UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A10-Q
(Amendment No. 1)
x | Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended |
¨ | 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 | ||
(Address of principal executive offices) | (Zip Code) | |
904-516-5436 | ||
(Issuer’s telephone number) |
(206) 504 7267
(Issuer’s 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,May 13, 2016, the Company had 46,140,77171,030,763 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 Company’s accounting for the share purchase warrants arose after a review by the Company’s management.
As a result, the Board of Directors of the Company has determined that the Company’s 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 Company’s 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
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Item 1. | Financial Statements (Unaudited) | 1 | ||||||
Condensed Consolidated Balance Sheets as of | ||||||||
Notes to Condensed Consolidated Financial Statements | 6 | |||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 10 | ||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 18 | ||||||
Item 4. | Controls and Procedures. | 18 | ||||||
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Item 1. | Legal Proceedings. | 20 | ||||||
Item 1A. | Risk Factors. | 20 | ||||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 20 | ||||||
Item 3. | Defaults Upon Senior Securities. | 20 | ||||||
Item 4. | Mine Safety Disclosures. | 20 | ||||||
Item 5. | Other Information. | 20 | ||||||
Item 6. | Exhibits. | 21 | ||||||
Signatures | 22 |
PART I. | FINANCIAL INFORMATION |
Item 1. | Financial Statements (unaudited) |
TAPIMMUNE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, 2016 | December 31, 2015 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 5,721,801 | $ | 6,576,564 | ||||
Prepaid expenses and deposits | 37,632 | 68,803 | ||||||
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$ | 5,759,433 | $ | 6,645,367 | |||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 1,454,913 | $ | 967,358 | ||||
Research agreement obligations | 492,365 | 492,365 | ||||||
Derivative liability – warrants | 29,489,000 | 26,493,000 | ||||||
Promissory notes | 5,000 | 30,000 | ||||||
Promissory note, related party | 23,000 | 23,000 | ||||||
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31,464,278 | 28,005,723 | |||||||
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COMMITMENTS AND CONTINGENCIES | ||||||||
Stockholders’ Equity (Deficit) | ||||||||
Convertible preferred stock, $0.001 par value — 5,000,000 shares authorized: | ||||||||
Series A, $0.001 par value, 1,250,000 shares designated, -0- shares issued and outstanding as of March 31, 2016 and December 31, 2015 | — | — | ||||||
Series B, $0.001 par value, 1,500,000 shares designated, -0- shares issued and outstanding as of March 31, 2016 and December 31, 2015 | — | — | ||||||
Common stock, $0.001 par value, 500,000,000 shares authorized 70,990,763 shares issued and outstanding (2015 – 70,550,763) | 70,991 | 70,551 | ||||||
Additional paid-in capital | 112,482,330 | 112,077,520 | ||||||
Accumulated deficit | (138,258,166 | ) | (133,508,427 | ) | ||||
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(25,704,845 | ) | (21,360,356 | ) | |||||
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$ | 5,759,433 | $ | 6,645,367 | |||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
1
TAPIMMUNE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS LOSS
(UNAUDITED)
Three Months Ended March 31, 2016 | Three Months Ended March 31, 2015 | |||||||
Operating expenses: | ||||||||
Research and development | 985,751 | 609,378 | ||||||
General and administrative | $ | 767,988 | $ | 418,786 | ||||
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Loss from Operations | (1,753,739 | ) | (1,028,164 | ) | ||||
Other Income (Expense) | ||||||||
Changes in fair value of derivative liabilities | (2,996,000 | ) | 327,440 | |||||
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Net Loss | (4,749,739 | ) | (700,724 | ) | ||||
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Basic and Diluted Net Lossper Share | $ | (0.07 | ) | $ | (0.03 | ) | ||
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Weighted Average Number ofCommon Shares Outstanding | 70,593,236 | 27,611,255 | ||||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
TAPIMMUNE INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
Common Stock | Additional | |||||||||||||||||||
Number of shares | Amount $ | Paid In Capital $ | Accumulated Deficit $ | Total $ | ||||||||||||||||
Balance, January 1, 2016 | 70,550,763 | 70,551 | 112,077,520 | (133,508,427 | ) | (21,360,356 | ) | |||||||||||||
Stock- based compensation | 440,000 | 440 | 404,810 | — | 405,250 | |||||||||||||||
Net loss | — | — | — | (4,749,739 | ) | (4,749,739 | ) | |||||||||||||
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Balance, March 31, 2016 | 70,990,763 | 70,991 | 112,482,330 | (138,258,166 | ) | (25,704,845 | ) | |||||||||||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
TAPIMMUNE INC.
CONDENSED CONSOLIDATED BALANCE SHEETSSTATEMENTS OF CASH FLOWS
(UNAUDITED)
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, $0.001 par value, 500,000,000 shares authorized 38,038,921 shares issued and outstanding (2014 – 20,318,815) | 38,039 | 20,319 | ||||||
Additional paid-in capital | 92,218,937 | 85,265,776 | ||||||
Accumulated deficit | (160,359,055 | ) | (86,309,731 | ) | ||||
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(68,102,079 | ) | (1,023,636 | ) | |||||
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$ | 3,247,910 | $ | 224,448 | |||||
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Three Months Ended March 31, 2016 | Three Months Ended March 31, 2015 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (4,749,739 | ) | $ | (700,724 | ) | ||
Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
Changes in fair value of derivative liabilities | 2,996,000 | (327,440 | ) | |||||
Stock based compensation | 214,250 | 3,750 | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses and deposits | 31,171 | — | ||||||
Accounts payable and accrued liabilities | 678,555 | 9, 961 | ||||||
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NET CASH USED IN OPERATING ACTIVITIES | (829,763 | ) | (1,014,453 | ) | ||||
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CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Issuance of shares, net of finders’ fee | — | 2,326,014 | ||||||
Repayment of promissory note | (25,000 | ) | — | |||||
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NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | (25,000 | ) | 2,326,014 | |||||
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(DECREASE) INCREASE IN CASH | (854,763 | ) | 1,311,561 | |||||
CASH, BEGINNING OF PERIOD | 6,576,564 | 141,944 | ||||||
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CASH, END OF PERIOD | $ | 5,721,801 | $ | 1,453,505 | ||||
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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 LOSSCASH FLOWS
(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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Three Months Ended March 31, 2016 | Three Months Ended March 31, 2015 | |||||||
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES | ||||||||
Reclassification of accrued liability upon issuance of common shares relating to Dr. Glynn Wilson’s compensation | $ | 191,000 | $ | — | ||||
Fair value of issuance of warrants in January and March 2015 financing | $ | — | $ | 9,313,000 |
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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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, 2015March 31, 2016
(Unaudited)
NOTE 1: NATURE OF OPERATIONS
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, TapImmune’s 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 Company’s previously issued consolidated financial statements for the three and six months ended June 30, 2015 have been restated related to the Company’s 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 Entity’s 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 | ||||||||||||
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 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 | |||||||||
|
|
|
|
|
| |||||||
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 | - | ||||||||
|
|
|
|
|
| |||||||
Net Loss for the Period | (18,445,641 | ) | (41,770,653 | ) | (60,216,294 | ) | ||||||
|
|
|
|
|
| |||||||
Other comprehensive income | ||||||||||||
Foreign exchange translation adjustment | — | — | — | |||||||||
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|
|
|
|
| |||||||
TOTAL COMPREHENSIVE LOSS | (18,445,641 | ) | (41,770,653 | ) | (60,216,294 | ) | ||||||
|
|
|
|
|
| |||||||
Basic and Diluted Net Lossper Share | (0.55 | ) | (1.25 | ) | (1.80 | ) | ||||||
|
|
|
|
|
| |||||||
Weighted Average Number ofCommon 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 | |||||||||
|
|
|
|
|
| |||||||
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 | — | ||||||||
|
|
|
|
|
| |||||||
Net Loss for the Period | (19,427,365 | ) | (41,489,653 | ) | (60,917,018 | ) | ||||||
Other comprehensive income | ||||||||||||
Foreign exchange translation adjustment | — | — | — | |||||||||
|
|
|
|
|
| |||||||
TOTAL COMPREHENSIVE LOSS | (19,427,365 | ) | (41,489,653 | ) | (60,917,018 | ) | ||||||
|
|
|
|
|
| |||||||
Basic and Diluted Net Lossper Share | (0.64 | ) | (1.36 | ) | (1.99 | ) | ||||||
|
|
|
|
|
| |||||||
Weighted Average Number ofCommon 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 | |||||||||
|
|
|
|
|
| |||||||
NET CASH USED IN OPERATING ACTIVITIES | (1,827,638 | ) | — | (1,827,638 | ) | |||||||
|
|
|
|
|
| |||||||
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 | ) | |||||||
|
|
|
|
|
| |||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 4,791,014 | — | 4,791,014 | |||||||||
|
|
|
|
|
| |||||||
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
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,March 31, 2016, 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, 20152016 or for any future interim period. The condensed balance sheet at December 31, 20142015 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, 2014,2015, and notes thereto included in the Company’s annual report on Form 10-K.
NOTE 3: LIQUIDITY AND FINANCIAL CONDITION
NOTE 3: | LIQUIDITY AND FINANCIAL CONDITION |
The Company’s activities since inception have consisted principally of acquiring product and technology rights, raising capital, and performing research and development. Successful completion of the Company’s 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 Company’s 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,March 31, 2016, the Company had cash and cash equivalents of approximately $3,105,000.$5,722,000. 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 Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
146
NOTE 4: SIGNIFICANT ACCOUNTING POLICIES
NOTE 4: | SIGNIFICANT ACCOUNTING POLICIES |
There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the Company’s annual report on Form 10-K, which was filed with the SEC on April 15, 2015.14, 2016.
Prior Period ReclassificationsRecent accounting pronouncement
Accounting Standards Update (“ASU”), No. 2016-09 - In March 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-09, Compensation-Stock Compensation. The expense categoriesnew guidance simplifies several aspects of the comparable prior period have been reclassifiedaccounting for comparabilityshare-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this standard are effective for the Company’s annual year and first fiscal quarter beginning on January 1, 2017 with early adoption permitted. The Company is currently evaluating the June 30, 2015 presentation. These reclassifications had no effectimpact of the application of this accounting standard update on previously reported net loss.
NOTE 5: POTENTIALLY DILUTIVE SECURITIESits financial statements and related disclosures.
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.losses for the periods presented.
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 | ||||||
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|
|
NOTE 6: DERIVATIVE LIABILITY - WARRANTS AND DERIVATIVE LIABILITY – CONVERSION OPTION, AS RESTATED
March 31, | ||||||||
2016 | 2015 | |||||||
Common stock options | 3,584,000 | 65,000 | ||||||
Common stock warrants - equity treatment | 2,556,000 | 2,549,000 | ||||||
Common stock warrants - liability treatment | 49,528,000 | 62,194,000 | ||||||
|
|
|
| |||||
Potentially dilutive securities | 55,668,000 | 64,808,000 | ||||||
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|
NOTE 6: | DERIVATIVE LIABILITY - WARRANTS AND DERIVATIVE LIABILITY – CONVERSION OPTION |
A summary of quantitative information with respect to valuation methodology and significant unobservable inputs used for the Company’s common stock purchase warrants that are categorized within Level 3 of the fair value hierarchy for the sixthree months ended 20152016 and 20142015 is as follows:
Share Purchase Warrants | Weighted Average Inputs for the Period | 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 | For the Quarter Ending March 31, 2016 | For the Quarter Ending March 31, 2015 | ||||||||||||
Fair market value of stock | $ | 0.96 | $ | 0.02 | ||||||||||||
Strike price | $ | 0.50 | $ | 5.84 | ||||||||||||
Exercise price | $ | 0.70 | $ | 0.98 | ||||||||||||
Contractual term (years) | 4.00 | 4.00 | ||||||||||||||
Volatility (annual) | 148.00 | % | 159.00 | % | 150.00 | % | 158.00 | % | ||||||||
Risk-free rate | 1.1 | % | 1.08 | % | 1.05 | % | 1.00 | % | ||||||||
Contractual term (years) | 3.2 | 3.58 | ||||||||||||||
Dividend yield (per share) | 0 | % | 0 | % | 0 | % | 0 | % |
The foregoing assumptions are reviewed quarterly and are subject to change based primarily on management’s assessment of the probability of the events described occurring. Accordingly, changes to these assessments could materially affect the valuations.
157
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 | As of March 31, 2016 | |||||||||||||||||||||||||||||||||||||||
Fair Value Measurements | Fair Value Measurements | |||||||||||||||||||||||||||||||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | Total | Fair Value | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||||||
Derivative liability - warrants | $ | 69,962,000 | — | — | $ | 69,962,000 | $ | 69,962,000 | $ | 29,489,000 | — | — | $ | 29,489,000 | $ | 29,489,000 | ||||||||||||||||||||||||
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|
|
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|
|
| |||||||||||||||||||||||||||||||
Total | $ | 69,962,000 | — | — | $ | 69,962,000 | $ | 69,962,000 | $ | 29,489,000 | — | — | $ | 29,489,000 | $ | 29,489,000 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||
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|
|
|
| ||||||||||||||||||||||||||||||||||||
Total | $ | 9,000 | — | — | $ | 9,000 | $ | 9,000 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
As of December 31, 2015 | ||||||||||||||||||||
Fair Value Measurements | ||||||||||||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Derivative liability - warrants | $ | 26,493,000 | — | — | $ | 26,493,000 | $ | 26,493,000 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 26,493,000 | — | — | $ | 26,493,000 | $ | 26,493,000 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
There were no transfers between Level 1, 2 or 3 during the three months ended June 30, 2015.March 31, 2016.
The following table presents changes in Level 3 liabilities measured at fair value for the sixthree months ended June 30, 2015:March 31, 2016:
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 | ||
|
|
Derivative liability –warrants | ||||
Balance – January 1, 2016 | $ | 26,493,000 | ||
Change in fair value of warrant liability | 2,996,000 | |||
|
| |||
Balance – March 31, 2016 | $ | 29,489,000 | ||
|
|
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 | ||||
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NOTE 7: PROMISSORY NOTES, RELATED PARTY
NOTE 7: | PROMISSORY NOTES |
The Company has outstanding promissory notes in the amount of $52,942$5,000 (December 31, 20142015 - $52,942),$30,000). The promissory note bears 10% annual interest and was due in 2012. As of whichMarch 31, 2016, the note is in default and there has been no request for payment.
NOTE 8: | PROMISSORY NOTES, RELATED PARTY |
The Company has an outstanding promissory note in the amount of $23,000 of promissory notes are from(December 31, 2015 - $23,000) owed to an officer and a director of the Company. The promissory notes bearnote bears no interest charges and havehas no fixed repayment terms.
NOTE 8: CAPITAL STOCK, AS RESTATED
20158
NOTE 9: | CAPITAL STOCK |
2016 Share Transactions
Private placementsManagement Compensation
In January,November 2015, the Company entered into a Securities Purchase Agreementan employment agreement with certain investors forDr. Glynn Wilson, 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’ feeCompany’s Chief Executive Officer, President and offering expenses of approximately $214,000. Each unit consisting of (i) one shareChairman of the Company’s Common Stock, (ii) one Series A warrant to purchase one shareCompany. As part 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 366,000Dr. Wilson was awarded 0.3 million fully vested common shares with substantiallyat consummation of the same terms asagreement. The Company recorded an obligation to deliver the January 2015 Warrants.shares of $0.2 million based on the fair value of the Common stock at December 31, 2015. The Company issued the shares in March 2016 and reclassified the accrued liability to stockholders’ equity (deficit).
Consulting arrangements
In March 2015,2016, the Company issued 0.1 million common shares as part of consulting agreements from 2015. The fair value of the common stock of approximately $0.1 million was recognized as stock-based compensation in general and administrative expense.
NOTE 10: | RESEARCH AND DEVELOPMENT AGREEMENTS |
FAU Project Agreement
In March 2016, the Company entered into a Securities Purchase Agreementresearch project agreement with certain accredited investorsFlorida Atlantic University regarding immune monitoring for the sale of 5,000,000 units at a purchase price of $0.20 per unit, for a total purchase price ofstudy protocol FRV-002. The project is expected to end in December 2018. The Company has incurred approximately $950,000, net of finders’ fee$0.2 million in research and offering expenses of approximately $50,000. Each unit consisting of (i) one share of the Company’s 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”). Thedevelopment costs through 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 Entity’s 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%.31, 2016.
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:
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 Company’s 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 Company’s 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 | ||||||||
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|
|
|
|
|
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 Company’s 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 | |||||
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|
|
NOTE 9: SUBSEQUENT EVENTS
199
Item 2. | Management’s 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 management’s 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, 2015March 31, 2016 included in this quarterly report, as well as our Annual Report on Form 10-K for the year ended December 31, 2014.2015.
Company Overview
Our Cancer Vaccines
TapImmune is a biotechnologyWe are an immune-oncology 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 combinescancer. We combine 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 planswe plan to focus on advancing itsour clinical programs including our HER2/neu peptide antigen program and our Folate Receptor Alpha program for breast and ovarian trialsand our HER2/neu peptide antigen program into Phase II.II clinical trials. 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
ImmunotherapyImmuno-oncology 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)Therapeutics, Inc., Kite Pharma, Inc.) 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
ClinicalDevelopment-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.
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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 2II trials. GMP manufacturing for Phase II trials is underwayprogressing well towards a commercial formulation and final analyses of clinical plans are near completion. On July 27, 2015, TapImmune has now convertedexercised its option agreement with Mayo Clinic with the signing of a worldwide exclusive license option intoagreement to commercialize a full License Agreement.proprietary folate receptor alpha vaccine technology for all cancer indications. As part of this Agreement, the IND from for the folate receptor alpha Phase I trial was transferred from Mayo to TapImmune for amendment for the Company’s Phase II Clinical Trials on our lead product.
On September 15, 2015, we announced that our collaborators at the Mayo Clinic had been awarded a grant of $13.3 million from the U.S. Department of Defense. This grant, commencing September 15, 2015, will cover the costs for a 280 patient Phase II Clinical Trial of Folate Receptor Alpha Vaccine in patients with Triple Negative Breast Cancer. TapImmune will
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work closely with Mayo Clinic on this clinical trial by providing clinical and manufacturing expertise as well as providing GMP vaccine formulations. These vaccine formulations are being developed for multiple Phase II clinical programs in triple negative breast and ovarian cancer in combination with other immunotherapeutics.
On December 9, 2015, we announced that we received Orphan Drug Designation from the U. S. Food & Drug Administration’s Office of Orphan Products Development (OOPD) for our cancer vaccine TPIV 200 in the treatment of ovarian cancer. The TPIV 200 ovarian cancer clinical program will now receive benefits including tax credits on clinical research and 7-year market exclusivity upon receiving marketing approval. TPIV 200 is a multi-epitope peptide vaccine that targets Folate Receptor Alpha which is overexpressed in multiple cancers.
On February 3, 2016 we announced that the U.S. Food & Drug Administration (FDA) has designated the investigation of multiple-epitope Folate Receptor Alpha Peptide Vaccine (TPIV 200) with GM-CSF adjuvant for maintenance therapy in subjects with platinum-sensitive advanced ovarian cancer who achieved stable disease or partial response following completion of standard of care chemotherapy, as a Fast Track Development Program.
PreclinicalPhase I Human Clinical Trials – HER2/neu+ Breast Cancer – Mayo Clinic
PolystartPatient 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 is a two year follow on recording time to disease recurrence in the participating breast cancer patients.
The Company hasFor 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. As the folate receptor alpha vaccine is our lead product our plans are now initiating formulation studies to progress the HER2/neu vaccine towards a Phase II Clinical Trial in 2016.
Products and Technology-Preclinical
Polystart
We have converted the previously filed U.S. Provisional Patent Application on Polystart into a full Patent Application, and willexpect to extend technology constructs as boost strategies for the current clinical programs in breast and ovarian cancer.
Current State of the Company
TapImmune isWe are a clinical-stage immunotherapy company specializing in the development of innovative peptide and gene-based immunotherapeutics and vaccines for the treatment of cancer. The CompanyWe now hasplan to conduct multiple Phase II clinical trials underwayon our vaccines. The largest of these studies in triple-negative breast cancer is expected to be totally funded by a $13.3 million grant from the US Department of Defense to our collaborators at the Mayo Clinic in Rochester, MN. In addition toJacksonville, FL. We believe that 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 Q2the fiscal year 2015, we strengthened our cash position by raising additional $4.8 Mapproximately $11.0 million 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 produceexpect to continue to prosecute our PolyStart patent filings and develop 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. ToWe believe 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.
TapImmune’s Pipeline
The Company hasWe have a deep pipeline of potential blockbuster immunotherapies under development. Two of thePhase I clinical programs are completing Phase I studieson HER2/neu in breast and are expectedovarian cancer have been completed and strong immune responses in over 90% of patients treated has provided the rationale and catalyst to advance these programs 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 world’s leading research firms for pharmaceuticals and healthcare, believes will triple in the next 10 years to at least $1.5 billion annually.clinical trials.
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
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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.
We have three active patent families that we are supporting:
1. Filed patents on PolyStart expression vector (owned by TapImmune has four patent estates, details of which can be foundand filed in 2014: this IP covers the use with TAP)
2. Filed patents on our website:www.tapimmune.comHER2/neu Class II and Class I antigens: exclusive license from Mayo Foundation; and
3. Filed patents on Folate Receptor Alpha antigens: exclusive license from Mayo Foundation
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.
ConsistentRecent Developments and Highlights
Fast Track Designation.On February 3, 2016 we announced that that the U.S. Food & Drug Administration (FDA) has granted Fast Track Designation for our cancer vaccine TPIV 200 in the treatment of ovarian cancer.
Polystart Patent.On February 11, 2016 the United States Patent and Trademark Office issued a Notice of Allowance.
Manufacturing. On April 7, 2016, the Company announced that it has successfully completed formulation development, scale-up, GMP (Good Manufacturing Practice) manufacturing, and the release of TPIV 200, its multi-epitope folate receptor peptide vaccine for breast and ovarian cancer. The manufactured product contains five peptide antigens freeze dried in a single vial, ready for injection after reconstitution and addition of granulocyte-macrophage colony-stimulating factor (GM-CSF). TPIV 200 doses are now available for the upcoming Phase II clinical trials in both triple negative breast cancer and ovarian cancer.
On April 21, 2016, we announced our plans to participate in a Phase 2 trial in platinum-resistant ovarian cancer at Memorial Sloan Kettering Cancer Center, New York. The aim of this trial is to test TPIV 200, in combination with durvalumab (MEDI4736), an anti-PD-L1 antibody.
Financings
Our current available funding has come from financings that we conducted in August 2014, January and March of 2015 and from warrants issued in connection with our corporate developmentJanuary and advancementMarch, 2015 financings.
August 2014 Financing
In August, 2014, we entered into a Securities Purchase Agreement with a single institutional investor for the sale of clinical trials1,886,792 units at a purchase price of $1.06 per unit, for a total purchase price of $1,832,500, net of finders’ fee. Each unit consists of one common share and one share purchase warrant exercisable at $1.17 for a period of 5 years.
In August, 2014, we received subscription proceeds of $265,000 for 265,000 units. Each unit consists of one share of common stock and one share purchase warrant exercisable at $2.50 for a period of 3 years. We also issued 5,250 shares of common stock as finders’ fee relating to the subscription proceeds.
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January 2015 Financing
In January, 2015, we 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 Company’s 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, we agreed to issue warrants to purchase 366,000 common shares with substantially the same terms as the January 2015 Warrants.
March 2015 Financing
In March, 2015, we 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 Company’s Common Stock, (ii) one Series A-1 warrant to purchase one share of common stock, (iii) one Series B-1 warrant to purchase one share of common stock (iv) one Series C-1 warrant to purchase one share of common stock, (v) one Series D-1 warrant to purchase one share of common stock, and (vi) one Series E-1 warrant to purchase one share of common stock (the Series A-1, B-1, C-1, D-1 and E-1 warrants are hereby collectively referred to as the “March 2015 Warrants”). The March 2015 Warrants have made significant additionssubstantially the same terms as the January 2015 Warrants.
Pursuant to our personnel through appointmentsa placement agent agreement, we agreed to issue warrants to purchase 125,000 common shares with substantially the same terms as the March 2015 Warrants.
Restructuring of January and March 2015 Financings
In May 2015, we entered into a restructuring agreement with the investors of the January 2015 and March 2015 financings, where:
As a result of the restructuring agreement, we issued an additional 12,320,000 Series B warrants and 12,320,000 Series C Warrants. See—liquidity and capital resources.
Warrant Descriptions
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(i) the Company or any of its Subsidiaries shall, directly or indirectly, in one or more related transactions,
(1) consolidate or merge with or into (whether or not the Company or any of its Subsidiaries is the surviving corporation) any other Person, or
(2) sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective properties or assets to any other Person, or
(3) allow any other Person to make a Consultant Regulatory Director (Dr. Stacy Suber). In addition,purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of voting stock of the Company (not including any shares of Voting Stock of the Company held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or
(4) consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other Person whereby such other Person acquires more than 50% of the outstanding shares of voting stock of the Company (not including any shares of voting stock of the Company held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination), or
(5) (I) reorganize, recapitalize or reclassify the common stock, (II) effect or consummate a stock combination, reverse stock split or other similar transaction involving the common stock or (III) make any public announcement or disclosure with respect to any stock combination, reverse stock split or other similar transaction involving the common stock (including, without limitation, any public announcement or disclosure of (x) any potential, possible or actual stock combination, reverse stock split or other similar transaction involving the common stock or (y) board or shareholder approval thereof, or the intention of the Company to seek board or shareholder approval of any stock combination, reverse stock split or other similar transaction involving the common stock), or
(ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations promulgated thereunder) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding voting stock of the Company.
Assuming a Fundamental Transaction occurs we have appointed Dr. John Bonfiglio asestimate, using the Black Scholes value method required by the terms of the warrants and assuming all warrant holders exercise their rights to require us to purchase their warrants, the aggregate amount we would be obligated to pay would be approximately $29 million.
• | Variable Rate Transaction Prohibition. During the two year period commencing on the closing date under both the January 2015 and March 2015 Financings (dated January 12, 2015 and March 9, 2015, respectively), the Company |
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and each subsidiary are prohibited from entering into an agreement related to any subsequent issuance of securities involving a Variable Rate Transaction. AVariable Rate Transaction means: a transaction in which the Company or any subsidiary: |
(i) issues or sells any securities convertible into shares of Common Stock either
(A) at a Corporate Strategic Advisorconversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of, or quotations for, the shares of Common Stock at any time after the initial issuance of such convertible securities, or
(B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such convertible securities or upon the occurrence of specified contingent events directly or indirectly related to the business of the Company or the market for the Common Stock, other than pursuant to a customary “weighted average” anti-dilution provision or
(ii) enters into any agreement (including, without limitation, an equity line of credit) whereby the Company or any subsidiary may sell securities at a future determined price (other than standard and also to our Board of Directors and have appointed David Laskow-Pooley to our Board of Directorscustomary “preemptive” or “participation” rights).
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.
• | Failure to Timely Deliver Securities.If we fail, to issue to a warrant holder within three (3) trading days after receipt of the applicable exercise notice, a certificate for the number of shares of our common stock to which the warrant holder is entitled upon the holder’s exercise of the warrant, then, in addition to all other remedies available to the warrant holder, we shall pay in cash to the holder on each trading day after such third (3rd) trading day that the issuance of such shares of our common stock is not timely effected an amount equal to 1% of the product of (A) the aggregate number of shares of our common stock not issued to the warrant holder on a timely basis and to which the warrant holder is entitled and (B) the closing sale price of our common stock on the trading day immediately preceding the last possible date on which we could have issued such shares of our common stock to the warrant holder without violating the exercise provision of the warrant. In addition, if within three (3) trading days after our receipt of the applicable exercise notice, we shall fail to issue and deliver a certificate to the warrant holder without restrictive legend to which the holder is entitled upon the holder’s exercise, and (Y) on or after such third (3rd ) trading day the warrant holder purchases (in an open market transaction or otherwise) shares of our common stock to deliver in satisfaction of a sale by the warrant holder of all or any portion of the number of shares of our common stock, or a sale of a number of shares of our common stock equal to all or any portion of the number of shares of our common stock, issuable upon such exercise that the warrant holder so anticipated receiving from us, then, in addition to all other remedies available to the warrant holder, we shall within three (3) business days after the holder’s request and in the holder’s discretion, either (i) pay cash to the warrant holder in an amount equal to the warrant holder’s total purchase price (including brokerage commissions and reasonable out-of-pocket expenses, if any) for the shares of our common stock so purchased (the “Buy-In Price”), at which point our obligation to so issue and deliver such certificate or credit the warrant holder’s balance account with DTC for the number of shares of our common stock to which the warrant holder is entitled upon the holder’s exercise hereunder (as the case may be) (and to issue such shares of our common stock) shall terminate, or (ii) promptly honor our obligation to so issue and deliver to the warrant holder a certificate or certificates representing such shares of our common stock or credit the holder’s balance account with DTC for the number of shares of common stock to which the holder is entitled upon the warrant holder’s exercise and pay cash to the holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of common stock multiplied by (B) “B” as set out in the formula above. |
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Results of Operations
In this discussion of the Company’s 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, 2015March 31, 2016 Compared to Three Months Ended June 30, 2014March 31, 2015
We recorded a net loss of $60,216,000$4,750,000 or ($1.80)0.07) per share during the three months ended June 30, 2015March 31, 2016 compared to net income of $753,000$701,000 or $0.05($0.03) per share for the three months ended June 30, 2014.March 31, 2015.
Operating costs increased to $1,138,000$1,754,000 during the three months ended June 30, 2015March 31, 2016 compared to $511,000$1,028,000 in the prior period. Significant changes in operating expenses are outlined as follows:
The weighted average number of shares outstanding was 33,525,65670,593,236 for the three months ended June 30, 2015March 31, 2016 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:
The weighted average number of shares outstanding was 30,584,794 for the three months ended June 30, 2015 compared to 11,250,24027,611,255 for the prior year.
Liquidity and Capital Resources
The following table sets forth our cash and working capital as of June 30, 2015March 31, 2016 and December 31, 2014:2015:
June 30, 2015 | December 31, 2014 | March 31, 2016 | December 31, 2015 | |||||||||||||
Cash reserves | $ | 3,105,000 | $ | 142,000 | $ | 5,722,000 | $ | 6,577,000 | ||||||||
Working capital (deficit) | $ | (68,102,000 | ) | $ | (1,024,000 | ) | $ | (25,705,000 | ) | $ | (21,360,000 | ) |
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,March 31, 2016, we had $3,105,000$5,722,000 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.
$25,705,000. 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 sixthree months ended June 30, 2015March 31, 2016 was $1,828,000$830,000 compared to $611,000$1,014,000 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,compensation expense, office and general expenditures, and professional fees.
Net Cash Provided by Financing Activities
Net cash providedused by financing activities during the sixthree months ended June 30, 2015March 31, 2016 was $4,791,000$25,000 compared to $584,000net cash provided by financing activities of $2,326,000 during the prior period. CurrentIn the current period financing consisted of proceeds from private placements and warrant exerciseswe repaid a promissory note while prior period financing relates to proceeds from convertible notes.private placements.
As of June 30, 2015,March 31, 2016, 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 singlefor the funding of multiple small Phase 2 clinical trial.trials. We believe that this will be achieved through the exercise of warrants from our January and March Financings in 2015.
Financings
Additional details of our financing activities for the periods reflected in this report are provided below:
2014 Financing.In fiscal year 2014, we raised $2,097,500 and issued warrants to acquire an aggregate of up to 2,151,792 shares of common stock.
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2015 Financings.In the first quarter of fiscal year 2015, we raised $2,200,000 and issued warrants to acquire an aggregate of up to 61,600,000 shares of common stock including the warrants we issued pursuant to the restructuring of the 2015 financings.
Warrant Exercises
Between June 16, 2015 and December 9, 2015, 37,080,000 shares were issued upon exercise of certain warrants we issued in connection with our 2015 financings, providing $9.22 million in proceeds. The following table reflects the remaining outstanding warrants from the August 2014, January and March 2015 Financings (including placement agent warrants):
Series | Outstanding Warrants | Exercise Price | Expiration | |||||||
A | 2,573,200 | $ | 0.10 | 01/13/2020 | ||||||
C | 12,093,200 | $ | 0.50 | 01/13/2020 | ||||||
D | 7,320,000 | $ | 0.75 | Between 07/16/2020 and 08/13/2020 and 08/19/2020 and 09/09/2020 | ||||||
E | 7,393,200 | $ | 1.25 | Between 10/01/2020 and 11/12/2020 and 11/30/2020 and 12/09/2020 | ||||||
A-1 | 5,025,000 | $ | 0.10 | 03/09/2020 | ||||||
C-1 | 5,025,000 | $ | 0.50 | 03/09/2020 | ||||||
D-1 | 5,000,000 | $ | 0.75 | Between 08/19/2020 and 09/09/2020 | ||||||
E-1 | 5,025,000 | $ | 1.25 | 06/16/2020 |
Future Capital Requirements
Our capital requirements for 2016 will depend on numerous factors, including the success of our research and development, the resources we devote to develop and support our technologies and our success in pursuing strategic licensing and funded product development relationships with external partners. Subject to our ability to raise additional capital including through possible joint ventures and/or partnerships, we expect to incur substantial expenditures to further develop our technologies including continued increases in costs related to research, nonclinical testing and clinical studies, as well as costs associated with our capital raising efforts and being a public company. We will require substantial funds to conduct research and development and nonclinical and Phase II clinical testing of our licensed, patented technologies and to develop sublicensing relationships for the Phase II and III clinical testing. Our plans include seeking both equity and debt financing, alliances or other partnership agreements with entities interested in our technologies, or other business transactions that would generate sufficient resources to ensure continuation of our operations and research and development programs.
Our current available cash and cash equivalents are insufficient to satisfy our liquidity requirements. We believe our existing cash and cash equivalents will allow us to fund our operating plan through the end of 2016. We expect to continue to seek additional funding for our operations. Any such required additional capital may not be available on reasonable terms, if at all. If we were unable to obtain additional financing, we may be required to reduce the scope of, delay or eliminate some or all of our planned clinical testing and research and development activities, which could harm our business. The sale of additional equity or debt securities may result in additional dilution to our shareholders. If we raise additional funds through the issuance of debt securities or preferred stock, these securities could have rights senior to those of our common stock and could contain covenants that would restrict our operations. We also will require additional capital beyond our currently forecasted amounts.
Because of the numerous risks and uncertainties associated with research, development and commercialization of our product candidates, we are unable to estimate the exact amounts of our working capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
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We have based our estimates on assumptions that may prove to be wrong. We may need to obtain additional funds sooner or in greater amounts than we currently anticipate. Potential sources of financing include strategic relationships, public or private sales of our shares or debt and other sources. We may seek to access the public or private equity markets when conditions are favorable due to our long-term capital requirements. We do not have any committed sources of financing at this time, and it is uncertain whether additional funding will be available when we need it on terms that will be acceptable to us, or at all. If we raise funds by selling additional shares of common stock or other securities convertible into common stock, the ownership interest of our existing stockholders will be diluted. If we are not able to obtain financing when needed, we may be unable to carry out our business plan. As a result, we may have to significantly limit our operations and our business, financial condition and results of operations would be materially harmed.
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. Thesecapital.
While these factors raise substantial doubt regarding our ability to continue as a going concern. Ourconcern, 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.
Tax Loss and Credit Carryforwards
As of December 31, 2015 and 2014, we have approximately $24,123,000 of federal and $4,336,000 of state NOLs that may be available to offset future taxable income, if any. The federal net operating loss carryforwards, if not utilized, will expire between 2029 and 2035. The state net operating loss carryforwards, if not utilized, will expire in 2035. Any greater than 50% change in ownership under Section 382 of the Internal Revenue Code, or the Code, places significant annual limitations on the use of such net operating loss carryforwards.
At December 31, 2015 and 2014, we recorded a 100% valuation allowance against our deferred tax assets of approximately $10,826,000 and $12,471,000, respectively, as our management believes it is uncertain that they will be fully realized. If we determine in the future that we will be able to realize all or a portion of our net operating loss carryforwards, an adjustment to our net operating loss carryforwards would increase net income in the period in which we make such a determination.
Inflation
Inflation affects the cost of raw materials, goods and services that we use. In recent years, inflation has been modest. However, fluctuations in energy costs and commodity prices can affect the cost of all raw materials and components. The competitive environment somewhat limits our ability to recover higher costs resulting from inflation by raising prices. Although we cannot precisely determine the effects of inflation on our business, it is management’s belief that the effects on revenues and operating results will not be significant. We do not believe that inflation has had a material impact on our results of operations for the periods presented, except with respect to payroll-related costs and other costs arising from or related to government imposed regulations.
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
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
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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 sixthree months ended June 30, 2015March 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Item 1. | Legal Proceedings |
Consultant Litigation
In May 2012, we issued whatManagement is now equal to 112,000 sharesnot aware of our common stock to two consultants. We contestedany material legal proceedings and there are no pending material procedures that would affect the validityproperty of the issuancesCompany. Management is not aware of any legal proceedings and contemplated by any government authority or any other party involving the Company. As of the date of this common stock based on our belief that the consultants didAnnual Report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceeding. Management is not perform the services agreed to under their respective consulting agreements. While we initially were able to delay the saleaware 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 orderany other legal proceedings pending or threatened 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.Company.
Item 1A. | Risk Factors |
Not required.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
(a) | We issued the following restricted securities during the period covered by this report to the named individual pursuant to exemptions under the Securities Act of 1933 including Section 4(2): |
We have notOn February 2, 2016 the Company issued any unregistered150,000 shares to Caro Capital, LLC pursuant to an investor relations agreement.
On March 1, 2016 the Company issued 100,000 shares to Proactive Capital Resource Group, LLC, pursuant to an investor relations agreement.
On March 9, 2016 the Company issued 25,000 shares to Financial Insights, pursuant to a financial consulting agreement.
On March 11, 2016 the Company issued 315,000 shares to Glynn Wilson, Ph.D., pursuant to an equity securities that we have not previously reported in a current or periodic report filed withaward under the US SecuritiesCompany’s incentive plan and Exchange Commission.approved by the Board.
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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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 | ||
Chairman, Chief Executive Officer, Principal Executive Officer and Chief Financial Officer | ||
Date: |
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