TENAX THERAPEUTICS, INC. quarterly report, Q3 FY2013

Filing identity and reporting period

Important metadata discrepancy: The supplied filing is Oxygen Biotherapeutics, Inc.’s Form 10-Q for the quarter ended January 31, 2014 (fiscal 2014 third quarter), not a Tenax Therapeutics filing or a 2012 Q3 report. The summary below reflects the filing text provided.

Oxygen Biotherapeutics was a development-stage specialty pharmaceutical company focused on levosimendan and Oxycyte. Its limited product revenue came from Dermacyte; it reported no approved drug products for sale.

Financial performance and position

• Quarterly revenue fell primarily because government-grant revenue declined to $41,684 from $221,051 after completion of studies in the prior year. Nine-month grant revenue was $233,981 versus $997,035.
• Nine-month product revenue was $60,669, up from $28,899, mainly from Dermacyte license fees. Product gross profit was $29,394, with a reported gross margin of 48%, compared with 43% in the prior period. Quarterly product revenue was only $590.
• Quarterly operating expenses increased to $2.473 million from $1.814 million, including higher R&D and personnel costs. Nine-month R&D expense increased to $2.211 million from $1.611 million, reflecting principally Oxycyte Phase II-b development costs.
• Quarterly other expense was $849,556, primarily from the change in fair value of warrants. Nine-month interest expense declined to $2.143 million from $3.615 million, partly because the prior period included noncash Series A-related interest charges.
• Cash and cash equivalents were $6.340 million at January 31, 2014, versus $783,528 at April 30, 2013. Current assets were $7.389 million and current liabilities $3.614 million; reported working capital was $3.776 million, versus a $67,326 deficit at April 30, 2013.
• Cash used in investing activities was $113,044 for the nine months; financing provided $11.951 million, including $7.003 million from stock and warrant exercises and $4.895 million net proceeds from Series C preferred stock. Financing inflows exceeded operating cash use and drove the increase in cash.
• At period-end, notes payable, net, totaled $368,768, all current; no long-term notes payable were reported. Current warrant liabilities were $1.083 million.
• Assets rose to $33.936 million from $3.181 million, largely reflecting the Phyxius asset acquisition: $22.0 million of acquired in-process R&D and $3.303 million goodwill. Stockholders’ equity was $30.301 million, versus a $1.778 million deficit at April 30, 2013.

Material developments and outlook

• On November 13, 2013, the company acquired certain Phyxius assets, including an exclusive, sublicenseable U.S. and Canadian license to develop and commercialize levosimendan. Consideration was $8.748 million in common stock and $15.299 million in Series E preferred stock.
• Management planned a Phase III levosimendan trial in about 760 cardiac-surgery patients at approximately 50 North American centers. Enrollment was expected to begin in the third quarter of calendar 2014 and take about 18 months; the filing describes planning, not a completed start.
• Oxycyte was being evaluated in a Phase II-b trial for severe traumatic brain injury. Management also cited ongoing preclinical work and regulatory preparation.
• The Orion license requires a nonrefundable $1 million upfront payment, due within 30 days after study funding and no later than April 1, 2014. Orion could terminate the license if the specified clinical study had not started by July 31, 2014. Further development and sales milestones, up to $16 million in specified payments, and tiered royalties may apply. The filing reported that no development milestones had yet been met.
• Management estimated available cash would fund operations through June 30, 2014 and stated that additional capital would be required to continue development beyond that point. It was pursuing equity or debt financing and strategic arrangements, without assurance funding would be available.
• The filing states that substantial doubt exists about the company’s ability to continue as a going concern, citing its $126 million accumulated development-stage deficit, ongoing cash requirements, and dependence on continued financing. Management warned that inability to raise funds could delay or reduce development programs.
• After quarter-end, stockholders approved the Series E conversion and the stock-plan increase. On March 13, 2014, the 32,992 Series E shares converted into 3,299,200 common shares; stockholders also approved increasing the plan’s authorized shares to 4 million.
• Management reported effective disclosure controls as of January 31, 2014 and no significant changes in internal control over financial reporting during the quarter. Legal proceedings were reported as none.

Most important facts for investors to verify

• Confirm the issuer and period: the supplied text is Oxygen Biotherapeutics’ 2014 Q3 10-Q, despite request metadata naming Tenax Therapeutics and 2012 Q3.
• Check subsequent cash balances, financing, and actual cash runway against management’s June 30, 2014 estimate; the estimate is forward-looking and the filing identifies going-concern uncertainty.
• Verify whether the levosimendan study began by the Orion license deadline and whether the required $1 million payment was made.
• Track Phase III trial initiation, enrollment, costs, and regulatory progress, as well as Oxycyte trial progress and funding needs.
• Assess dilution from the Series E conversion, outstanding warrants and preferred securities, and the approved increase in stock-plan capacity. The filing reported 6,187,215 shares underlying specified instruments as of March 14, 2014, plus potential employee options subject to approval.
• Review the valuation and accounting sensitivity of acquired IPR&D, goodwill, and the Level 3 warrant liability, along with the terms and potential obligations under the Orion license.