligations of Cytocom Inc. to the Licensor Parties under the agreement.

On January 18, 2013, the Company signed an exclusive licensing agreement with The Penn State Research Foundation 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 “Foundation Agreement”).

The Foundation Agreement requires the Company to: (a) use commercially reasonable efforts to develop, commercialize, market and sell licensed products in a manner consistent with a business plan; (b) expend a minimum amount of funds per annum to develop and commercialize licensed products as soon as practicable; (c) obtain 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 Foundation Agreement provides that the Company must pay to the licensor an initial license fee, a license maintenance fee on each anniversary of the effective date of the Foundation Agreement, and an annual running royalty on net sales for each licensed product or a minimum royalty, whichever is greater.  In addition, the Company must pay a sublicense fee on payments received by the Company from sublicensees.

The Foundation Agreement also requires the Company to make payments upon the achievement of certain milestone events including: initiation of each Phase II trial; initiation of each Phase III trial; when the NDA is accepted for review by the FDA; and when FDA approval to market is approved.  The Company must also issue shares upon certain milestones including upon the first dosing of the first patient in a Phase II clinical trial for each licensed product, upon the first dosing of the first patient in a Phase III clinical trial for each licensed product, upon the first sale of each licensed product, and upon the achievement of a set dollar amount of cumulative sales for each licensed product covered by NDAs.

 

The Foundation Agreement terminates on the expiration or abandonment of the last patent to expire or become abandoned. The Company may terminate the Foundation 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 Foundation 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 May of 2013, the Company executed a Patent License Agreement with Professor Fengping Shan (the “Shan Agreement”) pursuant to which it 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 all INDs, communications with regulatory agencies, patient data, and letters relating to these treatments. The licensed technology also includes certain patents developed by Professor Shan. Under the Shan Agreement, the Company must issue 500,000 shares to Professor Shan upon final transfer of the licenses, and reimburse Professor Shan for all out of pocket expenses in connection with the patents. The Company will pay Professor Shan a running royalty on gross sales subject to decreases if third party intellectual property is needed to complete such sale or product. The Shan Agreement lasts for the duration of each of the licensed patents however the Company may terminate the Shan Agreement on 120 days' written notice to Professor Shan.

On August 6, 2014, Professor Fengping Shan executed an Assignment pursuant to which he transferred to the Company his entire right, title and interest in and to the licensed patents under the Shan Agreement and CN 201210302259 Application of combination of low-dose naltrexone and methionine-enkephalin to preparation of anti-cancer drug for the consideration of 500,000 shares of common stock valued at $140,000.

7.11. Commitments and Contingencies

Malawi Treatment Facilities

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

The Company and GBOIGGB will work in connection with the government of Malawi to open and operate other clinics that provide treatments for HIV/AIDS, cancer and other infectious diseases. GBOIG and the Company originally expected to have the oncology and infectious disease clinic fully operational within 12 months of the signing of the letter of intent, and to begin treatment for HIV patients within 180 days thereafter. However, delays in obtaining approvals required for the importation of the Company’s products have delayed the start of the project until the second half of 2014. Under the letter of intent, the Company and GBOIG will begin by providingintend to provide HIV/AIDS treatment to 10,00025,000 patients and hopefully expanding to 500,000 within 24 months of project start.months.  The Company shall contribute $1,000 in initial capital to the venture.  The Company shall be allocated 50% of the net income from the venture.  Either party may terminate the venture with 180 days’ notice to the other party prior to the one-year anniversary of the letter of intent.Agreement.  After the one-year anniversary, the letter of intentagreement may only be terminated with 180 days' notice to the other party if the other party has breached the letter of intent.Agreement.

GBOIG, a subsidiary of GB Energie LLC, is a Washington D.C. based minority woman-owned business managed by Dr. Gloria B. Herndon. Dr. Herndon is a former director of the Company.  Dr. Herndon’s directorship with the Company ended September 4, 2014.

 

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

 

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

 

Distribution Agreements in Nigeria

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

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

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

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

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

Agreements with Hubei Qianjiang Pharmaceutical Company

On October 18, 2012, the Company and Hubei Qianjiang Pharmaceutical Co., Ltd. (“Qianjiang Pharmaceutical”), signed a Venture Cooperation Agreement on New Drug Methionine Enkephalin (the “Venture Agreement”) pursuant to which Qianjiang Pharmaceutical acquired an exclusive license for the production of MENK in China.  The Venture Agreement requires that Qianjiang Pharmaceutical conduct drug research and pilot testing for MENK, organize pre-clinical studies, and apply for clinical trials for MENK with the Chinese State Food and Drug Administration. Under the Venture Agreement, Qianjiang Pharmaceutical must open a co-administration account for the development of MENK in China. Qianjiang Pharmaceutical must pay the Company, upon the marketing of MENK products, a half-year amount equaling 6% of its gross sales from MENK of the preceding half year.  The Company may cancel the Venture Agreement if Qianjiang Pharmaceutical does not pay expenses for a period exceeding six months or does not commence clinical trials within 12-months after receiving certain approvals. Qianjiang Pharmaceutical may cancel the Venture Agreement if the Company fails to perform its obligations for a period of six months or the failure to receive approval of clinical trials is due to the Company’s MENK technologies.  The Venture Agreement was amended on February 24, 2013 to expand the clinical trials from pancreatic to both pancreatic and liver cancer and amended on March 6, 2014 to require Qianjiang Pharmaceutical to commence studies and clinical trials in China and place funds in the co-administration account.

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

Exploratory Toxicology (nGLP)

  ·- Dose range finding studies

  ·- Different species and methods of administration

  ·- Multiple dosing regimens

  ·- Estimate the response vs. dose given

Definitive Toxicology (GLP)

  ·- Performed in collaboration with Calvert Laboratories (USA) and MPI/Medicillon (China)

  ·- General toxicology studies

  ·- Different species and methods of administration

  ·- Immunogenicity study with NHPs

 

Special Toxicology Studies (planned)

Pursuant to the Amendment, Qianjiang Pharmaceutical will make certain funds available from the co-administrative account opened by Qianjiang Pharmaceutical under the Venture Agreement, in accordance with an approved budget and timeline set forth in the Amendment.  A portion of these funds are expected to be used by Cytocom to run PK and Dosing trials for MENK in the United States.  The Amendment requires Cytocom and Qianjiang Pharmaceutical to meet with the China State Food and Drug Administration to determine that PK and Dosing Trials completed in the United States will be acceptable. All developments and trials run by Cytocom in the U.S. or the European Union will be used for requesting registration approval in China.

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

 

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 Current Good Manufacturing Practice regulations (“cGMP”) and the Company’s specifications. ViPharma will carry out its obligations in whatever Latin American country the Company ultimately decides to manufacture LDN. Under the contract, ViPharma has the exclusive rights to supervise and inspect all manufacturing processes of LDN in Latin America. The initial term of the agreement is ten years commencing in September 2013, with automatic five-year renewal terms provided neither party is in breach. The agreement may be terminated by (i) mutual agreement, (ii) in the event of a breach after a 45 day cure period or (iii) by either party upon provision of written notice at least 90 days before the end of the agreement, provided however that if the Company terminates the contract without cause it will be required to pay ViPharma a $10 million penalty.

Operating Leases

TheAt March 31, 2015, the Company leaseswas a party to agreements to lease office space in White Plains, New York, Frederick, Maryland, and Orlando, Florida.  RentalThe White Plains office is no longer in use.  Rent expense for the nine monthsquarters ended September 30,March 31, 2015 and 2014 was $18,319 and 2013 was $116,638 and $65,660,$31,207, respectively.

12. Related Party Transactions

On January 3, 2013, the Company formalized the terms under which Kelly O’Brien Wilson, the daughter-in-law of the Company's Chief Executive Officer is employed. Ms. Wilson had been working with the Company in 2012 and her three-year employment agreement is effective as of December 1, 2012. The terms of the agreement define her base salary, a grant of a common stock, and health insurance coverage. Ms. Wilson was issued 500,000 shares of common stock of the Company in January 2014. ForIn the nine monthsquarters ended September 30,March 31, 2015 and 2014, the Company paid compensation to Ms. Wilson totaling $115,735. 

 

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

 

This report containssection and other parts of this Form 10-Q contain forward-looking statements. Forward-looking statements withinprovide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements also can be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “will,” “would,” “could,” “can,” “may,” and similar terms. Forward-looking statements are not guarantees of future performance and 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 couldmay differ materiallysignificantly from those set forth onthe results discussed in the forward-looking statements as a result ofstatements. Factors that might cause such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the risks set forth in the Company’s filingsyear ended December 31, 2014 filed with the Securities and Exchange Commission general economic conditions,on March 31, 2015 (the “2014 Form 10-K”) under the heading “Risk Factors”.

The following discussion should be read in conjunction with the 2014 Form 10-K and changesthe consolidated financial statements and notes thereto included elsewhere in this Form 10-Q. All information presented herein is based on the assumptionsCompany’s fiscal calendar. Unless otherwise stated, references in this report to particular years, quarters, months or periods refer to the Company’s fiscal years ended in December and the associated quarters, months, or periods of those fiscal years. Each of the terms the “Company”, “we”, “us” or “our” as used in making suchherein refers collectively to Immune Therapeutics, Inc. and its subsidiaries, unless otherwise stated. The Company assumes no obligation to revise or update any forward-looking statements.statements for any reason, except as required by law.

 

General

 

TNI BioTech,Immune Therapeutics, Inc. ("we" or the(the “Company”) was initially incorporated in Florida on December 2, 1993 as Resort Clubs International, Inc. (“Resort Clubs”). It was formed to manage and market golf course properties in resort markets throughout the United States. Galliano International Ltd. (“Galliano”) was incorporated in Delaware on May 27, 1998 and began trading in November 1999 through the filing of a 15C-211. On November 10, 2004, Galliano merged with Resort Clubs.  Resort Clubs was the surviving corporation. On August 23, 2010, Resort Clubs changed its name to pH Environmental Inc. (“pH Environmental”).

On April 23, 2012, pH Environmental completed a name change to TNI BioTech, Inc., and on April 24, 2012, the Companywe executed a share exchange agreement for the acquisition of all of the outstanding shares of TNI BioTech IP, Inc.

The Brewer Group is an international business advisory firm engaged in the businessCompany currently operates out of identifying and capitalizing on opportunities with international governments, non-government organizations and professional athletes. The CEO of The Brewer Group is also the founder and Executive Director of The Jack Brewer Foundation. The Jack Brewer Foundation seeks to provide the Company with medical equipment where it is needed. Under the Engagement Agreement for Corporate Advisory Services dated February 5, 2013 (the “Engagement Agreement”), the Brewer Group agreed to evaluateOrlando, Florida. In July 2012, the Company’s options for expansionfocus turned to acquiring patents that would protect and growth into certain international markets, including Africaadvance the development of new uses of opioid-related immune- therapies, such as low dose naltrexone (“LDN”) and upon request, markets in Haiti, the Dominican RepublicMethionine [Met5]-enkephalin (“MENK”). The Company’s therapies are believed to stimulate and/or Panama. Pursuant to the Engagement Agreement, the Brewer Group agreed to endorse the Company publicly and assist the Company in securing strategic partnership deals to enhance brand and market awareness. The initial term of the Engagement Agreement was 12 months, with an option for either party to terminate upon 30 calendar days with written notice to the other party. The Engagement Agreement has been extended through February 2015. The Company issued the Brewer Group 500,000 shares of its common stock in accordance with the Engagement Agreement.

In SeptemberOctober 2012, the Company announced an agreement to open an outpatient's clinic at Queen Elizabeth Central Hospitalformed TNI BioTech International, Ltd., a BVI company in Malawi for the treatment of cancer and infectious diseases with GBOIG. Once the facility is operational, AHAR has agreed to assist in the operation of the clinic in Malawi and the implementation of the Company’s therapies. The contract with the Republic of Malawi calls for delivery of 25,000 pills a day, increasing to 500,000 pills a day within 24 months. On April 16, 2014, The Malawi Pharmacy, Medicines and Poisons Board, the drug regulator authority of the government of Malawi, approved the marketing and sale of the Company’s LDN product in Malawi. The Company expects to commence sales and operations in Malawi before the end of 2014.

 

In December 2013, the Company formed a new subsidiary, Cytocom Inc. ("Cytocom"), to focus on conducting LDN and Methionine [Met5]-enkephalin (“MENK”)MENK clinical trials in the United States. In December 2014, the Company finalized the distribution of common stock of Cytocom Inc. to its shareholders. As part of the transaction, the Company retained exclusive rights to all international patents, in-country approvals, formulations, trademarks, manufacturing, marketing, sales, and distributions rights in emerging nations, including Africa, Central America, South America, Russia, India, China, Far East, and The Commonwealth of Independent States (former Soviet Union).  The Company expects that the manufacturing of our therapies and their subsequent distribution into emerging nations will continue to be operated directly throughhave access to existing clinical data as well as any new data generated by Cytocom Inc. during drug development.  On December 8, 2014, the Company. Thenumber of Cytocom Inc. shares of common stock that were issued to our shareholders totaled 113,242,522 shares.   In connection with the transaction, Cytocom Inc. issued 140,100,000 shares of its common stock to the Company, initially entered into consulting arrangements with Dr. Graham Burton, M.D., Ph.D., and Mr. Gary G. Gemignani,which has allowed the Company to focus on the clinical advancement of LDN and MENK through Cytocom. Effective April 1, 2014, Dr. Burton was appointed President and Chief Executive Officer of Cytocom. On the same date, Mr. Gemignani was appointed Chief Operating Officer, Chief Financial Officer and Executive Vice President of Cytocom. Dr. Burton will be responsibleretain a 55.3% stake in Cytocom Inc. until such time as funding for leading Cytocom’s global development, clinical research and medical initiatives. Mr. Gemignani was expected to be responsible for operational and business development activities and financial management of Cytocom; however, he resigned from his positions with Cytocom.Cytocom Inc. closes.

 

Research and Development

The Company's research and development ("R&D") activities commenced in the third quarter of 2012, the Company having only completed the initial acquisition of MENK-related patents required for research in the second quarter of that year.  InThrough 2013 and the first nine months of 2014, we continued to build R&D organization and capabilities focusing primarily on new uses for opioid-related immuno-therapies, such as LDN and MENK. Those activities continuedwere suspended at the end of September 2014, due to lack of funding.  We expect to be able to resume activities in the first quartersecond half of 2014.2015.

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

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

Three Months Ended September 30, 2014March 31, 2015 Compared to Three Months Ended September 30, 2013March 31, 2014

 

Revenues

 

We had no revenues from operations of $2,070 for the three months ended September 30, 2014 and 2013. We anticipate havingMarch 31, 2015.  There were no revenues in the fourth quarter of 2014.

Operating Expenses

 

Selling, general and administrative

 

Selling, general and administrative expenses and related percentages for the three months ended September 30,March 31, 2015 and 2014 and 2013 were as follows (dollar amounts in thousands):

 

 

For the three months ended September 30,March 31, 2015 and 2014, and 2013, selling, general and administrative expenses were made up as follows (dollar amounts in thousands):

In the three months ended September 30, 2014,March 31, 2015, total cash and cash accruals for selling, general and administrative expense was $902$402 compared to $1,290$727 for the corresponding period in 2013,2014, a decrease of $388$325 or 30%45%. Significant cash items included:

 

Research and development

 

R&D expenses and related percentages for the three months ended September 30,March 31, 2015 and 2014 and 2013 were as follows (dollar amounts in thousands):

 

 

Expenses for research and development in the three months ended September 30, 2014March 31, 2015 decreased by 37%65% compared to expenses in the same period in 2013.2014. The decrease occurred mainly as a result a reduction in the cost of stock payments for licenses, purchases of materials for R&D, and legal fees paid to maintain patents and licenses.

In the three months ended September 30, 2014,March 31, 2015, total cash spent on R&D was $401,$177, a decrease of $240$334 or 37%65% over the $641$511 spent in the same period in 2013.2014. Significant cash items included:

Approximately 75% of the R&D spending in both 20142015 and 20132014 was on the development of LDN; the balance was spent on MENK.

Stock issued for services

 

The Company periodically issues stock to consultants who provide services to the Company under consulting contracts.  The Company accrues a liability for these services calculated by the number of shares issued for the services multiplied by the price of the Company’s stock on the effective date of the consulting contract.  The accrued liability is amortized over the period in which the services are provided to the Company. The Company reports these costs separately from Selling, general and administrative costs, and Research and development costs, to better demonstrate the true costs of Selling, general and administrative activities, and Research and development.

Amortization of accrued liabilities for stock issued for services G&A and related percentages for the three months ended September 30,March 31, 2015 and 2014 and 2013 were as follows (dollar amounts in thousands):