TENAX THERAPEUTICS, INC. - Annual Report: 2014 (Form 10-K)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-	increased cardiac contractility by calcium sensitization of troponin C;

 

-	vasodilation through the opening of potassium channels; and

 

-	cardioprotection and antiapoptopic effect through the opening of mitochondrial potassium channel.

 

 

 

-	sustained hemodynamic improvement;

 

-	diminished myocardial injury;

 

-	improved tissue perfusion;

 

-	better outcomes and fewer hospital days;

 

-	effects most favorable in patients with low left ventricular ejection fraction (LVEF) (< 40%); and

 

-	opportunity to initiate therapy pre-operatively due to increased cardiac contractility without increasing intracellular calcium, without increasing oxygen consumption, or affecting cardiac rhythm and relaxation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

three U.S. patents (5,824,703; 5,840,767; 6,167,887), three Australian patents (690,277; 722,417; 759,557), and two Canadian patents (2,239,170; 2,311,122) pertaining to the use and application of PFCs as gas transport agents in blood substitutes and liquid ventilation with an average remaining life of approximately 3 years;

 

-	exclusive in-licenses to three fundamental gas transport patent applications that represent the core technology used in our products and product candidates (other than levosimendan) with an average remaining life of approximately 15 years; and

 

-	one U.S. patent (8,513,309) and numerous patent applications for treatment of several medical and dermatological conditions such as TBI, acne, burns and wounds with an average remaining life of approximately 16 years.

 

 

-	methods to treat certain diseases and conditions and for biological gas exchange;

 

-	therapies for burn and wound victims;

 

-	delivery of oxygenated PFC;

 

-	various formulations containing PFC; and

 

-	methods and compositions for controlled and sustained production and delivery of peroxide and/or oxygen for biological and industrial applications.

 

 

 

 

 

 

 

 

 

 

 

 

 

-	our ability to obtain additional funding to develop our product candidates;

 

-	the need to obtain regulatory approval of our most advanced product candidates;

 

-	potential risks related to any collaborations we may enter into for our product candidates;

 

-	delays in the commencement, enrollment and completion of clinical testing, as well as the analysis and reporting of results from such clinical testing;

 

-	the success of clinical trials of our Oxycyte and levosimendan product candidates or future product candidates;

 

-	any delays in regulatory review and approval of product candidates in development;

 

-	our ability to establish an effective sales and marketing infrastructure;

 

-	competition from existing products or new products that may emerge;

 

-	the ability to receive regulatory approval or commercialize our products;

 

-	potential side effects of our product candidates that could delay or prevent commercialization;

 

-	potential product liability claims and adverse events;

 

-	potential liabilities associated with hazardous materials;

 

-	our ability to maintain adequate insurance policies;

 

-	our dependency on third-party manufacturers to supply or manufacture our products;

 

-	our ability to establish or maintain collaborations, licensing or other arrangements;

 

-	our ability, our partners’ abilities, and third parties’ abilities to protect and assert intellectual property rights;

 

-	costs related to and outcomes of potential litigation;

 

-	compliance with obligations under intellectual property licenses with third parties;

 

-	our ability to adequately support future growth; and

 

-	our ability to attract and retain key personnel to manage our business effectively.

 

 

 

 

 

-	the scope, rate of progress and cost of our clinical trials and other research and development activities;

 

-	the costs and timing of regulatory approval;

 

-	the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

 

-	the effect of competing technological and market developments;

 

-	the terms and timing of any collaboration, licensing or other arrangements that we may establish;

 

-	the cost and timing of completion of clinical and commercial-scale manufacturing activities; and

 

-	the costs of establishing sales, marketing and distribution capabilities for our cosmetic products and any product candidates for which we may receive regulatory approval.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-	we may not be able to control the amount and timing of resources that our partners may devote to the development or commercialization of our product candidates or to their marketing and distribution;

 

-	partners may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;

 

-	disputes may arise between us and our partners that result in the delay or termination of the research, development or commercialization of our product candidates or that result in costly litigation or arbitration that diverts management’s attention and resources;

 

-	partners may experience financial difficulties;

 

-	partners may not properly maintain or defend our intellectual property rights, or may use our proprietary information, in such a way as to invite litigation that could jeopardize or invalidate our intellectual property rights or proprietary information or expose us to potential litigation;

 

-	business combinations or significant changes in a partner’s business strategy may adversely affect a partner’s willingness or ability to meet its obligations under any arrangement;

 

-	a partner could independently move forward with a competing product candidate developed either independently or in collaboration with others, including our competitors; and

 

-	the collaborations with our partners may be terminated or allowed to expire, which would delay the development and may increase the cost of developing our product candidates.

 

 

 

-	reaching agreements on acceptable terms with prospective contract research organizations, or CROs, and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

-	obtaining regulatory approval to commence a clinical trial;

 

-	obtaining institutional review board, or IRB, approval to conduct a clinical trial at numerous prospective sites;

 

-	recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including meeting the enrollment criteria for our study and competition from other clinical trial programs for the same indication as our product candidates;

 

-	retaining patients who have initiated a clinical trial but may be prone to withdraw due to the treatment protocol, lack of efficacy, personal issues or side effects from the therapy or who are lost to further follow-up;

 

-	maintaining and supplying clinical trial material on a timely basis; and

 

-	collecting, analyzing and reporting final data from the clinical trials.

 

 

-	failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;

 

-	inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;

 

-	unforeseen safety issues or any determination that a trial presents unacceptable health risks; and

 

-	lack of adequate funding to continue the clinical trial, including unforeseen costs due to enrollment delays, requirements to conduct additional trials and studies and increased expenses associated with the services of our CROs and other third parties.

 

 

 

 

 

 

 

-	The data obtained from laboratory testing and clinical trials are susceptible to varying interpretations, which could delay, limit or prevent FDA and other regulatory approvals;

 

-	Adverse events could cause the FDA and other regulatory authorities to halt trials;

 

-	At any time the FDA and other regulatory agencies could change policies and regulations that could result in delay and perhaps rejection of our products; and

 

-	Even after extensive testing and clinical trials, there is no assurance that regulatory approval will ever be obtained for any of our products.

 

 

 

 

 

 

 

 

 

 

 

 

 

-

The federal anti-kickback statute is a criminal statute that makes it a felony for individuals or entities knowingly and willfully to offer or pay, or to solicit or receive, direct or indirect remuneration, in order to induce the purchase, order, lease, or recommending of items or services, or the referral of patients for services, that are reimbursed under a federal health care program, including Medicare and Medicaid;

 

-

The federal False Claims Act imposes liability on any person who knowingly submits, or causes another person or entity to submit, a false claim for payment of government funds. Penalties include three times the government’s damages plus civil penalties of $5,500 to $11,000 per false claim. In addition, the False Claims Act permits a person with knowledge of fraud, referred to as a qui tam plaintiff, to file a lawsuit on behalf of the government against the person or business that committed the fraud, and, if the action is successful, the qui tam plaintiff is rewarded with a percentage of the recovery;

 

-	Health Insurance Portability and Accountability Act imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

 

-	The Social Security Act contains numerous provisions allowing the imposition of a civil money penalty, a monetary assessment, exclusion from the Medicare and Medicaid programs, or some combination of these penalties; and

 

-

Many states have analogous state laws and regulations, such as state anti-kickback and false claims laws. In some cases, these state laws impose more strict requirements than the federal laws. Some state laws also require pharmaceutical companies to comply with certain price reporting and other compliance requirements.

 

 

 

 

 

 

 

 

 

 

 

 

 

-	Our inability to recruit and retain adequate numbers of effective sales and marketing personnel;

 

-	The inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe our products;

 

-	The lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and

 

-	Unforeseen costs and expenses associated with creating and sustaining an independent sales and marketing organization.

 

 

 

 

-	We may be required to relinquish important rights to our products or product candidates;

 

-	We may not be able to control the amount and timing of resources that our distributors or collaborators may devote to the commercialization of our product candidates;

 

-	Our distributors or collaborators may experience financial difficulties;

 

-	Our distributors or collaborators may not devote sufficient time to the marketing and sales of our products; and

 

-	Business combinations or significant changes in a collaborator’s business strategy may adversely affect a collaborator’s willingness or ability to complete its obligations under any arrangement.

 

 

 

 

 

 

 

 

-	others may be able to make compositions or formulations that are similar to our product candidates but that are not covered by the claims of our patents;

 

-	we might not have been the first to make the inventions covered by our issued patents or pending patent applications;

 

-	we might not have been the first to file patent applications for these inventions;

 

-	others may independently develop similar or alternative technologies or duplicate any of our technologies;

 

-	it is possible that our pending patent applications will not result in issued patents;

 

-	our issued patents may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges by third parties;

 

-	we may not develop additional proprietary technologies that are patentable; or

 

-	the patents of others may have an adverse effect on our business.

 

 

 

 

-	These agreements may be breached;

 

-	These agreements may not provide adequate remedies for the applicable type of breach; or

 

-	Our trade secrets or proprietary know-how will otherwise become known.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-	Decreased demand for our products and any product candidates that we may develop;

 

-	Injury to our reputation;

 

-	Withdrawal of clinical trial participants;

 

-	Costs to defend the related litigation;

 

-	Substantial monetary awards to trial participants or patients;

 

-	Loss of revenue; and

 

-	The inability to commercialize any products that we may develop.

 

 

 

 

 

-	actual or anticipated fluctuations in our financial condition and operating results;

 

-	status and/or results of our clinical trials;

 

-	status of ongoing litigation;

 

-	results of clinical trials of our competitors’ products;

 

-	regulatory actions with respect to our products or our competitors’ products;

 

-	actions and decisions by our collaborators or partners;

 

-	actual or anticipated changes in our growth rate relative to our competitors;

 

-	actual or anticipated fluctuations in our competitors’ operating results or changes in their growth rate;

 

-	competition from existing products or new products that may emerge;

 

-	issuance of new or updated research or reports by securities analysts;

 

-	fluctuations in the valuation of companies perceived by investors to be comparable to us;

 

-	share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

 

-	market conditions for biopharmaceutical stocks in general;

 

-	status of our search and selection of future management and leadership; and

 

-	general economic and market conditions.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)	Represents shares repurchased in connection with tax withholding obligations under the 1999 Amended Stock Plan.

 

(2)	Represents the average price paid per share for the shares repurchased in connection with tax withholding obligations under the 1999 Amended Stock Plan.

 

 

 

 

 

 

 

 

 

Gross profit as a percentage of revenue was (404) % and 53% for year ended April 30, 2014 and 2013, respectively. The decrease for the year ended April 30, 2014, as compared to the same period in the prior year, was due to the write-down of Dermacyte product in the current year that is no longer being marketed for sale.

 

 

		Year ended April 30,								Increase/ (Decrease)				% Increase/ (Decrease)
		2014				2013
Government grant revenue		$	262,995			$	1,141,356			$	(878,361	)			(77	) %

 

 

 

		Year ended April 30,								Increase/ (Decrease)				% Increase/ (Decrease)
		2014				2013
Marketing and sales expense		$	102			$	108,165			$	(108,063	)			(100	) %

 

 

 

		Year ended April 30,								Increase/ (Decrease)				% Increase/ (Decrease)
		2014				2013
Personnel costs		$	10,593,234			$	1,490,752			$	9,102,482				611	%
Legal and professional fees			2,556,643				2,005,311				551,332				27	%
Other costs			350,855				(206,788	)			557,643				270	%
Facilities			157,449				167,693				(10,244	)			(6	) %
Depreciation and amortization			115,042				111,012				4,030				4	%

 

 

 

 

-	Audit and accounting fees increased approximately $55,000 due to the costs incurred for valuation services related to the Phyxius acquisition and the filing of registration statements in the current year.

 

-	Investor relation fees increased approximately $560,000 for the costs of outsourced corporate communications firms, road shows and attending investor conferences.

 

-

Legal fees decreased approximately $40,000 due primarily to approximately $285,000 in fees incurred in the prior year for litigation defense costs, partially offset by an increase of approximately $245,000 in fees related to the Phyxius acquisition and the filing of registration statements in the current year.

 

-	Recruiting fees decreased approximately $25,000 due to headcount additions in the prior year.

 

 

 

 

 

 

		Year ended April 30,								Increase/ (Decrease)				% Increase/ (Decrease)
		2014				2013
Clinical and preclinical development		$	1,947,461			$	1,569,594			$	377,867				24	%
Personnel costs			818,264				637,685				180,579				28	%
Consulting			153,506				117,211				36,295				31	%
Depreciation			41,199				42,968				(1,769	)			(4	) %
Other costs			26,028				32,652				(6,624	)			(20	) %
Facilities			10,263				55,706				(45,443	)			(82	) %

 

 

 

 

 

 

 

 

 

 

		Year ended April 30,								Increase/ (Decrease)				% Increase/ (Decrease)
		2014				2013
Restructuring expense		$	-			$	220,715			$	(220,715	)			—	%

 

 

		Year ended April 30,								Increase/ (Decrease)				% Increase/ (Decrease)
		2014				2013
Interest expense		$	2,212,283			$	4,238,456			$	(2,026,173	)			(48	) %

 

 

 

		Year ended April 30,								Increase/ (Decrease)
		2014				2013
Other expense (income), net		$	718,436			$	(11,683	)		$	730,119

		Year ended April 30,
		2014				2013
Net cash used in operating activities		$	(9,261,571	)		$	(4,921,283	)
Net cash used in investing activities			(147,038	)			(147,987	)
Net cash provided by financing activities			66,945,636				3,972,926

 

 

 

 

 

 

-	The initiation, progress, timing and completion of clinical trials for our product candidates and potential product candidates;
-	The outcome, timing and cost of regulatory approvals and the regulatory approval process;
-	Delays that may be caused by changing regulatory requirements;
-	The number of product candidates that we pursue;
-	The costs involved in filing and prosecuting patent applications and enforcing and defending patent claims;
-	The timing and terms of future in-licensing and out-licensing transactions;
-	The cost and timing of establishing sales, marketing, manufacturing and distribution capabilities;
-	The cost of procuring clinical and commercial supplies of our product candidates;
-	The extent to which we acquire or invest in businesses, products or technologies; and
-	The possible costs of litigation.

 

 

 

 

 

 

 

-	Fees paid to CROs in connection with clinical trials,
-	Fees paid to research institutions in conjunction with preclinical research studies, and
-	Fees paid to contract manufacturers and service providers in connection with the production and testing of active pharmaceutical ingredients and drug materials for use in preclinical studies and clinical trials.

 

 

 

 

 

 

 

 

 

 

 

To the Board of Directors and Stockholders

Oxygen Biotherapeutics, Inc.

Morrisville, North Carolina

 

We have audited the accompanying consolidated balance sheets of Oxygen Biotherapeutics, Inc. and Subsidiary, formerly, Synthetic Blood International, Inc. (the Company), as of April 30, 2014 and 2013, and the related consolidated statements of operations, stockholders equity (deficit), and cash flows for each of the years in the two-year period ended April 30, 2014. The Companys management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of April 30, 2014 and 2013, and the results of its operations and its cash flows for each of the years in the two-year period ended April 30, 2014, in conformity with accounting principles generally accepted in the United States of America.

 

For the period ended April 30, 2014, the Company recognized a net loss of approximately $19.5 million and, as of April 30, 2014, the Company had incurred cumulative net losses of approximately $136.6 million. Managements plans with regard to liquidity and capital resources are described in Note B.

 

As discussed in Note B to the consolidated financial statements, the Company has elected to early adopt Accounting Standards Update 2014-10, Development Stage Enterprises. Accordingly, the Company has eliminated inception-to-date information and certain other incremental development stage entity disclosures in the consolidated financial statements referred to above.

 

/s/ CHERRY BEKAERT LLP

 

Raleigh, North Carolina

July 29, 2014

 

		April 30, 2014				April 30, 2013
ASSETS
Current assets
Cash and cash equivalents		$	58,320,555			$	783,528
Accounts receivable			36,358				445,237
Government grant receivable			29,750				96,226
Inventory			-				99,204
Prepaid expenses			401,964				247,646
Other current assets			177,406				170,410
Total current assets			58,966,033				1,842,251
Property and equipment, net			124,374				205,389
Debt issuance costs, net			21,427				150,043
Intangible assets, net			22,999,744				924,698
Goodwill			11,265,100				-
Other assets			52,762				58,262
Total assets		$	93,429,440			$	3,180,643
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Accounts payable		$	411,145			$	977,162
Accrued liabilities			858,136				874,876
Warrant liabilities			954,876				-
Current portion of notes payable, net			346,890				57,539
Total current liabilities			2,571,047				1,909,577
Other liabilities			10,932				54,660
Deferred tax liability			7,962,100				-
Long-term portion of notes payable, net			-				2,994,442
Total liabilities			10,544,079				4,958,679
Commitments and contingencies; see Note I.
Stockholders' equity (deficit)
Preferred stock, undesignated, authorized 9,947,439 and 9,990,400 shares; respectively. See Note G.
Series B Preferred stock, par value $.0001, issued 2,100 shares; outstanding 0 and 987, respectively.			-				1
Common stock, par value $.0001 per share; authorized 400,000,000 shares; issued and outstanding 27,858,000 and 1,930,078,  respectively			2,786				193
Additional paid-in capital			219,468,498				115,265,854
Accumulated deficit			(136,585,923	)			(117,044,084	)
Total stockholders’ equity (deficit)			82,885,361				(1,778,036	)
Total liabilities and stockholders' equity (deficit)		$	93,429,440			$	3,180,643

 

 

 

		Year ended April 30,
		2014				2013
Product revenue		$	25,731			$	92,683
Cost of sales			129,800				43,111
Net product revenue			(104,069	)			49,572
Government grant revenue			262,995				1,141,356
Total net revenue			158,926				1,190,928
Operating expenses
Selling, general, and administrative			13,773,325				3,676,145
Research and development			2,996,721				2,455,816
Restructuring expense			-				220,715
Loss on impairment of long-lived assets			-				27,279
Total operating expenses			16,770,046				6,379,955
Net operating loss			16,611,120				5,189,027
Interest expense			2,212,283				4,238,456
Other expense (income)			718,436				(11,683	)
Net loss		$	19,541,839			$	9,415,800
Preferred stock dividend			5,803,362				958,071
Net loss attributable to common stockholders		$	25,345,201			$	10,373,871
Net loss per share, basic		$	(2.71	)		$	(6.29	)
Weighted average number of common shares outstanding, basic			9,362,031				1,650,280
Net loss per share,  diluted		$	(2.71	)		$	(6.68	)
Weighted average number of common shares outstanding,  diluted			9,362,031				1,759,025

 

 

 

		Preferred Stock								Common Stock
		Number of Shares				Amount				Number of Shares				Amount				Additional paid-in capital				Accumulated deficit				Total stockholders' equity (deficit)
Balance at April 30, 2012			-			$	-				1,470,890			$	2,942			$	107,279,296			$	(107,628,284	)		$	(346,046	)
Preferred stock sold, net of offering costs			2,100				1												1,851,149								1,851,150
Common stock sold, net of offering costs																											-
Common stock issued for convertible preferred stock			(1,113	)							400,708				804				4,509,184								4,509,988
Common stock issued as interest on convertible debt											16,524				33				745,175								745,208
Common stock issued as dividend on convertible preferred stock											17,409				32				331,366								331,398
Compensation on options and restricted stock issued											4,465				9				269,522								269,531
Issuance of warrants																			656,535								656,535
Exchange of warrants											20,000				40				(380,040	)							(380,000	)
Beneficial conversion feature of convertible debt																											-
Fractional shares of common stock due to reverse stock split											82				(3,667	)			3,667								-
Net loss																							(9,415,800	)			(9,415,800	)
Balance at April 30, 2013			987			$	1				1,930,078			$	193			$	115,265,854			$	(117,044,084	)		$	(1,778,036	)
Preferred stock sold, net of offering costs			5,369				1												4,895,187								4,895,188
Preferred stock issued for convertible debt			4,600				3												4,599,997								4,600,000
Common and preferred stock issued for asset purchase			32,992				3				1,366,844				137				24,046,860								24,047,000
Common stock sold, net of offering costs											10,678,571				1,068				54,907,282								54,908,350
Common stock issued for convertible preferred stock			(43,948	)			(8	)			9,056,415				906				(898	)							-
Common stock issued as interest on convertible debt											4,881				1				220,040								220,041
Common stock issued as dividend on convertible preferred stock											1,407,485				140				(140	)							-
Compensation on options and restricted stock issued											50,144				5				8,131,619								8,131,624
Common stock issued for services rendered											198,668				20				499,980								500,000
Exercise of warrants											3,161,145				316				7,135,753								7,136,069
Reclassification of warrants from equity to derivative liability																			(233,036	)							(233,036	)
Fractional shares of common stock due to reverse stock split											3,769																-
Net loss																							(19,541,839	)			(19,541,839	)
Balance at April 30, 2014			-			$	-				27,858,000			$	2,786			$	219,468,498			$	(136,585,923	)		$	82,885,361