Business context and reporting period
The supplied filing is TapImmune Inc.’s Form 10-Q for the quarter ended June 30, 2011—not a filing under the name Marker Therapeutics, Inc. TapImmune described itself as a development-stage biotechnology company developing immunotherapy and vaccine technologies; it reported no product revenue.
Financial results and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | None reported | None reported |
| Operating expenses | $701,444 in 2011; $1,282,924 in 2010 | $1,801,795 in 2011; $2,912,591 in 2010 |
| Net loss | $404,379 in 2011; $1,339,481 in 2010 | $1,533,759 in 2011; $2,973,627 in 2010 |
| Basic and diluted loss per share | $(0.01) in 2011; $(0.03) in 2010 | $(0.04) in 2011; $(0.08) in 2010 |
| Cash used in operations | $851,326 for the six months of 2011; $636,883 for the comparable 2010 period |
At June 30, 2011, cash was $14,483, current assets were $52,008, current liabilities were $1,370,508, and working capital deficit was $1,318,500. Total liabilities were $1,874,977. Convertible notes had a $504,469 carrying value, including $1,429,694 face value less unamortized discounts; the notes are secured, bear 10% annual interest (20% on default), and mature in 2014. The company also had a $100,000 promissory note and $251,105 due to related parties.
Financing provided $842,293 in cash during the first half of 2011, primarily through convertible notes; cash declined by $9,033 over the period. No gross profit or operating margin is applicable because the company reported no revenue.
Changes versus the prior comparable period
First-half net loss narrowed by about 48% from the restated 2010 period, while operating expenses declined. Cash used in operating activities increased by $214,443. The 2011 results included a $482,474 loss on debt settlement and a $1,088,575 gain from extinguishing warrant derivative liabilities. In the second quarter, the company reported a $217,400 loss from changes in derivative fair value, compared with a $1,532,350 gain in the restated 2010 quarter.
The company restated its June 30, 2010 financial statements after concluding that conversion options and warrants issued with convertible notes should have been accounted for as derivatives, rather than equity, because of their price-ratchet provisions. The Audit Committee concluded the original 2010 quarter’s statements should no longer be relied upon. The restatement increased reported 2010 six-month net loss from $2,931,328 to $2,973,627 and changed reported operating cash use from $579,371 to $636,883.
Outlook, risks, and unusual items
- Management said it expected no revenue during the following 12 months and estimated approximately $5 million would be needed over 24 months assuming one Phase I trial. It said available funds were insufficient to continue operations for more than four months, while also expressing the belief that successful future investment could fund operations for 24 months.
- The filing states substantial doubt exists about the company’s ability to continue as a going concern. Continued operations depended on additional financing, debt accommodations, cost reductions, or partnerships; management cautioned that sufficient funding might not be available.
- Management reported that an IND for a Mayo Clinic HER2/neu breast-cancer study was filed in June 2011 and subsequently approved, with a Phase I trial expected to begin in the third quarter. The August 15, 2011 Mayo research agreement was a subsequent event and committed the company to up to $841,000.
- The company was delinquent on its first annual payment under the amended Crucell license and had accrued $206,864. Crucell could cancel the agreement; management’s plan to negotiate revised terms was uncertain.
- Management disclosed that disclosure controls and internal control over financial reporting were not effective, citing material weaknesses in oversight, segregation of duties, written accounting policies, and period-end reporting controls. Management described remediation plans, but no auditor attestation was included.
- Other exposures include up to $841,000 under the Mayo agreement, possible penalties and interest for unfiled tax returns in certain jurisdictions, and substantial dependence on clinical, regulatory, financing, and intellectual-property milestones. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Confirm the issuer identity and filing: this document names TapImmune Inc., despite the request metadata naming Marker Therapeutics, Inc.
- Review the restatement disclosures and underlying accounting for convertible-note derivatives, warrant liabilities, and debt-settlement gains and losses.
- Assess near-term cash needs, the going-concern warning, and whether subsequent financing was obtained on terms sufficient to meet obligations.
- Verify the status, timing, costs, and regulatory progress of the Mayo HER2/neu Phase I trial and the company’s ability to fund its commitments.
- Check Crucell license status and payment negotiations, and track remediation of the disclosed material weaknesses in financial reporting controls.