UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
x | Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2015 |
¨ | Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to . |
Commission File Number: 000-27239
TAPIMMUNE INC.
(Name of registrant in its charter)
NEVADA | 88-0277072 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
50 N. Laura Street, Suite 2500 Jacksonville, FL 32202 |
98102 | |
(Address of principal executive offices) | (Zip Code) |
(206) 504 7267
(Issuers telephone number)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company. See definition of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of August 14, 2015, the Company had 46,140,771 shares of common stock issued and outstanding.
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-Q/A (the Form 10-Q/A) to the Quarterly Report on Form 10-Q for TapImmune Inc. (we or the Company) for the quarterly period ended June 30, 2015, initially filed with the Securities and Exchange Commission (the SEC) on August 14, 2015 (the Original Filing), is being filed to restate accounting for the share purchase warrants and recording the fair value of the warrants under Derivative liability- warrants on its balance sheet with changes in the fair value over time reflected in the statements of operations as Changes in fair value of derivative liabilities. The restatement of the Companys accounting for the share purchase warrants arose after a review by the Companys management.
As a result, the Board of Directors of the Company has determined that the Companys previously issued consolidated unaudited financial statements and reports filed with the SEC for the quarterly period ended June 30, 2015 should not be relied upon. For a more detailed description of the effects of the restatement, see further discussion in Note 1A, Amendment to Previously Reported Quarterly Financial Statements to our consolidated financial statements included in Part I, Item 1 of this report.
For the convenience of the reader, this Form 10-Q/A sets forth the Original Filings in their entirety. However, this Form 10-Q/A only amends and restates Items 1 and 2 of Part I of the Original Filing, in each case, solely as a result of, and to reflect, the restatement, and no other information in the Original Filing is amended hereby. The foregoing items have not been updated to reflect other events occurring after the Original Filings or to modify or update those disclosures affected by subsequent events. In addition, pursuant to the rules of the SEC, Item 6 of Part II of the Original Filings has been amended to contain currently dated certifications from the Companys Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, and are attached as Exhibits 31.1 and 32.1 to this report. We have also updated our financial statements formatted in Extensible Business Reporting Language (XBRL) in Exhibits 101.
Except for the foregoing amended information, this Form 10-Q/A continues to speak as of the dates of the Original Filings, and the Company has not updated the disclosures contained herein to reflect events that occurred at a later date. Other events occurring after the filings of the Original Filings or other disclosures necessary to reflect subsequent events will be addressed in any reports filed with the SEC subsequent to the date of this filing.
2
PART I FINANCIAL INFORMATION
Item 1. | Financial Statements |
Description |
Page | |||
Condensed Interim Financial Statements |
||||
Condensed Consolidated Balance Sheets as of June 30, 2015 (Unaudited) and December 31, 2014 |
4 | |||
5 | ||||
6 | ||||
7 | ||||
Unaudited Notes to Condensed Consolidated Financial Statements |
9 |
3
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2015 As Restated |
December 31, 2014 |
|||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets |
||||||||
Cash |
$ | 3,105,320 | $ | 141,944 | ||||
Prepaid expenses and deposits |
142,590 | 82,504 | ||||||
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$ | 3,247,910 | $ | 224,448 | |||||
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LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) | ||||||||
Current Liabilities |
||||||||
Accounts payable and accrued liabilities |
$ | 842,682 | $ | 693,362 | ||||
Research agreement obligations |
492,365 | 492,365 | ||||||
Derivative liability warrants |
69,962,000 | 9,415 | ||||||
Promissory notes |
52,942 | 52,942 | ||||||
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71,349,989 | 1,248,084 | |||||||
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COMMITMENTS AND CONTINGENCIES |
||||||||
Stockholders Equity (Deficit) |
||||||||
Convertible preferred stock, $0.001 par value 10,000,000 shares authorized: |
||||||||
Series A, $0.001 par value, 1,250,000 shares designated, -0- shares issued and outstanding as of June 30, 2015 and December 31, 2014 |
| | ||||||
Series B, $0.001 par value, 1,500,000 shares designated, -0- shares issued and outstanding as of June 30, 2015 and December 31, 2014 |
| | ||||||
Common stock, $0.001 par value, 500,000,000 shares authorized 38,038,921 shares issued and outstanding (2014 20,318,815) |
38,039 | 20,319 | ||||||
Additional paid-in capital |
92,218,937 | 85,265,776 | ||||||
Accumulated deficit |
(160,359,055 | ) | (86,309,731 | ) | ||||
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|
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(68,102,079 | ) | (1,023,636 | ) | |||||
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$ | 3,247,910 | $ | 224,448 | |||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2015 As Restated |
2015 As Restated |
|||||||||||||||
2014 | 2014 | |||||||||||||||
Operating expenses: |
||||||||||||||||
General and administrative |
$ | 936,887 | $ | 488,427 | $ | 1,355,673 | $ | 1,687,794 | ||||||||
Research and development |
201,157 | 22,500 | 810,535 | 45,000 | ||||||||||||
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Loss from Operations |
(1,138,044 | ) | (510,927 | ) | (2,166,208 | ) | (1,732,794 | ) | ||||||||
Other Income (Expense) |
||||||||||||||||
Accretion of interest on convertible debt |
| (8,660 | ) | | (492,296 | ) | ||||||||||
Changes in fair value of derivative liabilities |
(59,079,025 | ) | 352,834 | (58,751,585 | ) | 14,537 | ||||||||||
Foreign exchange |
775 | | 775 | | ||||||||||||
Gain (loss) on settlement of debt |
| 920,233 | | (26,743,197 | ) | |||||||||||
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Net Income (Loss) for the Period |
$ | (60,216,294 | ) | $ | 753,480 | $ | (60,917,018 | ) | $ | (28,953,750 | ) | |||||
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Other comprehensive income (loss) |
||||||||||||||||
Foreign exchange translation adjustment |
| 1,042 | | (207 | ) | |||||||||||
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TOTAL COMPREHENSIVE INCOME (LOSS) |
$ | (60,216,294 | ) | $ | 754,522 | $ | (60,917,018 | ) | $ | (28,953,957 | ) | |||||
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Basic and Diluted Net Income (Loss) per Share |
$ | (1.80 | ) | $ | 0.05 | $ | (1.99 | ) | $ | (2.57 | ) | |||||
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Weighted Average Number of Common Shares Outstanding |
33,525,656 | 15,523,016 | 30,584,794 | 11,250,240 | ||||||||||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT)
AS RESTATED
Additional | ||||||||||||||||||||
Common Stock | Paid In | Accumulated | ||||||||||||||||||
Number of shares |
Amount $ |
Capital $ |
Deficit $ |
Total $ |
||||||||||||||||
Balance, December 31, 2014 |
20,318,816 | 20,319 | 85,265,776 | (86,309,731 | ) | (1,023,636 | ) | |||||||||||||
Private placement (net of finders fee of $140,000) |
12,319,995 | 12,320 | 2,313,694 | | 2,326,014 | |||||||||||||||
Fair value of warrants recognized as derivative liabilities in January and March 2015 Financing |
| | (2,313,694 | ) | (6,999,306 | ) | (9,313,000 | ) | ||||||||||||
Fair value of warrants issued on May 28, 2015 |
| | | (6,133,000 | ) | (6,133,000 | ) | |||||||||||||
Exercise of warrants |
5,000,000 | 5,000 | 2,495,000 | | 2,500,000 | |||||||||||||||
Reclassification of derivative warrant liabilities to equity at exercise date |
| | 4,245,000 | | 4,245,000 | |||||||||||||||
Finders fee on exercise of warrants |
| | (35,000 | ) | | (35,000 | ) | |||||||||||||
Stock- based compensation |
400,110 | 400 | 248,161 | | 248,561 | |||||||||||||||
Net loss |
| | | (60,917,018 | ) | (60,917,018 | ) | |||||||||||||
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Balance, June 30, 2015 |
38,038,921 | 38,039 | 92,218,937 | (160,359,055 | ) | (68,102,079 | ) | |||||||||||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30, 2015 As Restated |
Six Months Ended June 30, 2014 |
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
Net loss |
$ | (60,917,018 | ) | $ | (28,953,750 | ) | ||
Adjustments to reconcile net loss to net cash from operating activities: |
||||||||
Changes in fair value of derivative liabilities |
58,751,585 | (14,537 | ) | |||||
Loss on extinguishment of debt |
| 26,743,197 | ||||||
Non-cash interest and finance charges |
| 492,296 | ||||||
Stock based compensation |
248,561 | 799,075 | ||||||
Changes in operating assets and liabilities: |
||||||||
Prepaid expenses |
(60,086 | ) | | |||||
Accounts payable and accrued liabilities |
149,320 | 322,277 | ||||||
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NET CASH USED IN OPERATING ACTIVITIES |
(1,827,638 | ) | (611,442 | ) | ||||
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CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
Issuance of shares, net of issuance costs of $173,000 |
2,326,014 | 583,000 | ||||||
Proceeds from loans payable |
| 500 | ||||||
Proceeds from exercise of warrants |
2,500,000 | | ||||||
Finders fee on exercise of warrants |
(35,000 | ) | | |||||
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|
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NET CASH PROVIDED BY FINANCING ACTIVITIES |
4,791,014 | 583,500 | ||||||
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INCREASE (DECREASE) IN CASH |
2,963,376 | (27,942 | ) | |||||
CASH, BEGINNING OF PERIOD |
141,944 | 48,589 | ||||||
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CASH, END OF PERIOD |
$ | 3,105,320 | $ | 20,647 | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
7
TAPIMMUNE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2015 As Restated |
Six Months Ended June 30, 2014 |
|||||||
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES |
||||||||
Accounts payable settled in common stock |
$ | 231,000 | $ | 683,000 | ||||
Fair value of issuance of warrants in January and March 2015 financing |
9,313,000 | | ||||||
Issuance of additional warrants in May 28, 2015 transaction |
6,133,000 | | ||||||
Reclassification of derivative warrant liabilities to equity at exercise date |
4,245,000 | | ||||||
Conversion of debt obligations into common stock: |
||||||||
Accrued interest |
| 476,000 | ||||||
Convertible notes payable |
| 3,797,000 | ||||||
Loans payable, related party |
| 42,000 | ||||||
Promissory notes, related party |
| 210,000 | ||||||
Due to related parties |
| 369,000 | ||||||
Fair value derivative liability conversion option at conversion |
| 708,000 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(Unaudited)
NOTE 1: NATURE OF OPERATIONS
TapImmune Inc. (the Company), a Nevada corporation incorporated in 1992, is a biotechnology Company focusing on immunotherapy specializing in the development of innovative peptide and gene-based immunotherapeutics and vaccines for the treatment of oncology and infectious disease. Unlike other vaccine technologies that narrowly address the initiation of an immune response, TapImmunes approach broadly stimulates the cellular immune system by enhancing the function of killer T-cells and T-helper cells and by restoring antigen presentation in tumor cells allowing their recognition and killing by the immune system.
NOTE 1A: AMENDMENT TO PREVIOUSLY REPORTED QUARTERLY FINANCIAL STATEMENTS
The Companys previously issued consolidated financial statements for the three and six months ended June 30, 2015 have been restated related to the Companys accounting for share purchase warrants issued as part of two registered transactions in January 2015 and March 2015. Previously, the fair value of certain series of the share purchase warrants (Series B, B-1, C, C-1, D, D-1, E and E-1) was concluded by management to be classified within stockholders equity (deficit). The Company has reviewed the terms and conditions underlying its outstanding share purchase warrants and determined that the accounting for certain series of the warrants should be amended.
Management reviewed ASC 480-10 Distinguishing liabilities from equity and ASC 815-40 Contracts in an Entitys Own Equity to arrive at this conclusion that the common stock purchase warrants should be classified as a liability, not equity, as the Company cannot control their ability to gross settle the financial instruments with registered securities.
The Company has restated its accounting for certain series of the share purchase warrants and recorded the fair value of the warrants under Derivative liability- warrants on its balance sheet with changes in the fair value over time reflected in the statements of operations as Changes in fair value of derivative liabilities.
As a result of these adjustments, net loss for the three and six months ended June 30, 2015 was increased by $41,771,000 and $41,490,000, respectively. The Company has reported an amended net loss of $60,216,000 versus the previously reported net loss of approximately $18,446,000 for the three months ended June 30, 2015 and an amended net loss of $60,917,000 versus the previously reported net loss of approximately $19,427,000 for the six months ended June 30, 2015.
The following table summarizes the effect of the restatement on the consolidated statement of operations for the three and six months ended June 30, 2015:
9
TAPIMMUNE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2015 (Unaudited) | ||||||||||||
As Previously Reported |
Adjustments | As Restated | ||||||||||
ASSETS | ||||||||||||
Current Assets |
||||||||||||
Cash |
3,105,320 | | 3,105,320 | |||||||||
Prepaid expenses and deposits |
142,590 | | 142,590 | |||||||||
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3,247,910 | | 3,247,910 | ||||||||||
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LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) | ||||||||||||
Current Liabilities |
||||||||||||
Accounts payable and accrued liabilities |
842,682 | | 842,682 | |||||||||
Research agreement obligations |
492,365 | | 492,365 | |||||||||
Derivative liability warrants |
11,673,347 | 58,288,653 | 69,962,000 | |||||||||
Promissory notes |
52,942 | | 52,942 | |||||||||
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13,061,336 | 58,288,653 | 71,349,989 | ||||||||||
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COMMITMENTS AND CONTINGENCIES |
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Stockholders Equity (Deficit) |
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Convertible preferred stock, $0.001 par value 10,000,000 shares authorized: |
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Series A, $0.001 par value, 1,250,000 shares designated, -0- shares issued and outstanding as of March 31, 2015 and December 31, 2014 |
| | | |||||||||
Series B, $0.001 par value, 1,500,000 shares designated, -0- shares issued and outstanding as of March 31, 2015 and December 31, 2014 |
| | | |||||||||
Common stock, $0.001 par value, 500,000,000 shares authorized 32,638,811 shares issued and outstanding (2014 20,318,815) |
38,039 | | 38,039 | |||||||||
Additional paid-in capital |
95,885,631 | (3,666,694 | ) | 92,218,937 | ||||||||
Accumulated deficit |
(105,737,096 | ) | (54,621,959 | ) | (160,359,055 | ) | ||||||
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(9,813,426 | ) | (58,288,653 | ) | (68,102,079 | ) | |||||||
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3,247,910 | | 3,247,910 | ||||||||||
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10
TAPIMMUNE INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
Three Months Ended June 30, 2015 | ||||||||||||
As Previously Reported |
Adjustments | As Restated | ||||||||||
Operating expenses: |
||||||||||||
General and administrative |
936,887 | | 936,887 | |||||||||
Research and development |
201,157 | | 201,157 | |||||||||
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Loss from Operations |
(1,138,044 | ) | | (1,138,044 | ) | |||||||
Other Income (Expense) |
||||||||||||
Changes in fair value of derivative liabilities |
(9,052,372 | ) | (50,026,653 | ) | (59,079,025 | ) | ||||||
Foreign exchange |
775 | | 775 | |||||||||
Inducement expense |
(8,256,000 | ) | 8,256,000 | - | ||||||||
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Net Loss for the Period |
(18,445,641 | ) | (41,770,653 | ) | (60,216,294 | ) | ||||||
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Other comprehensive income |
||||||||||||
Foreign exchange translation adjustment |
| | | |||||||||
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TOTAL COMPREHENSIVE LOSS |
(18,445,641 | ) | (41,770,653 | ) | (60,216,294 | ) | ||||||
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Basic and Diluted Net Loss per Share |
(0.55 | ) | (1.25 | ) | (1.80 | ) | ||||||
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Weighted Average Number of Common Shares Outstanding |
33,525,656 | 33,525,656 | 33,525,656 | |||||||||
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11
TAPIMMUNE INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
Six Months Ended June 30, 2015 | ||||||||||||
As Previously Reported |
Adjustments | As Restated | ||||||||||
Operating expenses: |
||||||||||||
General and administrative |
1,355,673 | | 1,355,673 | |||||||||
Research and development |
810,535 | | 810,535 | |||||||||
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Loss from Operations |
(2,166,208 | ) | | (2,166,208 | ) | |||||||
Other Income (Expense) |
||||||||||||
Changes in fair value of derivative liabilities |
(9,005,932 | ) | (49,745,653 | ) | (58,751,585 | ) | ||||||
Foreign exchange |
775 | | 775 | |||||||||
Inducement expense |
(8,256,000 | ) | 8,256,000 | | ||||||||
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Net Loss for the Period |
(19,427,365 | ) | (41,489,653 | ) | (60,917,018 | ) | ||||||
Other comprehensive income |
||||||||||||
Foreign exchange translation adjustment |
| | | |||||||||
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TOTAL COMPREHENSIVE LOSS |
(19,427,365 | ) | (41,489,653 | ) | (60,917,018 | ) | ||||||
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Basic and Diluted Net Loss per Share |
(0.64 | ) | (1.36 | ) | (1.99 | ) | ||||||
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Weighted Average Number of Common Shares Outstanding |
30,584,794 | 30,584,794 | 30,584,794 | |||||||||
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12
TAPIMMUNE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30, 2015 |
||||||||||||
As Previously Reported |
Adjustments | As Restated | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||||||
Net loss |
(19,427,365 | ) | (41,489,653 | ) | (60,917,018 | ) | ||||||
Adjustments to reconcile net loss to net cash from operating activities: |
||||||||||||
Changes in fair value of derivative liabilities |
9,005,932 | 49,745,653 | 58,751,585 | |||||||||
Inducement expense |
8,256,000 | (8,256,000 | ) | | ||||||||
Non-cash interest and finance charges |
| | | |||||||||
Stock based compensation |
248,561 | | 248,561 | |||||||||
Changes in operating assets and liabilities: |
||||||||||||
Prepaid expenses |
(60,086 | ) | | (60,086 | ) | |||||||
Accounts payable and accrued liabilities |
149,320 | | 149,320 | |||||||||
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NET CASH USED IN OPERATING ACTIVITIES |
(1,827,638 | ) | | (1,827,638 | ) | |||||||
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CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||||||
Issuance of shares, net of issuance costs of $173,000 |
2,291,014 | 35,000 | 2,326,014 | |||||||||
Proceeds from exercise of warrants |
2,500,000 | 2,500,000 | ||||||||||
Finders fee on exercise of warrants |
| (35,000 | ) | (35,000 | ) | |||||||
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NET CASH PROVIDED BY FINANCING ACTIVITIES |
4,791,014 | | 4,791,014 | |||||||||
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INCREASE IN CASH |
2,963,376 | | 2,963,376 | |||||||||
CASH, BEGINNING OF PERIOD |
141,944 | | 141,944 | |||||||||
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CASH, END OF PERIOD |
3,105,320 | | 3,105,320 | |||||||||
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NOTE 2: BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (SEC) and on the same basis as the Company prepares its annual audited consolidated financial statements. The condensed consolidated balance sheet as of June 30, 2015, condensed consolidated statements of interim financials include all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The results for the statement of operations are not necessarily indicative of results to be expected for the year ending December 31, 2015 or for any future interim period. The condensed balance sheet at December 31, 2014 has been derived from audited financial statements; however, it does not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying condensed financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2014, and notes thereto included in the Companys annual report on Form 10-K.
NOTE 3: LIQUIDITY AND FINANCIAL CONDITION
The Companys activities since inception have consisted principally of acquiring product and technology rights, raising capital, and performing research and development. Successful completion of the Companys development programs and, ultimately, the attainment of profitable operations are dependent on future events, including, among other things, its ability to access potential markets; secure financing, develop a customer base; attract, retain and motivate qualified personnel; and develop strategic alliances. From inception, the Company has been funded by a combination of equity and debt financings.
13
The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute its business plan, the Company will need to complete certain research and development activities and clinical studies. Further, the Companys product candidates will require regulatory approval prior to commercialization. These activities may span many years and require substantial expenditures to complete and may ultimately be unsuccessful. Any delays in completing these activities could adversely impact the Company. The Company plans to meet its capital requirements primarily through issuances of debt and equity securities and, in the longer term, revenue from product sales.
As of June 30, 2015, the Company had cash and cash equivalents of approximately $3,105,000. Historically, the Company has net losses and negative cash flows from operations. The Company believes its current capital resources are not sufficient to support its operations. Management intends to continue its research efforts and to finance operations of the Company through debt and/or equity financings. Management plans to seek additional debt and/or equity financing through private or public offerings or through a business combination or strategic partnership. There can be no assurance that the Company will be successful in obtaining additional financing on favorable terms, or at all. These matters raise substantial doubt about the Companys ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
14
NOTE 4: SIGNIFICANT ACCOUNTING POLICIES
There have been no material changes in the Companys significant accounting policies to those previously disclosed in the Companys annual report on Form 10-K, which was filed with the SEC on April 15, 2015.
Prior Period Reclassifications
The expense categories of the comparable prior period have been reclassified for comparability with the June 30, 2015 presentation. These reclassifications had no effect on previously reported net loss.
NOTE 5: POTENTIALLY DILUTIVE SECURITIES
Options, warrants, and convertible debt outstanding were all considered anti-dilutive for the six months ended June 30, 2015 and 2014, due to net losses.
The following securities were not included in the diluted net loss per share calculation because their effect was anti-dilutive as of the periods presented:
June 30, | ||||||||
2015 | 2014 | |||||||
Common stock options |
465,000 | 65,000 | ||||||
Common stock warrants - equity treatment |
2,556,000 | 185,000 | ||||||
Common stock warrants - liability treatment |
81,834,000 | 49,000 | ||||||
Convertible notes |
| 7,000 | ||||||
|
|
|
|
|||||
Potentially dilutive securities |
84,855,000 | 306,000 | ||||||
|
|
|
|
NOTE 6: DERIVATIVE LIABILITY - WARRANTS AND DERIVATIVE LIABILITY CONVERSION OPTION, AS RESTATED
A summary of quantitative information with respect to valuation methodology and significant unobservable inputs used for the Companys common stock purchase warrants that are categorized within Level 3 of the fair value hierarchy for the six months ended 2015 and 2014 is as follows:
Share Purchase Warrants |
Weighted Average Inputs for the Period | |||||||
Date of valuation |
For the Six Months Ending June 30, 2015 |
For the Six Months Ending June 30, 2014 |
||||||
Fair market value of stock |
$ | 0.96 | $ | 0.02 | ||||
Strike price |
$ | 0.50 | $ | 5.84 | ||||
Volatility (annual) |
148.00 | % | 159.00 | % | ||||
Risk-free rate |
1.1 | % | 1.08 | % | ||||
Contractual term (years) |
3.2 | 3.58 | ||||||
Dividend yield (per share) |
0 | % | 0 | % |
The foregoing assumptions are reviewed quarterly and are subject to change based primarily on managements assessment of the probability of the events described occurring. Accordingly, changes to these assessments could materially affect the valuations.
15
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
Financial assets and liabilities measured at fair value on a recurring basis are summarized below and disclosed on the balance sheet under Derivative liability warrants:
As of June 30, 2015 | ||||||||||||||||||||
Fair Value Measurements | ||||||||||||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Derivative liability - warrants |
$ | 69,962,000 | | | $ | 69,962,000 | $ | 69,962,000 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 69,962,000 | | | $ | 69,962,000 | $ | 69,962,000 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
As of December 31, 2014 | ||||||||||||||||||||
Fair Value Measurements | ||||||||||||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Derivative liability - warrants |
$ | 9,000 | | | $ | 9,000 | $ | 9,000 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 9,000 | | | $ | 9,000 | $ | 9,000 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
There were no transfers between Level 1, 2 or 3 during the three months ended June 30, 2015.
The following table presents changes in Level 3 liabilities measured at fair value for the six months ended June 30, 2015:
Derivative liability warrants | ||||
Balance December 31, 2014 |
$ | 9,000 | ||
Additions during the period |
15,446,000 | |||
Exercise of warrants |
(4,245,000 | ) | ||
Change in fair value of warrant liability |
58,752,000 | |||
|
|
|||
Balance June 30, 2015 |
$ | 69,962,000 | ||
|
|
The valuation of warrants is subjective and is affected by changes in inputs to the valuation model including the price per share of common stock, the historical volatility of the stock price, risk-free rates based on U.S. Treasury security yields, the expected term of the warrants and dividend yield. Changes in these assumptions can materially affect the fair value estimate. The Company could ultimately incur amounts to settle the warrant at a cash settlement value that is significantly different than the carrying value of the liability on the financial statements. The Company will continue to classify the fair value of the warrants as a liability until the warrants are exercised, expire, or are amended in a way that would no longer require these warrants to be classified as a liability. Changes in the fair value of the common stock warrants liability are recognized as a component of other income (expense) in the Statements of Operations.
16
During 2014 the Company entered into numerous extinguishment agreements with various holders. As a result the derivative liability associated with the bifurcated conversion options were extinguished at the date of conversion and recorded in the loss on extinguishment in the Statement of Operations. The inputs utilized in the final mark to market were as follows:
Conversion Option |
Weighted Average Inputs for the Period | |||||||
Date of valuation |
For the Quarter Ending June 30, 2015 |
For the Quarter Ending June 30, 2014 |
||||||
Strike price |
$ | | $ | 1.03 | ||||
Volatility (annual) |
| % | 199.00 | % | ||||
Risk-free rate |
| % | 0.05 | % | ||||
Contractual term (years) |
| 0.24 | ||||||
Dividend yield (per share) |
| % | | % | ||||
|
|
|
|
|||||
Fair value of Conversion Option at extinguishment |
$ | | $ | 708,000 | ||||
|
|
|
|
NOTE 7: PROMISSORY NOTES, RELATED PARTY
The Company has outstanding promissory notes in the amount of $52,942 (December 31, 2014 - $52,942), of which $23,000 of promissory notes are from an officer and a director of the Company. The promissory notes bear no interest charges and have no fixed repayment terms.
NOTE 8: CAPITAL STOCK, AS RESTATED
2015 Share Transactions
Private placements
In January, 2015, the Company entered into a Securities Purchase Agreement with certain investors for the sale of 7,320,000 units at a purchase price of $0.20 per unit, for a total purchase price of approximately $1,250,000, net of finders fee and offering expenses of approximately $214,000. Each unit consisting of (i) one share of the Companys Common Stock, (ii) one Series A warrant to purchase one share of common stock, (iii) one Series B warrant to purchase one share of common stock (iv) one Series C warrant to purchase one share of common stock, (v) one Series D warrant to purchase one share of common stock, and (vi) one Series E warrant to purchase one share of common stock (the Series A, B, C, D and E warrants are hereby collectively referred to as the January 2015 Warrants). Series A warrants are exercisable at $1.50 per share, with a five year term. Series B warrants are exercisable at $0.40 per share, with a six month term. Series C warrants are exercisable at $1.00 per share, with a five year term. Series D warrants are exercisable at $0.75 per share only if and to the extent that the Series B warrants are exercised, with a five year term from the date that the Series B warrants are exercised. Series E warrants are exercisable at $1.25 per share, only if and to the extent that the Series C warrants are exercised, with a five year term from the date that the Series C warrants are exercised.
Pursuant to a placement agent agreement, the Company agreed to issue warrants to purchase 366,000 common shares with substantially the same terms as the January 2015 Warrants.
In March, 2015, the Company entered into a Securities Purchase Agreement with certain accredited investors for the sale of 5,000,000 units at a purchase price of $0.20 per unit, for a total purchase price of approximately $950,000, net of finders fee and offering expenses of approximately $50,000. Each unit consisting of (i) one share of the Companys Common Stock, (ii) one Series A warrant to purchase one share of common stock, (iii) one Series B warrant to purchase one share of common stock (iv) one Series C warrant to purchase one share of common stock, (v) one Series D warrant to purchase one share of common stock, and (vi) one Series E warrant to purchase one share of common stock (the Series A, B, C, D and E warrants are hereby collectively referred to as the March 2015 Warrants). The March 2015 Warrants have substantially the same terms as the January 2015 Warrants.
Pursuant to a placement agent agreement, the Company agreed to issue warrants to purchase 125,000 common shares with substantially the same terms as the March 2015 Warrants.
Initial Fair Value of Warrants Issued
Pursuant to ASC 480-10 Distinguishing liabilities from equity and ASC 815-40 Contracts in an Entitys Own Equity, the common stock purchase warrants are classified as a derivative liability as the Company cannot control their ability to gross settle the financial instruments with registered securities. The fair value of the warrants issued pursuant to the January and March 2015 stock purchase agreement was $9,313,000. The weighted average inputs include contractual term of 5.0 years, volatility of 158% and risk free rate of 1.2%.
17
May 2015 Restructuring agreement
In May 2015, the Company entered into a restructuring agreement with the investors of the January 2015 and March 2015 private placements, where:
| The exercise price of the Series A warrants was changed from $1.50 per warrant to $0.10 per warrant, |
| The exercise price of Series B warrants was changed from $0.40 per warrant to $0.20 per warrant, |
| Each warrant of Series B existing prior to the restructuring agreement was replaced with two warrants of such series, |
| The exercise price of the Series C warrants was changed from $1.00 per warrant to $0.50 per warrant, and |
| Each warrant of Series C existing prior to the restructuring agreement was replaced with two warrants of such series. |
As a result of the restructuring agreement, the Company issued an additional 12,320,000 Series B warrants and 12,320,000 Series C Warrants. The fair value of the warrants issued pursuant to the May 2015 restructuring agreement was $6,133,000.
The weighted average inputs include contractual term of 2.46 years, volatility of 141% and risk free rate of 1.5%.
Share Purchase Warrants
During the six months ended June 30, 2015, a warrant holder exercised 5,000,000 of Series C warrants at $0.50 per warrant for a total of $2,500,000.
A summary of the Companys share purchase warrants as of June 30, 2015 and changes during the period is presented below:
Number of Warrants |
Weighted Average Exercise Price |
Weighted Average Remaining Life |
||||||||||
Balance, December 31, 2014 |
2,659,417 | 1.83 | 4.15 | |||||||||
Issued |
86,730,975 | 0.54 | 3.25 | |||||||||
Exercised |
(5,000,000 | ) | 0.50 | | ||||||||
Extinguished or expired |
(7,500 | ) | 50.00 | | ||||||||
|
|
|
|
|
|
|||||||
Balance, June 30, 2015 |
84,382,892 | $ | 0.54 | 3.26 | ||||||||
|
|
|
|
|
|
Stock Compensation Plan
On October 14, 2009, the Company adopted the 2009 Stock Incentive Plan (the 2009 Plan) which supersedes and replaces the 2007 Stock Plan. The 2009 Plan allows for the issuance of up to 10,000,000 common shares. Options granted under the Plan shall be at prices and for terms as determined by the Board of Directors.
On February 10, 2015, the Company granted 250,000 stock options at an exercise price of $0.145 per share, of which, 33,333 vested on May 31, 2015 and the remaining vesting monthly over a nine month period, to a consultant of the Company. The term of the options is five years. The fair value of the new grant was estimated at $33,000, or $0.133 per option, using the Black-Scholes Option Pricing Model with a risk free interest rate of 1.52%, a dividend yield of 0%, volatility of 154.6%, and life of 5 years. The expensed portion of the value of these options during the six months ended June 30, 2015 was $7,635, which was recorded as stock based consultant compensation.
On March 6, 2015, the Company granted 150,000 stock options at an exercise price of $0.20 per share, vesting monthly over a twenty four month period, to a director of the Company. The term of the options is five years. The fair value of the new grant was estimated at $29,000, or $0.194 per option, using the Black-Scholes Option Pricing Model with a risk free interest rate of 1.70%, a dividend yield of 0%, volatility of 155.2%, and life of 5 years. The expensed portion of the value of these options during the six months ended June 30, 2015 was $4,850, which was recorded as stock based management compensation.
Share purchase options
A summary of the Companys stock options as of June 30, 2015 and changes during the period is presented below:
Number of Options |
Weighted Average Exercise Price |
Weighted Average Remaining Life |
||||||||||
Balance, December 31, 2013 |
65,430 | 18.00 | 5.04 | |||||||||
Issued |
| | | |||||||||
Cancelled/Forfeited |
| | | |||||||||
|
|
|
|
|
|
|||||||
Balance, December 31, 2014 |
65,430 | 18.00 | 4.04 |
18
Number of Options |
Weighted Average Exercise Price |
Weighted Average Remaining Life |
||||||||||
Issued |
400,000 | 0.17 | 4.64 | |||||||||
|
|
|
|
|
|
|||||||
Balance, June 30, 2015 |
465,430 | $ | 2.62 | 4.49 | ||||||||
|
|
|
|
|
|
At June 30, 2015, the intrinsic value of the vested options was equal to $66,000 (2014 - $nil).
A summary of the status of the Companys unvested options as of June 30, 2015 is presented below:
Number of Shares |
Weighted Average Grant-Date Fair Value |
|||||||
Unvested, December 31, 2014 |
278 | $ | 18.00 | |||||
Granted |
400,000 | 0.16 | ||||||
Vested |
(82,685 | ) | 0.21 | |||||
Cancelled |
| | ||||||
|
|
|
|
|||||
Unvested, June 30, 2015 |
317,593 | $ | 0.16 | |||||
|
|
|
|
NOTE 9: SUBSEQUENT EVENTS
1. | Between July 16, 2015 and August 13, 2015, holders of the Series B warrant exercised 7,890,000 of the Series B Warrants registered under our recent registration statements on Form S-1 resulting in proceeds of $1,578,000 to the Company. |
2. | On July 21, 2015, the Company entered into a License and Assignment Agreement with the Mayo Foundation for Medical Education and Research (Mayo Foundation) pursuant to which we acquired certain intellectual property rights from the Mayo Foundation for the development and commercialization of certain products, methods and processes property relating to a folate receptor alpha immunotherapeutic vaccine comprised of a set of unique peptide epitopes targeting breast, lung and ovarian cancer. The Mayo Foundation granted us a license (with a right to sublicense) on a worldwide basis to make, sell and use products for therapeutic use against breast, ovarian, lung and other cancers that express folate receptor alpha. This license is an exclusive license for products that are based on the intellectual property and non-exclusive for products that are based on Mayo Foundation knowhow and materials. The intellectual property that is being licensed includes (i) U.S. patent application numbers 12/303,054 and 13/202,236, (ii) U.S. patent number 8,486,412 and 8,858,952 and provisionals, (iii) divisionals including 13/917,410 and (iv) continuations including 14/484,057. |
3. | On July 31, 2015, the Company issued to its counsel 118,450 shares of common stock for legal services rendered through January 21, 2015. Such shares were authorized to be issued on January 23, 2015, but were not issued until July 31, 2015. |
4. | On August 10, 2015, the Company issued 50,000 shares of common stock as full settlement of a dispute with a marketing consultant that provided services to the Company in 2014 and 2015. |
19
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended, that involve risks and uncertainties. All statements other than statements relating to historical matters including statements to the effect that we believe, expect, anticipate, plan, target, intend and similar expressions should be considered forward-looking statements. Our actual results could differ materially from those discussed in the forward-looking statements as a result of a number of important factors, including factors discussed in this section and elsewhere in this quarterly report on Form 10-Q, and the risks discussed in our other filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect managements analysis, judgment, belief or expectation only as the date hereof. We assume no obligation to update these forward-looking statements to reflect events or circumstance that arise after the date hereof.
As used in this quarterly report: (i) the terms we, us, our, TapImmune and the Company mean TapImmune Inc. and its wholly owned subsidiary, GeneMax Pharmaceuticals Inc. which wholly owns GeneMax Pharmaceuticals Canada Inc., unless the context otherwise requires; (ii) SEC refers to the Securities and Exchange Commission; (iii) Securities Act refers to the Securities Act of 1933, as amended; (iv) Exchange Act refers to the Securities Exchange Act of 1934, as amended; and (v) all dollar amounts refer to United States dollars unless otherwise indicated.
The following should be read in conjunction with our unaudited consolidated interim financial statements and related notes for the three months ended June 30, 2015 included in this quarterly report, as well as our Annual Report on Form 10-K for the year ended December 31, 2014.
Company Overview
Our Cancer Vaccines
TapImmune is a biotechnology company focusing on immunotherapy specializing in the development of innovative peptide and gene-based immunotherapeutics and vaccines for the treatment of cancer and infectious disease. The Company combines a set of proprietary technologies to improve the ability of the cellular immune system to destroy diseased cells. These are peptide antigen technologies and DNA expression technologies, Polystart and TAP.
To enhance shareholder value and taking into account development timelines, the Company plans to focus on advancing its clinical programs including our HER2/neu peptide antigen program and our Folate Receptor Alpha program for breast and ovarian trials into Phase II. In parallel, we plan to complete the preclinical development of our Polystart technology and to continue to develop the TAP-based franchise as an integral component of our prime-and-boost vaccine methodology.
The Immunotherapy Industry for Cancer
Immunotherapy has become the most rapidly growing sector in the pharmaceutical and biotech industry. The approval and success of checkpoint inhibitors Yervoy and Opdivo (Bristol Myers Squibb) and Keytruda (Merck) together with the development of CAR T-cell therapies (Juno, Kite) has provided much momentum in this sector. In addition, new evidence points to the increasing use of combination immunotherapies for the treatment of cancer. This has provided greater opportunities for the successful development of T-cell vaccines in combination with other approaches.
Products and Technology in Development
Clinical
Phase I Human Clinical Trials HER2/neu+ Breast Cancer Mayo Clinic
Patient dosing has been completed. Final safety analysis on all the patients treated is complete and shown to be safe. In addition, 19 out of 20 evaluable patients showed robust T-cell immune responses to the antigens in the vaccine composition providing a solid case for advancement to Phase II in 2015. An additional secondary endpoint incorporated into this Phase I Trial will be a two year follow on recording time to disease recurrence in the participating breast cancer patients.
For Phase I(b)/II studies, we plan to add a Class I peptide, licensed from the Mayo Clinic (April 16, 2012), to the four Class II peptides. Management believes that the combination of Class I and Class II HER2/neu antigens, gives us the leading HER2/neu vaccine platform. Therefore a key goal in 2015 is to progress the HER2/neu vaccine towards the above mentioned Phase 1(b)/II Clinical Trial.
20
Phase I Human Clinical Trials Folate Alpha Breast and Ovarian Cancer Mayo Clinic
Folate Receptor Alpha is expressed in over 80% of triple negative breast cancers, and in addition, over 90% of ovarian cancers, for which the only treatment options are surgery and chemotherapy, leaving a very important and urgent clinical need for a new therapeutic. Time to recurrence is relatively short for these types of cancer and survival prognosis is extremely poor after recurrence. In the United States alone, there are approximately 30,000 ovarian cancer patients and 40,000 triple negative breast cancer patients newly diagnosed every year.
A 24 patient Phase I clinical trial has been completed. The vaccine is well tolerated and safe and 20 out of 21 evaluable patients showed positive immune responses providing a strong rationale rational for progressing to phase 2 trials. GMP manufacturing for Phase II trials is underway and final analyses of clinical plans are near completion. TapImmune has now converted the exclusive license option into a full License Agreement.
Preclinical
Polystart
The Company has converted the previously filed U.S. Provisional Patent Application on Polystart into a full Patent Application, and will extend technology constructs as boost strategies for the current clinical programs in breast and ovarian cancer.
Current State of the Company
TapImmune is a clinical-stage immunotherapy company specializing in the development of innovative peptide and gene-based immunotherapeutics and vaccines for the treatment of cancer. The Company now has multiple clinical trials underway at the Mayo Clinic in Rochester, MN. In addition to our own sponsored clinical trials, a new grant-funded breast and ovarian cancer trial was started by Mayo using the same Folate Alpha Receptor peptides to which we have the exclusive commercial rights. Our development pipeline is extremely strong and provides us the opportunity to continue to expand on collaborations with leading institutions and corporations.
In Q1 and Q2 2015, we strengthened our cash position by raising additional $4.8 M in working capital giving us confidence in our ability to continue developing our products on the path to commercialization. The structure of this financing gives us additional opportunities to raise additional capital through the exercise of short-term and long-term warrants. The strength of our science and development approaches is becoming more widely appreciated, particularly as our clinical program has now generated positive interim data on both clinical programs in Breast and Ovarian Cancer. Also, we are pleased to report that our clinical programs are seeing positive outcomes and we expect to present more detailed findings at major symposia toward the end of the year.
We continue to be focused on our entry into Phase II Triple Negative Cancer Trials including application for Fast Track & Orphan Drug Status as well as planning for Phase II HER2/neu Breast Cancer Trials.
We will also produce new PolyStart constructs, in-house, to facilitate collaborative efforts in our current clinical indications and those where others have already indicated interest in combination therapies.
In addition, we will continue to work on deficit reduction and capital improvement in order to make the required benchmarks for an uplisting to the NASDAQ or another major US exchange. To that end we are also anticipating the result of grant applications submitted early this year.
Together, these fundamental programs and corporate activities have positioned TapImmune extremely well to capitalize on the acceptance of immunotherapy as a leading therapeutic strategy in cancer and infectious disease resulting in exploding valuations in the market.
TapImmunes Pipeline
The Company has a deep pipeline of potential blockbuster immunotherapies under development. Two of the clinical programs are completing Phase I studies and are expected to advance to Phase II in 2015. These are major inflection and valuation events, and we believe that, in light of these assets, the Company is significantly undervalued. Over the past year a number of highly visible transactions and billion dollar acquisitions have taken place that validate the work we are doing. We believe that, if our treatment successfully reaches commercialization, our treatment is applicable to 50% of the HER2/neu Breast Cancer market, which is a $21 billion annual market. We further believe that if our Ovarian Cancer treatment reaches commercialization, it will be applicable to 95% of the market which Decision Resources, one of the worlds leading research firms for pharmaceuticals and healthcare, believes will triple in the next 10 years to at least $1.5 billion annually.
In addition to the exciting clinical developments, our peptide vaccine technology may be coupled with our recently developed in-house Polystart nucleic acid-based technology designed to make vaccines significantly more effective by producing four times the required peptides for the immune systems to recognize and act on. Our nucleic acid-based systems can also incorporate TAP which stands for Transporter associated with Antigen Presentation. Our technologies are also widely applicable to the treatment of emerging viral threats and pandemics. In particular, our highly versatile PolyStart technology
21
has application in these areas. With respect to validation of our technologies, it is important to note that the majority of our technologies have been published in leading peer-reviewed journals. The timing of such publications is consistent with the filing of patents.
A list of publications on our TAP technology can be found on our website (www.tapimmune.com). Publication of our data on PolyStart will occur after current patent filings have been completed.
A key component to success is having a comprehensive patent strategy that continually updates and extends patent coverage for key products. It is highly unlikely that early patents will extend through ultimate product marketing, so extending patent life is an important strategy for ensuring product protection. TapImmune has four patent estates, details of which can be found on our website: www.tapimmune.com
While the pathway to successful product development takes time, we believe we have put in place significant resources in technical and corporate fundamentals for success. The strength of our product pipeline and access to leading scientists and institutions gives us a unique opportunity to make a major contribution to global health care.
A number of early stage billion dollar pharma acquisitions and recent IPOs have highlighted the growing interest in investment in immunotherapy space. Looking at our current valuation and those of our peers and considering our pipeline of clinical programs with very near-term advancements and the value inflections those represent, we believe this is an excellent opportunity and presents exceptional entry point for those that have not yet become a shareholder.
With respect to the broader market, a major driver and positive influence on our activities has been the emergence and general acceptance of the potential of a new generation of immunotherapies that promise to change the standard of care for cancer. The immunotherapy sector has been greatly stimulated by the approval of Provenge® for prostate cancer and Yervoy for metastatic melanoma, progression of the areas of checkpoint inhibitors and adoptive T-cell therapy and multiple approaches reaching Phase II and Phase III status.
We believe that through our combination of technologies, we are well positioned to be a leading player in this emerging market. It is important to note that many of the late stage immunotherapies currently in development do not represent competition to our programs, but instead offer synergistic opportunities to partner our antigen based immunotherapeutics, Polystart and/or TAP expression systems. Thus, the use of naturally processed T-cell antigens discovered using samples derived from cancer patients plus our Polystart expression technology to improve antigen presentation to T-cells could not only produce an effective cancer vaccines in its own right but also to enhance the efficacy of other immunotherapy approaches such as CAR-T and PD1 inhibitors for example.
Consistent with our corporate development and advancement of clinical trials we have made significant additions to our personnel through appointments of a Consultant Medical Director (Patrick Yeramian, M.D.) and a Consultant Regulatory Director (Dr. Stacy Suber). In addition, we have appointed Dr. John Bonfiglio as a Corporate Strategic Advisor and also to our Board of Directors and have appointed David Laskow-Pooley to our Board of Directors
On the technology and product pipeline side, management believes that the company is fundamentally strong and poised to be a leading company in a highly attractive, multi-billion dollar and expanding market, a position reinforced by our recruitment of top-class managers, advisors and investors who all share our vision.
Results of Operations
In this discussion of the Companys results of operations and financial condition, amounts, other than per-share amounts, have been rounded to the nearest thousand dollars.
Three Months Ended June 30, 2015 Compared to Three Months Ended June 30, 2014
We recorded a net loss of $60,216,000 or ($1.80) per share during the three months ended June 30, 2015 compared to net income of $753,000 or $0.05 per share for the three months ended June 30, 2014.
Operating costs increased to $1,138,000 during the three months ended June 30, 2015 compared to $511,000 in the prior period. Significant changes in operating expenses are outlined as follows:
| General and administrative expenses increased to $937,000 during the three months ended June 30, 2015 from $488,000 during the prior period. The increase was primarily due to increased investor relations activities and higher legal fee during the three months ended June 30, 2015 compared to the prior period. The decrease in non-cash consulting fees from the prior year was due to the Company curtailing its business development activities in the current year. |
| Research and development costs during the three months ended June 30, 2015 were $201,000 compared to $23,000 during the prior period. This was due to the Companys plan to exercise its option to acquire Mayo Clinic technology as part of an agreement entered into in March 2014 and increased in in-house research activity in the current period. |
The weighted average number of shares outstanding was 33,525,656 for the three months ended June 30, 2015 compared to 15,523,016 for the prior year.
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Six Months Ended June 30, 2015 Compared to Six Months Ended June 30, 2014
We recorded a net loss of $60,917,000 or ($1.99) per share during the six months ended June 30, 2015 compared to $28,954,000 or ($2.57) per share for the six months ended June 30, 2014.
Operating costs increased to $2,166,000 during the six months ended June 30, 2015 compared to $1,733,000 in the prior period. Significant changes in operating expenses are outlined as follows:
| General and administrative expenses decreased to $1,356,000 during the six months ended June 30, 2015 from $1,688,000 during the prior period. The decrease was primarily due to decrease in non-cash consulting fees paid as stock-based compensation during the six months ended June 30, 2015 compared to the prior period. The decrease in non-cash consulting fees from the prior year was due to the Company curtailing its business development activities in the current year. |
| Research and development costs during the six months ended June 30, 2015 were $811,000 compared to $45,000 during the prior period. This was due to the Company exercising its option to acquire Mayo Clinic technology as part of an agreement entered into in March 2014 and increased in in-house research activity in the current period. |
The weighted average number of shares outstanding was 30,584,794 for the three months ended June 30, 2015 compared to 11,250,240 for the prior year.
Liquidity and Capital Resources
The following table sets forth our cash and working capital as of June 30, 2015 and December 31, 2014:
June 30, 2015 | December 31, 2014 | |||||||
Cash reserves |
$ | 3,105,000 | $ | 142,000 | ||||
Working capital (deficit) |
$ | (68,102,000 | ) | $ | (1,024,000 | ) |
Subject to the availability of additional financing, we intend to spend approximately $7,500,000 over the next twelve months in carrying out our plan of operations. At June 30, 2015, we had $3,105,000 of cash on hand and a working capital deficit of $68,102,000. In January and March 2015, we raised approximately $2.33 million in private and brokered placements and another $2,500,000 in warrants exercised in May 2015.
Various conditions outside of our control may detract from our ability to raise additional capital needed to execute our plan of operations, including overall market conditions in the international and local economies. We recognize that the United States economy has suffered through a period of uncertainty during which the capital markets have been depressed, and that there is no certainty that these levels will stabilize or reverse despite the optics of an improving economy. Any of these factors could have a material impact upon our ability to raise financing and, as a result, upon our short-term or long-term liquidity.
Net Cash Used in Operating Activities
Net cash used in operating activities during the six months ended June 30, 2015 was $1,828,000 compared to $611,000 during the prior period. We had no revenues during the current or prior periods. Operating expenditures, excluding non-cash interest and stock-based charges during the current period primarily consisted of consulting and management fees, office and general expenditures, and professional fees.
Net Cash Provided by Financing Activities
Net cash provided by financing activities during the six months ended June 30, 2015 was $4,791,000 compared to $584,000 during the prior period. Current period financing consisted of proceeds from private placements and warrant exercises while prior period financing relates to proceeds from convertible notes.
As of June 30, 2015, we anticipate that we will need significant financing to enable us to meet our anticipated expenditures for the next twelve months, which are expected to be in the range of $7,500,000 assuming a single Phase 2 clinical trial.
Going Concern
We have no sources of revenue to provide incoming cash flows to sustain our future operations. As outlined above, our ability to pursue our planned business activities is dependent upon our successful efforts to raise additional financing. These factors raise substantial doubt regarding our ability to continue as a going concern. Our condensed consolidated financial statements have been prepared on a going concern basis, which implies that we will continue to realize our assets and discharge our liabilities in the normal course of business. As at June 30, 2015, we had accumulated losses of $160,359,000 since inception. Our financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
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Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes of financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer has concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are not effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act.
It should be noted that any system of controls is based in part upon certain assumptions designed to obtain reasonable (and not absolute) assurance as to its effectiveness, and there can be no assurance that any design will succeed in achieving its stated goals.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the six months ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1. | Legal Proceedings |
Consultant Litigation
In May 2012, we issued what is now equal to 112,000 shares of our common stock to two consultants. We contested the validity of the issuances of this common stock based on our belief that the consultants did not perform the services agreed to under their respective consulting agreements. While we initially were able to delay the sale of the contested shares, we were not successful in clawing back the contested shares. A claim for perceived damages from Michael Gardner (one of the consultants) suffered as a result of our contesting the issuance under the consulting agreements has been filed in the Supreme Court of New York. He has based his claim for damages on the difference between market price at the time we were able to delay the sale of his shares and the market price at the time of the sale of all of his shares. As the result of a judicial decision in New York he received a bond payment of ($100,000) that the Company had used to secure a temporary restraining order against the issuance of stock to him.
On July 18, 2014, the International Center for Dispute Resolution International Arbitration Tribunal issued a Final Award in the matter of TapImmune Inc. vs. Michael Gardner awarding TapImmune $196,204 plus post-award interest at a rate of 9% per year. This award stemmed from the dispute discussed above with Mr. Gardner regarding the May 2012 consulting agreement. The arbitrator found that we were fraudulently induced into entering said agreement through 1) misrepresentations as to what he would or could do for the Company, including raising funds, and 2) omissions about his reputation and ability to obtain or assist in obtaining financing for TapImmune among other reasons. We are attempting to collect the award from Mr. Gardner.
Vendor Litigation
One of our suppliers, Fischer Scientific was awarded a judgment against us for $51,000 which is equal to the amount owed to them. We intend on settling that matter in the third quarter of 2015.
Item 1A. | Risk Factors |
Not required.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
We have not issued any unregistered equity securities that we have not previously reported in a current or periodic report filed with the US Securities and Exchange Commission.
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | Mine Safety Disclosure |
Not Applicable.
Item 5. | Other Information |
None.
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Item 6. | Exhibits |
The following exhibits are included with this Quarterly Report on Form 10-Q:
Exhibit Number |
Description of Exhibit | |
31.1 | Certification of Principal Executive Officer and Acting Principal Accounting Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1933, as amended. | |
32.1 | Certification of Principal Executive Officer and Acting Principal Accounting Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
Exhibit 101
101.INS - XBRL Instance Document |
101.SCH - XBRL Taxonomy Extension Schema Document |
101.CAL - XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF - XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB - XBRL Taxonomy Extension Label Linkbase Document |
101.PRE - XBRL Taxonomy Extension Presentation Linkbase Document |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TAPIMMUNE INC.
/s/ Glynn Wilson | ||
Glynn Wilson | ||
Chairman, Chief Executive Officer, Principal Executive Officer and Chief Financial Officer | ||
Date: April 14, 2016 |
Exhibit 31.1
CERTIFICATION
I, Glynn Wilson, certify that:
(1) | I have reviewed this Report on Form 10-Q for the quarterly period ended June 30, 2015 of TapImmune Inc.; |
(2) | Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; |
(3) | Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report; |
(4) | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurances regarding the reliability of financial reporting in the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this Report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
(5) | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: April 14, 2016
/s/ Glynn Wilson | ||
By: |
Glynn Wilson | |
Title: |
Chairman, Chief Executive Officer, Principal Executive Officer and Acting Principal Accounting Officer |
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Glynn Wilson, the Principal Executive Officer and Acting Principal Accounting Officer of TapImmune Inc. (the Company) hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his or her knowledge, the Report on Form 10-Q of TapImmune Inc., for the quarterly period ended June 30, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and that the information contained in the Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of TapImmune Inc.
Date: April 14, 2016
/s/ Glynn Wilson | ||
Glynn Wilson | ||
Chairman, Chief Executive Officer, Principal Executive Officer and Acting Principal Accounting Officer |