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TPIV > SEC Filings for TPIV > Form 10-K on 15-May-2013All Recent SEC Filings

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Form 10-K for TAPIMMUNE INC


15-May-2013

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition, changes in financial condition, plan of operations and results of operations should be read in conjunction with (i) our audited consolidated financial statements as at December 31, 2012 and for the period from inception (July 27, 1999) to December 31, 2012 and (ii) the section entitled "Business", included in this annual report. The discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors.

Plan of Operations

As a vaccine component, the gene based TAP technology has the potential to significantly improve the efficacy of both prophylactic and immunotherapeutic vaccines as it addresses a fundamental mechanism for T cell recognition and response. We believe that, unlike other vaccine technologies that address only the initiation of immune responses, TAP expression also has the unique ability to enhance the effector function of mature killer T cells. This enhancement of effector function is potentially complementary to any/all vaccine approaches that are designed to enhance cellular responses. Therefore, we envisage establishing multiple collaborative partnerships as we progress gene-based TAP development and research in the clinic. The exploitation of this key mechanism is highlighted by two collaborations with the Mayo Clinic in Rochester, MN and their progress in 2012.

Management believes that as a result of our recent personnel additions, our moving into a state of the art facility, our exclusive Licensing Option agreements with the Mayo Clinic in Rochester, Minnesota, the start of term Phase 1 clinical trials, together with and subject to raising adequate funding, the Company will be well positioned for significant growth in 2013.

In August 2011, the FDA allowed an IND (Investigational New Drug application) and the Company signed a sponsored research agreement with the Mayo Clinic for a Phase 1 Her2neu Breast Cancer Clinical Trial, which started in the first quarter of 2012. The trial will use a patented technology developed at the Mayo clinic. TapImmune has the exclusive Option to license this technology. Recent clinical trials of Her2neu vaccines have shown considerable promise but have significant room for improvements, and the technology we are evaluating in our phase I clinical trial offers a vaccine with broader coverage, making it applicable to a much larger population of women with breast cancer. We anticipate that this technology will be used therapeutically together with our TAP expression technology as it reaches clinical development in combination with the improved Her2neu targeted vaccine. Currently, Herceptin® (trastuzumab: an intravenously delivered monoclonal antibody) is used in the treatment of HER-2/neu breast cancer. Sales of this product in 2009 were approximately US$5 billion (source:
Roche AG's Pharmaceutical Division). As our vaccine approach has the potential to treat a broader HER-2/neu positive clinical population, the market potential is significant.


Our Gene-based TAP vaccines also have the potential to significantly improve the efficacy of prophylactic vaccines for viral pandemics and as agents for biodefense. In a novel approach to the development of a smallpox vaccine, in our collaboration with the Mayo Clinic, research studies have progressed well and are now testing unique and patentable smallpox antigens in combination with TAP technology which we expect to be completed by the third quarter of 2012. Once these feasibility studies are complete we would move to larger preclinical animal studies, and Phase I safety trials. This study will also act as a platform for more extensive use of gene-based TAP vectors for biodefense. We will be seeking non-dilutive avenues to finance and advance this program by way of biodefense focused grants and contracts. We have the exclusive option to license the patented Mayo technology that is derived from this collaboration.

The opening of our new laboratories and offices at 1551 Eastlake Avenue, Seattle, on January 23, 2012 represented a significant advance for the Company on several fronts. First, our sub-lease and service agreements with the Puget Sound Blood Center Research Institute enables our scientific team to access a wide array of functioning core labs and shared equipment relevant to all aspects of development of our gene-based product candidates. Second, such an arrangement allows us to speed the development of TAP-based products towards the clinic. Third, we now have the capabilities to produce and test a range of proprietary TAP-based expression vectors for both cancer and infectious disease and to expand our external collaborations. Fourth, the development of new TAP constructs in our laboratories allows us to significantly enhance our intellectual property portfolio. US Patent # 7,994,146 issued in 2011 represents the most recent example of this strategy. The opening of these new facilities is consistent with our strategy of managing costs using a small core internal team that leverages external resources.

We will continue to build our technical team in 2013. Under the guidance of Mark Reddish and Dr. Bob Florkiewicz, we seek to recruit world-class Immunologists and molecular biologists. Mark is a recognized leader in vaccine technology development with an impressive track record in taking leading immunotherapy products from early research through development, both in the areas of cancer vaccines and biodefense. He was formerly Vice President of Product Development and Principal Investigator, Biodefense at ID Biomedical, Bothell, WA, prior to the acquisition of the company by Glaxo SmithKline for $1.6 billion. At Biomira Inc, (renamed Oncothyreon) he was responsible for preclinical development of their cancer vaccines program. Bob

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® (Dendreon NASD: DNDN) for prostate cancer and Yervoy™ (BMS) for metastatic melanoma, anticipation of the results from Phase III trials on MAGE-3 (GSK) for treatment of lung cancer, and progression of approaches for multiple cancer indications through Phase II and into Phase III.

Management believes that TapImmune is well positioned to be a leading player in this emerging market. It is important to note that the late stage immunotherapies in development do not necessarily represent competition to our programs, but rather offer us opportunities as our TAP expression technology is potentially synergistic with many other vaccine approaches. The addition of a TAP expression vector to patients already receiving a therapeutic vaccine could enhance the efficacy of these vaccines, as TAP is designed to help killer T-cells kill tumor cells. This concept of enhancing the effector stage of an immune response differentiates TAP technology from a wide list of immunotherapies currently in development, and offers a great opportunity for collaborations and partnerships. Accordingly we believe that the use of TAP expression vectors represents the next logical step in the development of more effective immunotherapies.

In 2012, we continued to made significant progress with very few resources. Progress in developing vectors for expression of antigens and TAP as a boost strategy has led to new intellectual property that we intend to file in the second quarter of 2013. 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 and expanding market, a position reinforced by our recruitment of top-class managers, advisors and investors who all share our vision.


Results of Operations

Year Ended December 31, 2012 Compared to the Year Ended December 31, 2011

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.

We are a development stage company. We recorded a net loss of $5,660,000 during the year ended December 31, 2012 compared to $2,029,000 for the year ended December 31, 2011.

Operating Expenses
Operating expenses incurred during the fiscal year ended December 31, 2012 were $6,025,000 compared to $3,316,000 in the prior year. Significant changes and expenditures are outlined as follows:

· Consulting fees were $183,000 during the fiscal year ended December 31, 2012 compared to $179,000 during the prior fiscal year. The increase was due primarily to higher business development services that were entered into during the current period.

· Stock-based consulting fees were $2,316,000 in the year ended December 31, 2012 compared to $872,000 in the prior year. The current and prior year charges result from the fair valuation of shares issued to consultants and options granted to or earned by consultants during such periods.

· General and administrative expenses were $1,012,000 in the year ended December 31, 2012 compared to $306,000 in the prior year, with the increase resulting primarily from increased payroll, higher rent, investor relations and travel expenses.

· Interest and finance charges were $745,000 during the fiscal year ended December 31, 2012 compared to $679,000 during the prior fiscal year. Current and prior period interest charges are primarily accretion of interest and the fair value of warrants issued with convertible notes.

· Management fees were $296,000 in the year ended December 31, 2012 compared to $248,000 in the prior year, with the difference resulting primarily due to higher management fees paid to the current management.

· Management compensation - stock-based were $124,000 in the year ended December 31, 2012 compared to $390,000 in the prior year. The current and prior year charges result from the fair valuation of options granted to management that were earned during the period.

· Professional fees were $350,000 in the year ended December 31, 2012 compared to $438,000 in the prior year. The decrease from the prior year results due to lower legal fees incurred relating to debt issuance in the current period.

· Research and development costs during the fiscal year ended December 31, 2012 were $999,000 compared to $204,000 during the prior fiscal year. This was due to higher technology licensing fee accrued for payment due to Mayo clinic and increased research activity in the current period.

During the fiscal year ended December 31, 2011, the Company recorded a gain on settlement of debt in the amount of $318,000 relating to early settlement of 2010 convertible notes and settlement of trade payables for shares. The Company also recorded a gain from extinguishment of the derivative share purchase warrants in the amount of $291,000 as determined by the fair value of the warrants at the date of settlement less the consideration attributed to the settlement of the warrants relating to the 2010 Notes.

Our net loss for the year ended December 31, 2012 was $5,660,000 or ($0.09) per share, compared to a net loss of $2,029,000 or ($0.04) per share in the prior period. The weighted average number of shares outstanding was 65,526,927 for the year ended December 31, 2012 compared to 45,994,617 for the prior year.

Liquidity and Capital Resources
The following table sets forth our cash and working capital as of December 31, 2012 and 2011:


December 31, 2012 December 31, 2011

Cash reserves $ 51,000 $ 250,000 Working capital (deficit) $ (5,468,000) $ (3,493,000)

Subject to the availability of additional financing, we intend to spend approximately $5,000,000 over the next twelve months in carrying out our plan of operations. At December 31, 2012, we had $51,000 of cash on hand and a working capital deficit of $5,468,000. As such, our working capital at December 31, 2012 will not be sufficient to enable us to pay our general and administrative expenses, and to pursue our plan of operations over the next twelve months. We anticipate that we will require significant debt restructuring to reduce the working capital deficit and an additional funding of approximately $5,000,000. Our management is currently making significant efforts to secure the needed financing, but we have not yet secured any commitments with respect to such financing. If we are not able to obtain financing in the amounts required or on terms that are acceptable to us, we may be forced to scale back, or abandon, our plan of operations.

Various conditions outside of our control may detract from our ability to raise the 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.

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 equity financing. These factors raise substantial doubt regarding our ability to continue as a going concern. Our 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 December 31, 2012, we had accumulated losses of $49,382,000 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.

Net Cash Used in Operating Activities
Operating activities in the year ended December 31, 2012 used cash of $1,565,000 compared to $1,310,000 in the year ended December 31, 2011. Operating activities in the period from inception on July 27, 1999 to December 31, 2012 used cash of $16,420,000. Operating activities have primarily used cash as a result of the operating and organizational activities such as consulting fees, management fees, professional fees and research and development.

Net Cash Used in Investing Activities
In the year ended December 31, 2012, investing activities used cash of $Nil compared to $Nil in the year ended December 31, 2011. In the period from inception on July 27, 1999 to December 31, 2012 investing activities provided cash of $205,000.

Net Cash Provided by Financing Activities As we have had no revenues since inception, we have financed our operations primarily through private placements of our stock and debt. Financing activities in the year ended December 31, 2012 provided cash of $1,366,000 compared to $1,537,000 in the year ended December 31, 2011. In the period from inception on July 27, 1999 to December 31, 2011, financing activities provided net cash of $16,265,000 primarily from the sale of our equity securities.

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.

See Note 2 of our consolidated financial statements for our year ended December 31, 2012 for a summary of significant accounting policies.

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.

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