TNI BIOTECH, INC. – 10-Q – 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 Bethesda, 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.

                                          19 

--------------------------------------------------------------------------------

Back to Table of Contents

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, American Hospitals and Resorts, as well as a number of United States doctors that own and operate clinics in the United States and Nigeria. American Hospitals and Resorts operates a private health maintenance organization in Nigeria. We are also working with large employers who operate on-site clinics.

In November, TNIB 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.

TNIB, 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 TNIB/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. TNIB plans to work with onsite clinics which will permit TNIB 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 TNIB's offsite treatment facility for further evaluation and treatment, where they can benefit from TNIB's patented technology and therapies.

                                          20 

--------------------------------------------------------------------------------

Back to Table of Contents

Through these clinics, TNIB 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. TNIB 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.

TNIB 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

TNIB has entered into a contract for the supervision and inspection of manufacturing processes with ViPharma and is finalizing a manufacturing agreement with Laboratorios Ramos, a current good manufacturing practice ("cGMP") facility for IRT-103 low-dose naltrexone ("LDN"). 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.

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 their development plan to the FDA that supports our 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.

Results of Operations - Six Months Ended June 30, 2013

Revenues

<p>We had no revenues from operations for the period ending June 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.

                                          21 

--------------------------------------------------------------------------------

Back to Table of Contents

Operating Expenses

Selling, general and administrative expenses were $13,153,785 for the three months ended June 30, 2013, as compared to $277,861 for the three months ended June 30, 2012. We anticipate that certain operating expenses will continue to increase for fiscal year 2013 as we continue to build our infrastructure and develop our products. Our total operating expenses were $19,984,812 for the three months ended June 30, 2013, compared to $277,861 for the same period in 2012.

Liquidity

Liquidity is measured by our ability to secure enough cash to meet our contractual and operating needs as they arise. We do not anticipate generating sufficient net positive cash flows from our operations to fund the next twelve months. We had cash of $231,474 at June 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. Above the basic operational expenses, which are estimated at $150,000 per month, we estimate that we need approximately $7-15 Million USD in 2013 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 six months ended June 30, 2013 and 2012, we had net cash used in operating activities from continuing operations of $2,727,979 and $10,512, respectively. For the six months ended June 30, 2013 and 2012, we had net cash used in investing activities from continued operations of $163,414 and $0, respectively. The change in 2013 is due to the purchase of computer equipment and expenses for the Penn State License.

We issued a total of 107,900 shares to warrant holders that purchased shares at an exercise price of $0.75 per share, which generated $80,925 in proceeds. We also generated $449,001 from issued notes payable for the six months ended June 30, 2013 compared to $0 for the same period in 2012.

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 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 six months ended June 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.