Marker Therapeutics, Inc. quarterly report, Q3 FY2011

Business context and reporting period

The filing is TapImmune Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2011. The request metadata names Marker Therapeutics, Inc., but the registrant identified in the filing is TapImmune Inc. TapImmune was a development-stage biotechnology company with no marketed products or revenue, developing TAP-based cancer and infectious-disease vaccine technologies.

Financial performance and liquidity

Operating expenses were $905,000 for the quarter and $2.707 million for the nine-month period, down from $1.234 million and $4.146 million, respectively. No meaningful revenue margin is available because the company had no revenue. Cash was $34,772 at September 30, 2011, versus $23,516 at December 31, 2010. Working-capital deficit was $1,644,102. Total liabilities were $2,273,136, including $568,127 in convertible notes payable at carrying value; the notes’ stated face value was $1,429,694. Stockholders’ deficit was $2,176,069.

Cash used in operations was $1,010,910, compared with $891,704 in the prior-year period. Financing provided $1,022,166, mainly from convertible-note and equity financing, leaving cash up $11,256 for the nine months. The filing says the company had no operating cash generation.

Material changes versus the prior comparable period

• Nine-month net loss narrowed by about $1.61 million; management attributed lower expenses mainly to reduced stock-based consulting and management charges, lower professional fees, and lower interest and finance charges.
• Research and development expense rose to $406,944 from $243,380, primarily due to Mayo Clinic-related licensing and research costs.
• Results included a $482,474 loss on debt settlement and a $1,088,575 gain from extinguishing derivative warrant liabilities; these transactions had no comparable counterpart in the prior period.
• The company issued shares and warrants and settled or restructured 2010 notes. Common shares outstanding increased from 40,256,027 at year-end 2010 to 47,360,721 at September 30, 2011.

Outlook, risks, contingencies and unusual items

Management anticipated no revenue in the next 12 months and estimated approximately $5 million of financing would be needed over 24 months, assuming one Phase I clinical trial. The filing states that cash on hand was insufficient to continue operations for more than four months; management’s ability to continue depended on additional equity or debt financing, creditor accommodations, cost reductions, or partnerships. Management warned that significant equity funding was needed within 12 months to sustain the company as a going concern, and that financing might not be available on acceptable terms.

The company’s programs included a Mayo Clinic HER2/neu breast-cancer vaccine Phase I study, which the filing said had FDA approval and was expected to begin by year-end 2011, and continued preclinical work on its own TAP cancer vaccine. Management estimated roughly $5 million to fund preclinical and clinical programs. These were plans and expectations, not assured outcomes.

• Debt and payment risks: A $100,000 promissory note for future legal services was past due and in default at September 30; the company was renegotiating. A separate $7,000 third-party loan was due on demand. February, April and June 2011 secured convertible notes bore 10% interest, rising to 20% upon default, and were secured by company assets.
• Contract risk: The company had accrued $220,968 under its amended Crucell license, was delinquent on the first annual payment, and could lose the license if the agreement were terminated. It had committed up to $841,000 to the Mayo Clinic research agreement.
• Going concern and development risk: Significant losses, minimal cash, funding dependence, clinical and regulatory uncertainty, and competition from better-resourced companies were material risks.
• Restatement: The filing describes a restatement related to 2009 debt settlements, including a $13,137,038 adjustment associated with measuring shares at quoted market value. The December 31, 2010 balance-sheet presentation was also restated, increasing both additional paid-in capital and accumulated development-stage deficit by $12,370,269, with no change to total stockholders’ deficit.
• Reporting controls: Management concluded disclosure controls and internal control over financial reporting were ineffective and identified material weaknesses involving board/audit-committee oversight, segregation of duties, written accounting policies, and period-end reporting controls.
• Other contingencies: The company had not filed income tax returns for several years in certain jurisdictions; potential penalties and interest could not be reliably estimated. No material legal proceedings were reported.

Important facts for investors to verify

1. Confirm the registrant’s identity: this filing is for TapImmune Inc., not Marker Therapeutics, Inc.
2. Review the going-concern disclosures, cash runway, financing needs, and subsequent access to capital.
3. Verify the status and terms of the past-due promissory note, demand loan, secured convertible notes, and Crucell license obligations.
4. Check whether the Mayo Clinic trial began as anticipated and whether the company obtained funding for clinical and manufacturing work.
5. Assess potential dilution: 6,278,000 options and 9,917,188 warrants were outstanding at September 30, 2011; exercise was not assured.
6. Review the historical restatement and the disclosed material weaknesses in financial reporting controls.