TapImmune Inc. (10-Q) — Quarter Ended September 30, 2013
Entity note: The supplied filing identifies the registrant as TapImmune Inc., a development-stage biotechnology company, not Marker Therapeutics, Inc. Verify that this is the intended filing. Financial statements are unaudited and cover the three and nine months ended September 30, 2013.
Business context and reporting period
TapImmune was developing immunotherapy and vaccine technologies for cancer and infectious diseases. Its HER2/neu breast-cancer vaccine was in a Mayo Clinic Phase I trial; the company also pursued TAP-based vaccine programs and collaborations. The company reported no revenue in the current or comparable prior periods.
Financial performance and liquidity
- Revenue and margins: No revenue was reported. The filing does not provide a meaningful gross margin.
- Net loss: $966,369 for Q3 2013 versus $768,095 for Q3 2012; $2,056,885 for the first nine months of 2013 versus $4,118,684 in 2012. Nine-month basic and diluted loss per share was $0.02 versus $0.07.
- Operating expenses: $313,289 for Q3 and $1,594,294 for the nine-month period, down from $796,737 and $4,608,702, respectively. Lower stock-based consulting expense and reduced general and administrative costs were major factors; professional and management fees increased.
- Cash flow: Operating activities used $754,557 in the first nine months, compared with $1,095,993 in 2012. Financing provided $725,651, compared with $849,486. Cash declined by $28,906 to $4,933.
- Balance sheet: Current assets were $150,021 and current liabilities $5,252,702 at September 30. The resulting working-capital deficit is $5,102,681. The MD&A separately states a deficit of $4,971,681, an inconsistency to verify.
- Debt and obligations: Convertible notes payable were $2,348,756; promissory notes $277,942; loans payable $10,000; and amounts due to related parties $381,846. Accounts payable and accrued liabilities were $1,457,298, with research-agreement obligations of $492,365. Total liabilities exceed assets, and stockholders’ deficit was $102,681.
Changes versus the prior comparable period
- Nine-month net loss improved by about half, largely alongside lower operating expenses and substantially lower stock-based consulting costs. Q3 net loss increased year over year despite lower operating expenses.
- Derivative fair-value changes produced a $2,144,566 gain for the first nine months, while debt accretion and debt-settlement losses were significant offsetting items. These non-cash and financing-related items materially affect reported net loss.
- Cash was lower than at December 31, 2012 ($4,933 versus $33,839); the company continued relying on financing and debt conversions. Common shares outstanding rose from 76,402,958 at year-end to 139,308,515 at September 30, and were 145,383,515 as of November 19, 2013.
- The company restated its December 31, 2012 financial statements for derivative-liability accounting and other items. The restatement increased the reported 2012 net loss by $313,924 to $6,171,867 and increased year-end total liabilities by $359,084.
Outlook, risks, contingencies, and unusual items
- Management anticipated no sales revenue in the next 12 months and said significant additional financing was needed. It estimated $5–7 million of expenditures over 24 months, assuming completion of one Phase I trial and start of a Phase II HER2/neu trial.
- The filing reports substantial doubt about the company’s ability to continue as a going concern. Management cited planned equity and debt financing, debt restructuring, cost reductions, and potential partnerships, but said there was no assurance funding would be sufficient; it also warned that continued operations beyond 12 months were unlikely without significant equity funding.
- Management expected the Mayo Clinic Phase I trial to begin in Q4 2013; elsewhere it reported that patient dosing had started and that the first five patients had developed antigen-specific T-cell responses, with interim safety review successful. The filing also describes a planned $250,000 payment upon notice that the trial would commence. Verify trial status and obligations.
- Several notes were in default or past due, including secured February 2011 notes with unpaid amortization payments and a 20% default interest rate. The filing warns that cross-default provisions may affect other notes. A $210,000 promissory note converted from accounts payable was also in payment default.
- Crucell license payments were delinquent; the accrued obligation was $492,365, and Crucell had a termination right. The company also disclosed possible tax penalties and interest because tax returns had not been filed for several years in certain jurisdictions.
- A New York-related dispute involving shares issued to consultants and a separate law-firm judgment for $210,255 were disclosed. The company said it was pursuing arbitration against one consultant.
- Disclosure controls and internal control over financial reporting were deemed ineffective, with material weaknesses including inadequate oversight, segregation of duties, written procedures, and period-end reporting controls.
- Subsequent to quarter-end, the company entered into November convertible-note transactions: $143,000 face value for $130,000 cash, plus a $56,667 related-party note exchanged for $51,000 of accounts payable. The filing also reported a subsequent conversion of $6,360 into 1,200,000 shares.
Most important facts for investors to verify
- Whether this TapImmune filing is the intended filing for Marker Therapeutics.
- The conflicting working-capital deficit figures and the status of cash, near-term maturities, defaults, and cross-default exposure.
- Availability and terms of financing needed to fund operations and clinical programs, including post-quarter note issuances and potential dilution.
- Current status, timing, funding, and results of the Mayo Clinic trial and related research commitments.
- Impact of the 2012 restatement, Level 3 derivative valuations, litigation, tax-filing exposure, and disclosed control weaknesses.