Business context and reporting period
This Form 10-Q covers the three months ended March 31, 2012. The filing identifies the registrant as TapImmune Inc. (and its subsidiaries), a development-stage biotechnology company; it does not identify Marker Therapeutics, Inc. as the registrant. TapImmune reported no marketed products or revenue and focused on developing TAP-based cancer and infectious-disease vaccine technologies.
Financial results and position
- Revenue and margins: No revenue was reported for Q1 2012 or Q1 2011. Gross margin is not applicable based on the information presented.
- Loss and expenses: Net loss was $598,572, or $0.01 per share, compared with a restated net loss of $1,267,643, or $0.03 per share, in Q1 2011. Operating expenses were $671,781 versus $1,100,351. Lower interest and financing charges and stock-based management fees contributed to the reduced loss; general and administrative and research and development costs increased.
- Cash flow: Operating cash use was $332,383 versus $404,418 in Q1 2011. Financing provided $105,900, principally from share issuance and related-party advances; investing cash flow was zero. Cash fell by $226,483 during the quarter, from $250,234 to $23,751.
- Liquidity and debt: Current assets were $66,310 and current liabilities were $3,700,269, including a $1,246,772 derivative warrant liability. The company reported a $2,387,187 working-capital deficit excluding derivative liabilities. Convertible notes had a carrying value of $1,048,164; other listed obligations included a $100,000 promissory note, $7,000 in loans payable, and $293,805 due to related parties. Stockholders’ deficit was $3,605,495.
- Capitalization: 54,329,906 common shares were outstanding at March 31, 2012; the filing reported 56,263,239 as of May 1, 2012. It also reported 6,278,000 options and 11,886,623 warrants outstanding at quarter-end.
Material changes versus the prior comparable period
- Net loss improved by about $669,000 and operating cash use declined by about $72,000 year over year. Financing cash provided fell from $418,435 to $105,900.
- General and administrative expense rose from $5,119 to $141,890, and research and development expense rose from $51,422 to $115,465. Interest and financing charges fell from $356,710 to $96,726; stock-based management fees fell from $301,134 to $29,563.
- The Q1 2011 comparative statements were restated for warrant accounting. Warrants with contingent cash-settlement provisions were reclassified from equity to derivative liabilities, with fair-value changes recorded in earnings. The restatement increased Q1 2011 net loss by $138,263; it did not change reported operating cash flow.
Outlook, risks, contingencies and unusual items
- Management anticipated no sales revenue in the next 12 months and said significant additional financing was necessary. It estimated approximately $5 million of expenditures over the next 24 months, assuming one Phase I trial. Management stated that inability to raise significant equity funding within 12 months could jeopardize the company’s ability to continue as a going concern; the filing says substantial doubt exists.
- Management described plans to raise capital, restructure or convert debt, reduce costs, and pursue partnerships. It cautioned that funding and creditor accommodations were not assured.
- The company was delinquent on payments under its amended Crucell license, with $303,513 accrued; Crucell had the right to cancel, and negotiations over revised payment terms were uncertain. A $100,000 promissory note was past due and in default, with settlement being renegotiated.
- Management anticipated Mayo Clinic Phase I HER2/neu trial patient dosing in June 2012 following FDA authorization and May 4, 2012 IRB approval. Elsewhere, the filing says the trial “has now started”; the timing is not consistent within the filing. Mayo-related research and clinical commitments were subject to stated conditions, including FDA approval and commencement.
- Management reported ineffective disclosure controls and ineffective internal controls over financial reporting, citing material weaknesses in oversight, segregation of duties, written accounting procedures, and period-end reporting controls. The company had also restated comparative financial statements for warrant accounting.
- Potential tax penalties and interest could arise because income tax returns had not been filed for several years in certain operating jurisdictions; the company said it could not reliably estimate any provision. No legal proceedings were reported.
- Subsequent events included April 2012 issuances of 933,333 shares for previously received private-placement proceeds and 1,000,000 shares to a consultant.
Important facts for investors to verify
- Confirm the registrant’s identity and the filing’s applicability: this document names TapImmune Inc., not Marker Therapeutics, Inc.
- Assess near-term liquidity, financing plans, debt maturities/defaults, and the going-concern warning against subsequent financing developments.
- Verify the status and start date of the Mayo HER2/neu trial, associated funding requirements, and progress toward clinical-grade manufacturing and other preclinical work.
- Review Crucell license status and negotiations, as well as settlement of the defaulted promissory note.
- Evaluate the assumptions and potential cash-settlement exposure underlying the Level 3 derivative warrant liability, and the remediation of reported control weaknesses.