Marker Therapeutics, Inc. quarterly report, Q1 FY2013

Business context and reporting period

This is TapImmune Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2013. The filing identifies the registrant as TapImmune Inc., not Marker Therapeutics, Inc.; investors should verify the entity and filing match the intended company. TapImmune described itself as a development-stage biotechnology company developing TAP-based cancer immunotherapies and infectious-disease vaccines. It reported no revenue.

Key financial metrics

Q1 financing activities provided $425,000, including $235,951 from share issuance and $80,500 in related-party advances; cash nevertheless fell by $46,243. No meaningful margin measure is applicable given the absence of revenue. The filing gives no clear consolidated total-debt figure beyond the individual liability balances.

Material changes versus Q1 2012

• Net loss increased about 80%, from $599,000 to $1.076 million, and operating expenses rose from $672,000 to $1.041 million.
• Interest and financing charges increased to $335,000 from $97,000, primarily due to accretion of convertible-note discounts.
• Research and development expense increased to $243,000 from $115,000, which management attributed mainly to higher accrued technology licensing fees. General and administrative expense rose to $207,000 from $142,000, while stock-based consulting expense declined to $68,000 from $134,000.
• The quarter included a $526,193 gain from changes in fair value of derivative liabilities, offset in part by a $574,259 loss on debt settlement. These noncash and financing-related items materially affected reported results.
• Shares outstanding rose to 87,571,984 at quarter-end from 76,402,958 at December 31, 2012; the filing reported 92,728,474 shares outstanding as of May 9, 2013.

Outlook, risks, contingencies and unusual items

• Going concern: Management reported substantial doubt about the company’s ability to continue as a going concern. It depended on new financing, debt-holder accommodations and potential partnerships; it said there was no certainty adequate funding could be secured. Management estimated approximately $5 million would be needed over 24 months, assuming one Phase I trial, and anticipated no sales revenue in the next 12 months.
• Clinical development: The filing says the Mayo Clinic HER2/neu breast-cancer Phase I trial was underway, with interim safety review of the first five patients reported successful. Management expected interim data in the following months. The company also described ongoing preclinical infectious-disease work and plans to pursue grant funding and strategic partners. These are forward-looking plans, not assured outcomes.
• Debt defaults: The company disclosed defaults on secured February 2011 notes following missed amortization payments, with 20% default interest accruing. It also disclosed an October 2012 note default related to a late annual report filing; management said it expected to cure that default concurrent with the filing. Some short-term notes were overdue or in default.
• License and contractual exposure: TapImmune had accrued approximately $443,535 under its amended Crucell agreement and was delinquent on a payment; Crucell could cancel the agreement. Mayo-related clinical commitments included a stated cost cap of $841,000, with an initial $250,000 payment due after notice that the trial would commence. The filing also listed $660,599 of minimum research and consulting payments for 2013–2014.
• Capital structure and dilution: Convertible debt included conversion features linked in some cases to discounted market prices. At March 31, 23,058,744 options and warrants were outstanding; the filing estimated about $6.518 million of proceeds if all were exercised, but exercise was at holders’ discretion and not assured. Debt conversions and warrant exercises contributed to share issuance and settlement losses.
• Other risks: Management disclosed unfiled income-tax returns in certain jurisdictions, with potential penalties and interest not reliably measurable. Disclosure controls and procedures were deemed ineffective; management also described material weaknesses in internal controls, including inadequate segregation of duties, written procedures and oversight.
• Scientific, regulatory and commercial risks: Development depended on successful clinical and preclinical results, regulatory approvals, patent protection, financing and partnerships. The company faced competition from better-resourced pharmaceutical and biotechnology firms.

Important facts for investors to verify

1. Confirm that this TapImmune 2013 filing is the intended filing for the company identified in the request as Marker Therapeutics.
2. Verify current cash runway, financing needs, subsequent financings and the status of debt defaults, repayment terms and any creditor accommodations.
3. Check the status and results of the Mayo HER2/neu trial, related funding commitments, and any required license or research payments.
4. Assess potential dilution and conversion terms for outstanding notes, warrants and options, including the reported increase in shares outstanding after quarter-end.
5. Review the status of the Crucell license, tax filings, and remediation of the disclosed ineffective controls and material weaknesses.