Marker Therapeutics, Inc. - Quarter Report: 2008 March (Form 10-Q)
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
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S
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Quarterly
Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
for
the quarterly period ended March
31, 2008
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£
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Transition
Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
for
the transition period from _____ to
_____.
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Commission
File Number: 000-27239
TAPIMMUNE
INC.
(Name of
registrant in its charter)
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NEVADA
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88-0277072
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|||
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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Unit
2, 3590 West 41st Avenue,
Vancouver,
British Columbia, Canada
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V6N
3E6
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(Address
of principal executive offices)
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(Zip
Code)
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(604)
264-8274
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(Issuer's
telephone number)
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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 S 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):
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£ Large
accelerated filer
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£ Accelerated
filer
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£ Non-accelerated
filer (Do not check
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S Smaller
reporting company
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if
smaller reporting company)
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes £ No S
As of May
19, 2008, the Company had 23,802,681 shares of common
stock issued and outstanding.
__________
PART
I – FINANCIAL INFORMATION
Item
1. Financial
Statements
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Description
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Page
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Consolidated
Balance Sheets as of March 31, 2008 (Unaudited) and December 31,
2007
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3
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Consolidated
Statements of Operations for the Three Months Ended March 31, 2008 and
2007, and for the Period from July 27, 1999 (Date of Inception) to March
31, 2008 (Unaudited)
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4
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Consolidated
Statements of Cash Flows for the Three Months Ended March 31, 2008 and
2007 and for the Period from July 27, 1999 (Date of Inception) to March
31, 2008 (Unaudited)
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5
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Notes
to the Consolidated Financial Statements (Unaudited)
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6
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-2-
TAPIMMUNE
INC.
(A
Development Stage Company)
CONSOLIDATED
BALANCE SHEETS
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March
31,
2008
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December
31,
2007
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|||||||
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(Unaudited)
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||||||||
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ASSETS
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||||||||
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Current
Assets
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||||||||
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Cash
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$ | 19,540 | $ | 167,539 | ||||
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Due
from government agency
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60,770 | 59,634 | ||||||
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Prepaid
expenses and deposits
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18,316 | 35,313 | ||||||
| 98,626 | 262,486 | |||||||
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Furniture and Equipment,
net (Note 3)
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14,752 | 16,621 | ||||||
| $ | 113,378 | $ | 279,107 | |||||
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LIABILITIES
AND STOCKHOLDERS’ DEFICIT
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||||||||
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Current
Liabilities
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||||||||
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Accounts
payable and accrued liabilities
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$ | 1,245,762 | $ | 1,103,263 | ||||
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Research
agreement obligations (Note 4)
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173,043 | 199,766 | ||||||
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Convertible
notes payable (Note 5(i))
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56,633 | 66,633 | ||||||
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Convertible
note subscriptions received (Note 5(v))
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200,000 | 200,000 | ||||||
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Notes
payable (Notes 5(iv) and (vi))
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433,533 | 229,952 | ||||||
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Due
to related parties (Note 6)
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244,262 | 154,265 | ||||||
| 2,353,233 | 1,953,879 | |||||||
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Commitments and
Contingencies (Notes 1, 4, and 5)
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||||||||
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Stockholders’
Deficit
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||||||||
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Capital
stock (Note 7)
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||||||||
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Common
stock, $0.001 par value, 80,000,000 shares authorized
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||||||||
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23,502,681
shares issued and outstanding (2007 – 23,502,681)
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23,503 | 23,503 | ||||||
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Additional
paid-in capital
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17,032,285 | 16,910,218 | ||||||
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Shares
and warrants to be issued (Notes 5(iv) and 7)
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67,400 | 67,400 | ||||||
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Deficit
accumulated during the development stage
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(19,292,972 | ) | (18,616,167 | ) | ||||
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Accumulated
other comprehensive loss
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(70,071 | ) | (59,726 | ) | ||||
| (2,239,855 | ) | (1,674,772 | ) | |||||
| $ | 113,378 | $ | 279,107 | |||||
The
accompanying notes are an integral part of these consolidated financial
statements.
-3-
TAPIMMUNE
INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
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Three
Months Ended
March
31,
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July
27, 1999
(inception)
to
March
31,
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|||||||||||
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2008
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2007
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2008
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||||||||||
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Interest
Income
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$ | - | $ | - | $ | 30,530 | ||||||
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General
and Administrative Expenses
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Consulting
fees
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35,166 | 55,895 | 1,020,750 | |||||||||
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Consulting
fees – stock-based (Note 7)
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36,900 | - | 3,171,175 | |||||||||
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Depreciation
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1,869 | 496 | 203,873 | |||||||||
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Gain
on settlement of debts
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- | - | (173,010 | ) | ||||||||
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General
and administrative
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28,981 | 20,316 | 2,236,598 | |||||||||
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Interest
and finance charges (Note 5)
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214,550 | 1,134,734 | 2,158,040 | |||||||||
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Management
fees (Note 6)
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77,537 | 50,632 | 1,658,610 | |||||||||
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Management
fees – stock-based (Note 7)
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85,167 | - | 739,889 | |||||||||
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Professional
fees
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134,853 | 67,473 | 2,491,787 | |||||||||
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Research
and development (Note 6)
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61,782 | 88,517 | 5,203,790 | |||||||||
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Research
and development – stock-based
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- | - | 612,000 | |||||||||
| 676,805 | 1,418,063 | 19,323,502 | ||||||||||
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Net
Loss for the Period
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(676,805 | ) | (1,418,063 | ) | (19,292,972 | ) | ||||||
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Deficit
Accumulated During the Development
Stage,
beginning of period
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(18,616,167 | ) | (14,724,756 | ) | - | |||||||
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Deficit
Accumulated During the Development
Stage,
end of period
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$ | (19,292,972 | ) | $ | (16,142,819 | ) | $ | (19,292,972 | ) | |||
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Basic
and Diluted Net Loss per Share
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$ | (0.03 | ) | $ | (0.09 | ) | ||||||
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||||||||||||
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Weighted
Average Number of
Common
Shares Outstanding
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23,502,681 | 15,816,360 | ||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
-4-
TAPIMMUNE
INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months
Ended
March
31,
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Three Months
Ended
March
31,
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July
27, 1999
(inception)
to
March
31,
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||||||||||
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2008
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2007
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2008
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Cash
Flows from Operating Activities
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||||||||||||
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Net
loss
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$ | (676,805 | ) | $ | (1,418,063 | ) | $ | (19,292,972 | ) | |||
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Adjustments
to reconcile net loss to net
cash
used in operating activities:
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||||||||||||
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Convertible
debenture costs
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- | - | 51,817 | |||||||||
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Depreciation
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1,869 | 496 | 203,874 | |||||||||
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Gain
on settlement of debts
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- | - | (173,010 | ) | ||||||||
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Non-cash
interest and finance fees
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203,581 | 1,127,158 | 2,013,870 | |||||||||
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Non-cash
consulting and license fees
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- | - | 16,250 | |||||||||
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Stock-based
compensation
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122,067 | - | 4,523,064 | |||||||||
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Changes
in operating assets and liabilities:
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||||||||||||
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Due
from government agency
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(1,136 | ) | - | (60,770 | ) | |||||||
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Prepaid
expenses and receivables
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16,997 | (18,456 | ) | (12,316 | ) | |||||||
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Accounts
payable and accrued liabilities
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142,499 | 14,957 | 1,667,671 | |||||||||
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Research
agreement obligations
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(26,723 | ) | (19,589 | ) | 173,043 | |||||||
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Net
Cash Used in Operating Activities
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(217,651 | ) | (313,497 | ) | (10,889,479 | ) | ||||||
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Cash
Flows from Investing Activities
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||||||||||||
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Purchase
of furniture and equipment
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- | (19,865 | ) | (218,626 | ) | |||||||
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Cash
acquired on reverse acquisition
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- | - | 423,373 | |||||||||
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Net
Cash (Used in) Provided by Investing Activities
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- | (19,865 | ) | 204,747 | ||||||||
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Cash
Flows from Financing Activities
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||||||||||||
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Proceeds
from the issuance of common stock
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- | 475,000 | 9,111,106 | |||||||||
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Finance
charges
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- | (17,500 | ) | (248,981 | ) | |||||||
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Repayment
of convertible notes
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(10,000 | ) | (100,000 | ) | 256,633 | |||||||
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Proceeds
from notes and loans payable
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- | - | 652,845 | |||||||||
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Advances
from related parties
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89,997 | 67,122 | 1,002,740 | |||||||||
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Net
Cash Provided by Financing Activities
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79,997 | 424,622 | 10,774,343 | |||||||||
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Effect
of Exchange Rate Changes
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(10,345 | ) | (5,199 | ) | (70,071 | ) | ||||||
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Net
(Decrease) Increase in Cash
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(147,999 | ) | 86,061 | 19,540 | ||||||||
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Cash,
Beginning of Period
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167,539 | 120,436 | - | |||||||||
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Cash,
End of Period
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$ | 19,540 | $ | 206,497 | $ | 19,540 | ||||||
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Supplemental
cash flow information and non-cash investing
and financing
activities: (refer to Note 8)
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||||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
-5-
TAPIMMUNE
INC.
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
Note
1: Nature of
Operations
On May 9,
2002, TapImmune Inc. (“TPIM” or the “Company”), a Nevada corporation entered
into a letter of intent to acquire 100% of the issued and outstanding common
shares of GeneMax Pharmaceuticals Inc. (a development stage company)
(“GPI”). GPI is a private Delaware company incorporated July 27, 1999
which has a wholly-owned subsidiary, GeneMax Pharmaceuticals Canada Inc.
(“GPC”), a private British Columbia company incorporated May 12,
2000. GPI is a development stage company which was formed for the
purpose of building a biotechnology business specializing in the discovery and
development of immunotherapeutics aimed at the treatment of cancer, and
therapies for infectious diseases, autoimmune disorders and transplant tissue
rejection.
On June
28, 2007, the Company approved a name change to TapImmune Inc. and completed a
reverse stock split by the issuance of one (1) new share for each two and
one-half (2.5) outstanding shares of the Company’s common
stock. Unless specifically noted, all amounts have been retroactively
restated to recognize the reverse stock split (Note 7).
During
2000, GPI and the University of British Columbia (“UBC”) entered into a
worldwide license agreement providing GPI the exclusive license rights to
certain patented and unpatented technologies originally invented and developed
by UBC. Also during 2000, GPI and UBC entered into a Collaborative
Research Agreement (“CRA”) appointing UBC to carry out further development of
the licensed technology and providing GPI the option to acquire the rights to
commercialize any additional technologies developed within the CRA in
consideration for certain funding commitments (refer to Note 4). The
lead product resulting from these licenses is a immunotherapy vaccine, on which
the Company has been completing pre-clinical work in anticipation of clinical
trials. Specifically the Company has moved the technology through
issuance of a U.S. patent, tested various viral vectors needed to deliver the
gene that forms the basis for the vaccine, licensed a preferred viral vector and
contracted out production of clinical grade vaccine (refer to Note
4). The Company plans to continue development of the lead product
vaccine through clinical trials. The other technologies licensed
include assays, which the Company plans to use for generation of a pipeline of
immune-modulation products. The assay technology acquired has
received patent protection.
These
consolidated financial statements have been prepared on the basis of a going
concern which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As at March 31, 2008,
the Company has a working capital deficiency of $2,254,607, a capital deficiency
of $2,239,855 and has incurred significant losses since
inception. Further losses are anticipated in the development stage
raising substantial doubt as to the Company’s ability to continue as a going
concern. The ability of the Company to continue as a going concern is
dependent on raising additional capital to fund ongoing research and
development, maintenance and protection of patents, accommodation from certain
debt obligations and ultimately on generating future profitable operations.
Planned expenditures relating to future clinical trials of the Company’s
immunotherapy vaccine will require significant additional
funding. Internally generated cash flow will not fund development and
commercialization of the Company’s products. The Company is dependant
on future financings to fund ongoing research and development as well as working
capital requirements. The Company’s future capital requirements will
depend on many factors including the rate and extent of scientific progress in
its research and development programs, the timing, cost and scope involved in
clinical trials, obtaining regulatory approvals, pursuing further patent
protections and the timing and costs of commercialization
activities.
-6-
Management
changes occurred in 2006 and management is addressing going concern remediation
through seeking new sources of capital, restructuring and retiring
debt through conversion to equity and debt settlement arrangements with
creditors, cost reduction programs and seeking possible joint venture
participation. Management’s plans are intended to return the company
to financial stability and improve continuing operations. The Company
is continuing to raise capital through private placements, related party loans
and other sources to meet immediate working capital
requirements. Management expects to be able to complete restructuring
plans and expand programs including entering clinical trials for its lead TAP
(Transporters of Antigen Processing) vaccine and infectious disease
adjuvant. These measures, if successful, should contribute to
reducing the risk of going concern uncertainties for the Company over the next
twelve months.
There is
no certainty that the company will be able to raise sufficient funding to
satisfy current debt obligations or to continue development of products to
marketability.
Note
2: Unaudited Consolidated
Financial Statements for an Interim Period
These
unaudited financial statements of the Company have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the rules and regulations of the securities and exchange
commission. They do not include all information and footnotes
required by United States generally accepted accounting principles for complete
financial statements. However, except as disclosed herein, there has
been no material changes in the information disclosed in the notes to the
financial statements for the year ended December 31, 2007 included in the
Company’s Annual Report on From 10-KSB filed with the Securities and Exchange
Commission. These unaudited financial statements should be read in
conjunction with those financial statements included in Form
10-KSB. In the opinion of management, all adjustments considered
necessary for fair presentation, consisting solely of normal recurring
adjustments, have been made. Operating results for the three months
ended March 31, 2008 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2008.
Note
3: Furniture and
Equipment
Furniture
and equipment consisted of the following at:
|
March
31,
2008
|
December 31,
2007
|
|||||||
|
(Unaudited)
|
||||||||
|
Computer
equipment
|
$ | 4,533 | $ | 4,533 | ||||
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Laboratory
equipment
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16,704 | 16,704 | ||||||
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Office
furniture and equipment
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3,161 | 3,161 | ||||||
| 24,398 | 24,398 | |||||||
|
Less:
accumulated depreciation
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(9,646 | ) | (7,777 | ) | ||||
| $ | 14,752 | $ | 16,621 | |||||
Note
4: Research
Agreements
Crucell
Holland B.V. (“Crucell”) – Research License and Option Agreement
Effective
August 7, 2003, Crucell and GPI entered into a five-year research license and
option agreement whereby Crucell granted to GPI a non-exclusive worldwide
license for the research use of its adenovirus technology. The
Company was required to make certain payments over the five-year term totaling
Euro €450,000 (approximately $510,100).
-7-
Effective
June 6, 2005, Crucell gave the Company notice of default whereby the Company had
six months to remedy the unpaid option maintenance payments of $236,880
(€200,000) owing as at December 31, 2005. On November 16, 2005,
Crucell provided notice of termination by default due the Company’s failure to
remedy the default within the required six month period. In May 2006,
the Company negotiated a reinstatement of the original research and license
option agreement with Crucell and paid Crucell on April 20, 2006 €123,590
($151,521) in connection with the reinstatement. Under the revised
terms of the agreement, the Company would pay Crucell twelve monthly payments of
€10,300 starting May 2006 (paid to October 31, 2006, as of March 31, 2008) and a
€75,000 annual license fee (outstanding at March 31, 2008, adjusted for CPI) to
maintain the reinstated agreement in good standing. In January, 2008
the Company paid €27,316 ($40,000) towards the outstanding balance of €136,800
and at March 31, 2008, €109,484 ($173,043) has been included in research
agreement obligations for the Crucell agreement and is outstanding under the
terms of the agreement. Management is in the process of negotiating a
revised payment schedule for the remaining balance.
SAFC
Pharma Inc (formerly Molecular Medicine BioServices, Inc.) (“SAFC Pharma”) –
Production Service Agreement
Effective
March 18, 2003, SAFC Pharma and GPC entered into a production service agreement
(“PSA”), as amended on August 29, 2003, whereby SAFC Pharma will produce the
clinical vector for delivery of the TAP gene used in the Company’s cancer
immunotherapy product. The product will incorporate the Crucell
vector and the Company’s TAP1 gene. Total obligations under the
contract are $232,000 payable to SAFC Pharma plus an estimated $110,000 to
$145,000 in third-party testing costs. The Company was in breach of
its contractual obligations with SAFC Pharma in respect of payment of $15,000
for Phase I of the project. The parties have agreed that advance
payments that had been made for subsequent phases could be allocated to the
Phase I deficiency so that all payments that were due under the PSA have now
been paid in full and the Company has a non-refundable credit of approximately
$78,000 available until the end of 2008 with SAFC Pharma to be applied towards
future vaccine production. The non-refundable credit has not been
recognized as an asset in accordance with the accounting policies.
Operating
Lease
In March
2007, the Company entered into a laboratory lease that expires in February
2012. The terms of the operating lease agreement require the Company
to make minimum monthly payments of approximately $2,490 (CAN
$2,520).
Combined
Research and Operating Obligations
The
Company has obligations under various agreements that expire between August 2008
and February 2012. The aggregate minimum annual payments for the
years ending March 31 are as follows:
|
2009
|
$ | 30,082 | ||
|
2010
|
32,304 | |||
|
2011
|
32,304 | |||
|
2012
|
29,612 | |||
| $ | 124,302 |
Note
5: Convertible Debt and
Promissory Notes Payable
i) 2004
Convertible Notes and Debenture Financing
In 2004,
the Company issued two unsecured convertible promissory notes in the principal
amount of $500,000, that included interest at 8% per annum and were due twelve
months from the date of issue.
In 2006,
the Company repaid $300,000 towards the convertible notes, in addition to all
interest accrued to the date of the final payment on October 31,
2006. In 2007, the Company repaid $133,367 towards the convertible
note principal. On July 3, 2007 the Company entered into a letter
agreement extending the term of the warrants originally issued with the
outstanding convertible note for a period of two years or 18 months after
effective registration of the warrants (not completed to date), and reduced the
conversion price from $1.25 to $0.25. The incremental increase in the
fair value of the warrants resulting from the repricing was determined by
management to be $40,000 and was recorded as interest and finance
charges. The fair value was estimated using the Black-Scholes option
pricing model with an expected life of 2 years, a risk free interest rate of
5.28%, a dividend yield of 0%, and an expected volatility of 86%. In
2008, the Company repaid $10,000 towards the convertible note
principal.
-8-
At March
31, 2008 the principal amount of $56,633 was outstanding for the
convertible notes, and interest expense of $11,612 (2006 - $2,674) has been
accrued.
ii) 2007
Promissory Note
On July
13, 2007 the Company issued an unsecured promissory note to a company related
through a family member of a director of TapImmune (Note 6) in the principal
amount of $100,000 which was revised on August 31, 2007 to
$125,000. The promissory note matured on September 28, 2007 and bears
interest at 12% per annum. As partial consideration for the
promissory note, on October 31, 2007 the Company issued to the Lender, as fully
paid and non-assessable, 125,000 non-transferable and registerable share
purchase warrants (each a “Warrant”), to acquire an equivalent number of common
shares of the Company (each a “Warrant Share”), at an exercise price of $0.30
per Warrant Share and for an exercise period of up to one year from the issuance
date. The fair value of the warrants was determined by
management at $18,104 recorded as interest and finance charges. The
fair value was estimated using the Black-Scholes option pricing model with an
expected life of 1 year, a risk free interest rate of 5.27%, a dividend yield of
0%, and an expected volatility of 125%.
On
December 18, 2007 the Company signed an agreement to extend the terms of the
2007 Promissory Notes through February 28, 2008. As consideration for
the extension, the Company agreed to issue to the Lender, as fully paid and
non-assessable, 400,000 non-transferable and registerable share purchase
warrants (each a “Warrant”), to acquire an equivalent number of common shares of
the Company (each a “Warrant Share”), at an exercise price of $0.25 per Warrant
Share and for an exercise period of up to three years from the issuance
date. The fair value of the warrants was determined by
Management at $44,000 recorded as a warrant issuance obligation and expensed as
interest and finance charges. The fair value was estimated using the
Black-Scholes option pricing model with an expected life of 3 years, a risk free
interest rate of 4.21%, a dividend yield of 0%, and an expected volatility of
106%.
At March
31, 2008 no repayment has been made to the principal amount or the interest of
$10,364 accrued on the promissory note.
iii) 2007
Convertible Promissory Note
On August
31, 2007 the Company issued a convertible promissory note to a company related
through a family member of a director of TapImmune (Note 6) in the principal
amount of $200,000 that bears interest at 12% per annum, due on
demand. Upon completion of the conversion terms, the unpaid amount of
principal and accrued interest may be converted at any time at the holder’s
option into shares of the Company’s common stock. The conversion
price will be determined by the purchase price of the Company’s next stock
offering or convertible debt financing. When the price is
established, management will determine whether any beneficial conversion feature
exists and may require adjustment to the stated value.
At March
31, 2008 no repayment has been made to the principal amount or the interest of
$14,005 accrued on the convertible promissory note. Because the
conversion features, if any, are not determinable, the principal amount is
recorded as subscription for convertible promissory note.
iv) 2007
Loan and Security Agreement
On
November 30, 2007 the Company entered into a Loan and Security Agreement whereby
the Company issued 12% secured promissory notes in the principal amount of
$445,000, with interest paid in advance resulting in net proceeds of $391,600,
with the discount being amortized to interest and finance charges over the term
of the notes. The promissory notes mature on May 31,
2008. Additionally, the Company issued to the Lenders, as fully paid
and non-assessable, 1,780,000 non-transferable and registerable share purchase
warrants (each a “Warrant”), to acquire an equivalent number of common shares of
the Company (each a “Warrant Share”), at an exercise price of $0.25 per Warrant
Share and for an exercise period of up to five years from the issuance
date. The Company allocated the proceeds of issuance between the
secured promissory notes and the detachable warrants based on their relative
fair values as determined by management. Accordingly, the Company
recognized the relative fair value of the warrants of $356,000 as a component of
stockholders’ deficit. Interest paid in advance was amortized by
$26,554 to interest expense for the three months ended March 31, 2008 increasing
the net carrying value of the secured promissory notes. Additionally,
the fair value of the warrants was accreted to interest expense by $177,027 for
the three months ended March 31, 2008 increasing the carrying value of the
secured promissory notes to $308,533. The fair value of the warrants
was estimated using the Black-Scholes option pricing model with an expected life
of five years, a risk free interest rate of 4.55%, a dividend yield of 0%, and
an expected volatility of 106%.
-9-
Under the
terms of the Loan and Security Agreement, the notes shall be repaid if the
Company receives funds from a sale or series of sales of any debt or Common
Stock or Common Stock Equivalents in the aggregate of $2,000,000 or
more. Also under the terms of the Loan and Security Agreement, the
Company granted a first priority security interest in Company collateral,
including, but not limited to: (i) all goods, including machinery and inventory;
(ii) all contract rights and other general intangibles; (iii) all accounts,
together with all instruments, etc., (iv) all documents, letter of credit
rights, instruments and chattel paper; (v) all commercial tort claims; (vi) all
deposit accounts and all cash; (vii) all investment property; (viii) all
supporting obligations; (ix) all files, records, books of account, business
papers, and computer programs; and (x) the products and proceeds of all of the
foregoing.
Pursuant
to the Loan and Security agreement, the Company paid $54,195 including
reimbursement of legal fees as finders’ fees which has been expensed as interest
and finance charges. Additionally, the Company issued as finders’
fees 178,000 warrants under the same terms as the Lenders. The fair
value of the warrants was estimated to be $35,600 using the
Black-Scholes option pricing model with an expected life of five years, a risk
free interest rate of 4.55%, a dividend yield of 0%, and an expected volatility
of 106%, and has been recorded as interest and finance charges.
Note
6: Related Party
Transactions
During
the three months ended March 31, 2008 the Company entered into transactions with
certain officers and directors of the Company as follows:
|
|
(a)
|
incurred
$77,537 (2007 - $50,632) in management fees, and recorded $85,167 in stock
based compensation for the fair value of options granted to management
that were earned during the period;
|
|
|
(b)
|
incurred
$44,343 (2007 - $25,606) in research and development fees to related
parties, of which $29,878 (2007 - $25,606) was to the former CSO and
$14,465 (2007 - $Nil) was paid to a direct family member of a current
officer;
|
|
|
(c)
|
incurred
$3,740 (2007 - $Nil) in interest and finance charges on a $125,000
promissory note due to a company related through a direct family member of
a current director (refer to Note 5);
and
|
|
|
(d)
|
incurred
$5,984 (2007 - $Nil) in interest and finance charges on a $200,000
convertible promissory note due to a company related through a direct
family member of a current director (refer to Note
5);
|
All
related party transactions (other than stock based consideration) involving
provision of services were recorded at the exchange amount, which
is the amount established and agreed to by the related
parties.
At March
31, 2008 the Company had amounts owing to directors of $145,859 (December 31,
2007 - $91,593), companies controlled by officers of $31,000 (December 31, 2007
- $20,000), companies controlled by a direct relative of an officer of $5,432
(December 31, 2007 - $3,000), and the former CSO of $61,971 (December 31, 2007 -
$39,672). These amounts were in the normal course of
operations. Amounts due to related parties are unsecured,
non-interest bearing and have no specific terms of repayment.
Note
7: Capital
Stock
The
authorized capital of the Company consists of 80,000,000 common shares with
$0.001 par value and 2,500,000 non-voting preferred shares with $0.001 par
value. On March 27, 2007, a majority of shareholders voted to amend
the Company's Articles of Incorporation to increase the authorized capital from
50,000,000 shares of common stock to 200,000,000 shares of common
stock. On June 28, 2007, the Company completed a reverse stock split
thereby issuing 1 new share for each 2.5 outstanding shares of the Company’s
common stock. Accordingly, the Company’s authorized share capital was
decreased from 200,000,000 common shares to 80,000,000 common
shares. As of March 31, 2008, no preferred shares have been
issued.
All prior
period share transactions included in the company’s stock transactions and
balances have been retroactively restated to give effect to the reverse stock
split.
2007
Capital Transactions
On
December 19, 2007 the Company agreed to issue 120,000 shares of restricted
common stock with an estimated fair value of $0.195 per share, pursuant to a
consulting services agreement. As of March 31, 2008 the $23,400 fair
value of the shares to be issued has been recorded as an obligation to issue
shares and warrants.
-10-
2007
Stock Incentive Plan
On June
8, 2007, the Board of Directors of the Company approved the adoption of a stock
option plan (the “2007 Plan”) allowing for the granting of up to 6,400,000
options to directors, officers, employees and consultants of the Company and its
subsidiaries. Options granted under the Plan shall be at prices and
for terms as determined by the Board of Directors. Options granted
under the Plan may have vesting requirements as determined by the Board of
Directors.
On June
8, 2007, a total of 6,320,000 stock options were granted (1,640,000 to
consultants and 4,680,000 to officers and directors) at an exercise price of
$0.25 per share. The term of these options is ten
years. Of the 6,320,000 options granted, 3,100,000 vested upon grant,
2,420,000 vest in one year, 400,000 vest in two years and 400,000 vest in three
years. The aggregate fair value of these options was estimated at
$1,179,600, or $0.19 per option, using the Black-Scholes option pricing model
with a risk free interest rate of 5.26%, a dividend yield of 0%, an expected
volatility of 83%, and expected life of 5 years for the options vesting
immediately, 4 years for the options vesting in one year, 3 years for the
options vesting in two years, and 2 years for the options vesting in three
years. The earned portion of the value of these options during the
three months ended March 31, 2008 was $122,067 (2007 - $Nil), of which $36,900
was recorded as stock based consulting and $85,167 was recorded as stock based
management fees. A balance of $152,267 of unvested option value will
be expensed over the remaining vesting period.
At March
31, 2008, 80,000 stock options remain available under the 2007
Plan.
The
Company’s stock option activity during the period is as follows (adjusted for
the reverse stock split):
|
Number
of
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Life
|
|
|
Balance,
December 31, 2007
|
6,320,000
|
$ 0.25
|
9.44
|
|
Granted
|
-
|
-
|
-
|
|
Cancelled,
exercised or expired
|
-
|
-
|
-
|
|
|
|||
|
Balance,
March 31, 2008 (Unaudited)
|
6,320,000
|
$ 0.25
|
9.19
|
Share
Purchase Warrants
On
December 18, 2007 the Company signed an agreement to extend the terms of the
2007 Promissory Notes through February 28, 2008 (refer to Note
5(ii)). As consideration for the extension, the Company agreed to
issue to the Lender, as fully paid and non-assessable, 400,000 non-transferable
and registerable share purchase warrants (each a “Warrant”), to acquire an
equivalent number of common shares of the Company (each a “Warrant Share”), at
an exercise price of $0.25 per Warrant Share and for an exercise period of up to
three years from the issuance date. The fair value of the
warrants was determined by Management at $44,000 recorded as a warrant issuance
obligation.
The
Company’s share purchase warrant activity during the period was as follows
(adjusted for the reverse stock split):
|
Number
of
Warrants
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Life
|
|
|
Balance,
December 31, 2007
|
11,071,667
|
$ 0.25
|
4.04
|
|
Issued
|
-
|
-
|
-
|
|
Cancelled,
exercised or expired
|
-
|
-
|
-
|
|
|
|
||
|
Balance,
March 31, 2008 (Unaudited)
|
11,071,667
|
$ 0.25
|
3.80
|
-11-
Note
8: Supplemental Cash Flow
Information and Non-Cash Investing and Financing Activities
|
Three
Months Ended March 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Interest
paid
|
$ | - | $ | 7,576 | ||||
|
Income
taxes paid
|
$ | - | $ | - | ||||
Note
9: Contingency
The
Company has not filed income tax returns for several years for the consolidated
group in the United States and Canada. Both taxing authorities
prescribe penalties for failing to file certain tax returns and supplemental
disclosures. Upon filing there could be penalties and interest
assessed. Such penalties vary by jurisdiction and by assessing
practices and authorities. As the Company has incurred losses since
inception there would be no known or anticipated exposure to penalties for
income tax liability. However, certain jurisdictions may assess
penalties for failing to file returns and other disclosures and for failing to
file other supplementary information associated with foreign ownership, debt and
equity positions. Inherent uncertainties arise over tax positions
taken, or expected to be taken, with respect to transfer pricing, inter-company
charges and allocations, financing charges, fees, related party transactions,
tax credits, tax based incentives and stock based transactions.
Management
has considered the likelihood and significance of possible penalties associated
with its current and intended filing positions and has determined, based on
their assessment, that such penalties, if any, would not be expected to be
material.
Disclosure
concerning certain carry-forward tax pools, temporary and permanent timing
differences in tax basis versus reported amounts may be impacted by assessing
practices and tax code regulations when income tax returns are filed up to
date. As a 100% valuation allowance has been provided against
deferred tax assets reported in these financial statements, there would be no
significant net impact to the current and deferred income tax disclosures or
reconciliations reported.
As
management is currently not able to make a reliably measurable provision for
possible liability for penalties and interest, if any, at this time the company
may be liable for such amounts upon assessment.
Note
10: Subsequent
Events
On April
7, 2008 the Company entered into a consulting services agreement for a three
month term from April 7, 2008 to July 7, 2008. In accordance with the
terms and provisions of the agreement: (i) the consultant will effect
communications between the Company and its shareholder base, prospective
investors and the investment community as a whole; (ii) the Company will pay the
consultant a monthly fee of $15,000 on the first of each month starting with the
first installment paid upon signing the agreement (paid April 11, 2008); (iii)
the Company will issue to the consultant 300,000 restricted common shares
(issued April 21, 2008); and (iv) the Company will issue to the consultant
options to purchase 200,000 shares of the Company’s common stock at an exercise
price of $0.25 per share, expiring 90 days after the date of termination of the
agreement (not granted to date).
__________
-12-
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, including those discussed in Item 1A of this
report under the heading “Risk Factors”, 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 discussion of our plan of operations, results of operations and
financial condition as at and for the three months ended March 31, 2008 should
be read in conjunction with our unaudited consolidated interim financial
statements and related notes for the three months ended March 31, 2008 included
in this quarterly report, as well as our Annual Report on Form 10-KSB for the
year ended December 31, 2007.
Overview
We are
focused on developing innovative therapeutics to treat serious disorders,
primarily for cancer and infectious diseases. Since our inception we
have devoted substantially all of our resources to research and development
activities, primarily with early stage research in the field of gene
therapy. We are currently conducting preclinical studies using our
TAP gene technology in combination with adeno virus, with the aim of completing
our preclinical trials and filing an Investigational Drug Application for cancer
in 12-15 months. We are also pursuing vaccine developments for
infectious diseases using our TAP gene technology and an in-licensed Modified
Vaccinia Ankora virus and other potential targeted vaccine candidates with the
aim of establishing licensing and partnering relationships to generate revenue
and advance our in- house projects closer to commercial products.
We are a
development stage company and have primarily supported the financial needs of
our research and development activities since our inception through public
offerings and private placements of our equity securities. We have
not received any revenue from the sale of our products in development, and we do
not anticipate generating revenue from the sale of products in the foreseeable
future. In order to carry out our corporate operational plan and to
support the anticipated future needs of our research and development activities,
we expect that we will have cash requirements of approximately $5,000,000 over
the next 24 months, which we expect to obtain through additional equity
financings. The funding that, if obtained, would be used to support
our activities surrounding our proposed clinical grade production of our lead
TAP vaccine product, commencement of human clinical studies, advance the
development of our prophylactic vaccine campaign and proceed with potential
acquisitions or in-licensing of new technologies or products. In the
event that we are able to secure sufficient funding through the issuance of our
securities, it is expected that we will expand our management team to include a
Director of Corporate Development, a Director of Regulatory Affairs, a Director
of Research and a Controller. It is also anticipated that as we
advance our product development in oncology and prophylactic vaccines, we will
incrementally increase the number of scientists employed by us to approximately
six.
-13-
We
anticipate being able to generate funding in the next few years under
collaborative arrangements with third parties, government grants, and license
fees. We have incurred losses since our inception and expect to incur
losses over the next several years. Bringing medical products to
commercialization is a lengthy process requiring many years of development and
clinical trials during which there are no definable sources of
revenue. There can be no assurance that we will successfully acquire,
develop, commercialize, manufacture, or market our product candidates or ever
achieve or sustain product revenues or profitability.
University of British Columbia Agreement
We had
conducted our research and development at the University of British Columbia
(“UBC”) under a Collaborative Research Agreement (“CRA”), however, as a
consequence of our Option and Settlement Agreement with UBC, we presently plan
to conduct our own research and development and continue to contract out
clinical grade production of our TAP based vaccines. In addition, we
in-license our adeno and MVA vectors and receive technical assistance from our
licensing partners. Under the terms of the agreement with UBC, we
assumed responsibility for the management, maintenance and protection of all
patents and patent applications filed in connection with the
technology. As of May 31, 2007 we completed our obligation with UBC
and the technology assignment and transfer was completed during the 2007 fiscal
year.
SAFC Pharma (Molecular
Medicine)
We had a
Production Services Agreement with Molecular Medicine for the production of a
chemical grade of our TAP adeno based vaccine for pre-clinical toxicology
analysis. However, in August of 2004 we ceased production of our
clinical grade vaccine due to technical difficulties related to the yields of
vaccine. Despite the technical difficulties we anticipate a clinical
grade TAP based vaccine to be produced utilizing the adeno vector virus vector
to allow us to meet its milestones for completing toxicology analysis by the end
of 2008. We anticipate commencing chemical grade production of our
oncology vaccine in 2008.
We were
in breach of our contractual obligations with SAFC Pharma in respect of payments
due for Phase I of the project. The parties have agreed that advance
payments that had been made for subsequent phases could be allocated to the
Phase I deficiency so that all payments that were due under the PSA have now
been paid in full and we have a non-refundable credit of approximately $78,000
with SAFC Pharma to be applied towards future vaccine production.
Crucell Agreement
Pursuant
to the Research License and Option Agreement Crucell granted us a non-exclusive,
worldwide license for Crucell’s adenovirus technology and an option for a
non-exclusive, worldwide commercial license to manufacture, use, offer for sale,
sell and import products using the licensed technology in the therapy of human
subjects by administering a modified and proprietary adeno virus vector (used to
package our TAP gene technology and deliver it to the target cancer cell in the
patient) including, but not limited to, therapeutic gene
sequence(s). Total obligations under this agreement were
€450,000. In May 2006 we negotiated a reinstatement of the original
Research and License Option Agreement with Crucell and paid Crucell €123,590
($151,521) in connection with the reinstatement. Under the revised
terms of the agreement, we will pay Crucell twelve monthly payments of €10,300
starting May 2006 (paid to October 31, 2006) and a €75,000 annual license fee
(adjusted for CPI) in order to keep the reinstated agreement in good
standing. In January, 2008 the Company paid €27,316 ($40,000) towards
the outstanding balance of €136,800 and at March 31, 2008 €109,484 ($173,043)
has been included in research agreement obligations for the Crucell
agreement.
National Institute of Health Agreement
We also
have a License Agreement with the National Institute of Health (USA) for the use
of the Modified Vaccinia Ankora (MVA) virus for the development of
vaccines. We will continue to license this technology for the
development of prophylactic vaccines against infectious
diseases. Under the terms of this agreement we are required to pay a
royalty of $2,500 per year.
U.S. Patent Application No.
10/046,542
We are
attempting to broaden our U.S. patent coverage to extend to other procedures of
utilizing the TAP gene immune response technology in destroying tumor cells, and
to treatment of viral infections, through additional patent application filings
(continuations). We have applied for additional U.S. patents, most
importantly, U.S. Pat. Appln. No. 10/046,542 that describes a method refining
and expanding the process patented in U.S. Patent 6,361,770,
above. U.S. Pat. Appln 10/046,542 is considered a key patent
application for us, as it describes a preferable delivery method for the TAP
gene sequences and serves as the basis for further expansion of our
technology.
-14-
During
the 2007 fiscal year, there was an inadvertent laspe in one of our patent
applications to cause it to become “unintentionally abandoned”. This
was due to an administrative docketing error. Significant
professional fees were incurred by us in the reapplication and filing of actions
to renew these patent claims. The patent in question was successfully
and completely re-instated and a notice of allowance for a number of claims
therein has be received from the US Patent Office.
Our Financial
Condition
During
the next 12 months we anticipate that we will not generate any
revenue. We had cash of $19,540 and a working capital deficit of
$2,254,607 at March 31, 2008. We will require significant additional
financial resources and will be dependant on future financings to fund our
ongoing research and development as well as other working capital
requirements.
Plan
of Operation and Funding
Management
believes that an estimated $5,000,000 is required over the next two years for
expenses associated with the balance of pre-clinical development on various
technologies, anticipated toxicology, Phase I clinical trials for the
TAP Cancer Vaccine, and for various operating expenses.
We have
not generated any revenue based cash flow to fund our operations and activities
due primarily to the nature of lengthy product development cycles that are
normal to the biotech industry. Therefore, we must raise additional
funds in the future to continue operations. We intend to finance our
operating expenses with further issuances of common stock. Management
believes that anticipated future private placements of equity capital and debt
financing, if successful, may be adequate to fund our operations over the next
twenty–four months. Management expects we will need to raise
additional capital to meet long-term operating requirements. Captial
raising is expected to occur on an on-going basis and in anticipation of various
phases of our development plan. We anticipate needing $1.5 million in
the next 9 months and $3.5 million over the course of the next 12
months. Our future success and viability are dependent on our ability
to raise additional capital through further private offerings of its stock or
loans from private investors. Additional financing may not be
available upon acceptable terms, or at all. If adequate funds are not
available or are not available on acceptable terms, we may not be able to
conduct our proposed business operations successfully which could significantly
and materially restrict or delay our overall business operations.
Results
of Operations
Three Months Ended March 31, 2008
Compared to Three Months Ended March 31, 2007
We did
not earn any interest or other revenues during the three months ended March 31,
2008 or over the same period ended March 31, 2007. We did not
maintain any interest bearing deposits during the current fiscal
year.
Our
general and administrative expenses decreased to $676,805 during the three
months ended March 31, 2008 from $1,418,063 over the same period ended March 31,
2007. Significant changes in operating expenses are outlined as
follows:
|
|
·
|
Consulting fees decreased to
$35,166 during the three months ended March 31, 2008 from $55,895 over the
same period ended March 31, 2007 due primarily to a corporate development
services agreement not effect during the current
period.
|
|
|
·
|
Consulting fees – stock-based
increased to $36,900 during the three months ended March 31, 2008 from
$Nil during the same period ended March 31, 2007. We recorded
stock based compensation for 2007 option grants earned during the current
period and did not record any stock-based compensation in the prior
year.
|
|
|
·
|
General and administrative
expenses increase to $28,981 during the three months ended March 31, 2008
from $20,316 during the same period ended March 31, 2007. The
lease agreement for the current lab and office facilities was not in place
during the two months of the prior
period.
|
-15-
|
|
·
|
Interest and finance charges
decreased to
$214,550 during the three months ended March 31, 2008
from $1,134,734 during the same period ended March 31,
2007. Current period interest charges are primarily accretion
of interest and the fair value of warrants issued with a promissory
note. Prior period interest charges included accretion of the discount on the
2006 convertible debt, amortization of the fair value of warrants on the
2006 convertible debt, and $1,016,000 in costs classified as
interest charges resulting from conversion of the debt.
|
|
|
·
|
Management fees increased to
$77,537 during the three months ended March 31, 2008 from $50,632 during
the same period ended March 31, 2007 due to increases in executive
compensation over the prior
period.
|
|
|
·
|
Management fees – stock-based
increased to $85,167 during the three months ended March 31, 2008 from
$Nil during the same period ended March 31, 2007. We recorded
stock based compensation for 2007 option grants earned during the current
period and did not record any stock-based compensation in the prior
year.
|
|
|
·
|
Professional fees increased to
$134,853 during the three months ended March 31, 2008 from $67,473 during
the same period ended March 31, 2007 due to significant activity relating
to the reapplication and filing of our patent applications, and
analysis of any damages resulting from the inadvertent laspe in one
of our patent applications during the prior year.
|
|
|
·
|
Research and development decreased
to $61,782 during the three months ended March 31, 2008 from $88,517
during the same period ended March 31, 2007. The monthly
Crucell obligation was not in effect during the current
year.
|
Our net
loss decreased to $676,805 during the three months ended March 31, 2008 from
$1,418,063 over the same period ended March 31, 2007. The decrease
resulted primarily from significant non-cash interest and financing charges
incurred during the prior period.
Liquidity
and Capital Resources
At March
30, 2008 we had $19,540 in cash. Generally, we have financed our
operations through the proceeds from convertible notes and the private placement
of equity securities. We spent $147,999 net cash during the three
months ended March 31, 2008 compared to a gain of $86,061 during the same period
ended March 31, 2007.
Operating Activities
Net cash
used in operating activities during the three months ended March 31, 2008 was
$217,651 compared to $313,497 during the same period ended March 31,
2007. We had no revenues during the current or prior
periods. Operating expenditures, excluding non-cash interest and
stock-based charges during the current period primarily consisted of consulting
and management fees, office and general expenditures, professional fees, and
research and development charges.
Investing Activities
Net cash
used in investing activities during the three months ended March 31, 2008 was
$Nil compared to $19,865 during the same period ended March 31,
2007. Investing activities in the prior period consisted of furniture
and equipment acquisitions for the new lab and office facilities.
Financing Activities
Net cash
provided by financing activities during the three months ended March 31, 2008
was $79,997 compared to $424,622 during the same period ended March 31,
2007. Current period financing consisted of advances from related
parties which was partially offset by a $10,000 principal payment against
outstanding convertible notes. Prior period financing included net
proceeds of $457,500 related to private placement financings and $67,122 in
advances from related parties. We also repaid $100,000 towards an
outstanding convertible note during the prior period.
At March
31, 2008 we had 6,320,000 stock options and 11,071,667 share purchase warrants
outstanding. The outstanding stock options and warrants had a
weighted average exercise price of $0.25 per share. Accordingly, as
of March 31, 2008 the outstanding options and warrants represented a total of
17,391,667 shares issuable for proceeds of approximately $4,347,917 if these
options and warrants were exercised in full. The exercise of these
options and warrants is completely at the discretion of the
holders. There is no assurance that any of these options or warrants
will be exercised.
-16-
As of
March 31, 2008 we anticipate that we will need significant financing to enable
us to meet our anticipated expenditures for the next 24 months, which are
expected to be in the range of $5,000,000 assuming a single Phase 1 clinical
trial.
We have
not generated any cash flow to fund our operations and activities due primarily
to the nature of lengthy product development cycles that are normal to the
biotech industry. Therefore, we must raise additional funds in the
future to continue operations. We intend to finance our operating
expenses with further issuances of common stock. We believe that
anticipated future private placements of equity capital and debt financing, if
successful, may be adequate to fund our operations over the next twenty–four
months. Thereafter, we expect we will need to raise additional
capital to meet long-term operating requirements. Our future success
and viability are dependent on our ability to raise additional capital through
further private offerings of our stock or loans from private
investors. Additional financing may not be available upon acceptable
terms, or at all. If adequate funds are not available on acceptable
terms, we may not be able to conduct our proposed business operations
successfully. This could significantly and materially restrict or
delay our overall business operations.
Going
Concern
Our
financial statements have been prepared assuming that we will continue as a
going concern and, accordingly, do not include adjustments relating to the
recoverability and realization of assets and classification of liabilities that
might be necessary should we be unable to continue in operation. Our
ability to continue as a going concern is dependent upon our ability to obtain
the necessary financing to meet our obligations and pay our liabilities arising
from our business operations when they come due. We intend to finance
our anticipated operating expenses with further issuances of common stock
through private placement offerings or loans from private
investors. We will be unable to continue as a going concern if we are
unable to obtain sufficient financing.
Off-Balance
Sheet Arrangements
Other
than as disclosed in the financial statements, we have no significant
off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to stockholders.
Critical
Accounting Policies
Our
consolidated financial statements and accompanying notes have been prepared in
accordance with United States generally accepted accounting principles applied
on a consistent basis. The preparation of financial statements in
conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods.
We
regularly evaluate the accounting policies and estimates that we use to prepare
our consolidated financial statements. In general, management’s
estimates are based on historical experience, on information from third party
professionals, and on various other assumptions that are believed to be
reasonable under the facts and circumstances. Actual results could
differ from those estimates made by management.
Use of Estimates and
Assumptions
Preparation
of our financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates
and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates. Significant areas requiring management's estimates and
assumptions are determining the fair value of stock-based compensation, the fair
value of the components of the convertible notes payable, future income tax
pools and balances and the useful life of depreciable assets.
-17-
Fair Value of Financial
Instruments
In
accordance with the requirements of Statement of Financial Accounting Standards
("SFAS") No. 107, "Disclosures about Fair Value of Financial Instruments," we
have determined the estimated fair value of financial instruments using
available market information and appropriate valuation
methodologies. The carrying value of financial instruments classified
as current assets or liabilities including cash, loans, obligations, and
accounts payable and amounts due to related parties approximate fair values due
to the short-term maturity of the instruments.
Income Taxes
We follow
the liability method of accounting for income taxes. Under this
method, deferred income tax assets and liabilities are recognized for the
estimated tax consequences attributable to differences between the financial
statement carrying values and their respective income tax basis (temporary
differences). The effect on deferred income tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
We
adopted the provisions of FIBS Interpretation No. 48, Accounting for Uncertainty
in Income Taxes (“FIN 48”), on January 1, 2007. Previously, we had
accounted for tax contingencies in accordance with SFAS No. 5, Accounting for
Contingencies. As required by Interpretation 48, which clarifies SFAS
No. 109, Accounting for Income Taxes, we recognize the financial statement
benefit of a tax position only after determining that the relevant tax authority
would more likely than not sustain the position following an
audit. For tax positions meeting this standard, the amount recognized
in the financial statements is the largest benefit that has a greater than 50
percent likelihood of being realized upon ultimate settlement with the relevant
tax authority. At the adoption date, we applied Interpretation 48 to
all tax positions for which the statute of limitations remained
open.
Stock-based
Compensation
In 2006,
we adopted SFAS No. 123 (revised 2004) (“SFAS No. 123R”), “Share-Based Payment”,
and elected to adopt the modified prospective transition method. The
modified prospective transition method requires that stock-based compensation
expense be recorded for all new and unvested stock options, restricted stock,
restricted stock units, and employee stock purchase plan shares that are
ultimately expected to vest as the requisite service is rendered beginning on
January 1, 2006 the first day of our 2006 fiscal year. Stock-based
compensation expense for awards granted prior to January 1, 2006 was based on
the grant date fair-value as determined under the pro-forma provisions of SFAS
No. 123.
We
recorded $122,067 in stock-based compensation valued using the Black-Scholes
option pricing model during the three months ended March 31, 2008 as opposed to
$Nil during the three months ended March 31, 2007.
Recent Accounting
Pronouncements
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities”. This Statement permits
entities to choose to measure many financial assets and financial liabilities at
fair value. Unrealized gains and losses on items for which the fair
value option has been elected are reported in earnings. We adopted
SFAS 159 as of January 1, 2008. The adoption of SFAS 159 did not have
an impact on our financial position, cash flows and results of
operations.
In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
consolidated Financial Statements - an Amendment of ARB No. 51." This
statement requires that noncontrolling or minority interests in subsidiaries be
presented in the consolidated statement of financial position within equity, but
separate from the parents' equity, and that the amount of the consolidated net
income attributable to the parent and to the noncontrolling interest be clearly
identified and presented on the face of the consolidated statement of
income. SFAS No. 160 is effective for the fiscal years beginning on
or after December 15, 2008. Currently we do not anticipate that this
statement will have an impact on our financial statements.
In
December 2007, the FASB issued SFAS No. 141 (Revised) “Business Combinations”.
SFAS 141 (Revised) establishes principles and requirements for how the acquirer
of a business recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree. The statement also provides guidance for
recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. The guidance will become effective for the fiscal year
beginning after December 15, 2008. Management is in the process of
evaluating the impact, if any, SFAS 141 (Revised) will have on our financial
statements upon adoption.
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On
December 21, 2007, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 110, (“SAB 110). SAB 110 provides guidance to
issuers on the method allowed in developing estimates of expected term of “plain
vanilla” share options in accordance with SFAS No. 123(R), “Share-Based
Payment”. The staff will continue to accept, under certain
circumstances, the use of a simplified method beyond December 31, 2007 which
amends question 6 of Section D.2 as included in SAB 107, “Valuation of
Share-Based Payment Arrangements for Public Companies”, which stated that the
simplified method could not be used beyond December 31, 2007. SAB 110
is effective January 1, 2008. We are currently evaluating the
potential impact, if any, that the adoption of SAB 110 will have on our
financial statements.
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities ("SFAS 161"). SFAS 161 is intended to improve financial
reporting about derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand their effects on
an entity's financial position, financial performance, and cash
flows. SFAS 161 achieves these improvements by requiring disclosure
of the fair values of derivative instruments and their gains and losses in a
tabular format. It also provides more information about an entity's
liquidity by requiring disclosure of derivative features that are credit
risk-related. Finally, it requires cross-referencing within footnotes
to enable financial statement users to locate important information about
derivative instruments. SFAS 161 will be effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, and will be adopted by us beginning in the first quarter of
2009. We do not expect there to be any significant impact of adopting
SFAS 161 on our financial position, cash flows and results of
operations.
Item
3. Quantitive and Qualitative
Disclosures About Market Risk
Not
Applicable
Item
4. Controls and
Procedures
As
required by Rule 13a-15 under the Exchange Act, we have carried out an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by this quarterly
report. This evaluation was carried out under the supervision and
with the participation of our management, including our principal executive
officer and principal financial officer. Based upon that evaluation
and subject to inherent limitations noted below, our principal executive officer
and principal financial officer concluded that our disclosure controls and
procedures are effective as at the end of the period covered by this quarterly
report to ensure that information required to be disclosed by us in the reports
that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified by the rules and forms of the
SEC.
Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed, summarized and
reported, within time periods specified in the Securities and Exchange
Commission’s rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our reports filed under the Exchange Act
is accumulated and communicated to management, including our principal executive
officer and principal financial officer or persons performing similar functions,
as appropriate, to allow timely decisions regarding required
disclosure.
Disclosure
controls and procedures have inherent limitations relative to the financial
resources of a Company and the number of personnel. The disclosures
controls and procedures may not prevent all error and fraud in the Company's
financial reporting. A control system, no matter how well conceived
and operated, can provide only reasonable, but not absolute, assurance that the
objectives of a control system are met. Further, any control system
reflects limitations on resources, and the benefits of a control system must be
considered relative to its costs. These limitations also include the
realities that judgments in decision-making can be faulty and that breakdowns
can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people or by management override of a control. A design of a
control system is also based upon certain assumptions about potential future
conditions; over time, controls may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and may not be
detected.
There
have been no significant changes in our internal controls over financial
reporting that occurred during our most recent quarterly period that have
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.
__________
-19-
PART II – OTHER
INFORMATION
Item
1. Legal
Proceedings
None.
Item
1A. Risk
Factors
See last
Annual Report.
Item
2. Unregistered Sales of Equity
Securities and Use of Proceeds
On April
7, 2008 we entered into a consulting services agreement with Derrick Townsend
Consulting OA 0805655 B.C. Limited (the “Townsend Agreement”). In
accordance with the terms and provisions of the Townsend Agreement on April 21,
2008 we issued 300,000 shares of our restricted common stock.
Item
3. Defaults Upon Senior
Securities
Not
Applicable.
Item
4. Submission of Matters to a
Vote of Security Holders
Not
Applicable.
Item
5. Other
Information
Not
Applicable.
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 Chief Executive
Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange
Act of 1933, as
amended.
|
||
|
31.2
|
Certification of Chief Financial
Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange
Act of 1933, as amended.
|
||
|
32.1
|
Certification of Chief Executive
Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of
2002.
|
||
__________
-20-
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TAPIMMUNE INC.
|
/s/ Denis
Corin
________________________________
|
|
|
Denis Corin
President, Chief Executive Officer
and Principal Executive Officer
Date: May 20, 2008.
|
|
|
/s/ Patrick A.
McGowan
__________________________________
|
|
|
Patrick A. McGowan
Secretary, Treasurer, Chief
Financial Officer, Principal Accounting Officer and a
director
Date: May 20, 2008.
|
-21-