Filing identity and reporting period
Important discrepancy: The request identifies TENAX THERAPEUTICS, INC. and “2011 Q4,” but the supplied filing is Oxygen Biotherapeutics, Inc.’s Form 10-K for the fiscal year ended April 30, 2013, filed June 26, 2013. The summary below reflects the supplied filing, not a Tenax filing.
Business context
Oxygen Biotherapeutics was a development-stage biotechnology company focused on perfluorocarbon-based oxygen-delivery products. Its lead candidate, Oxycyte, was being developed primarily for traumatic brain injury (TBI); Dermacyte was a topical cosmetic product with limited sales. Wundecyte and Vitavent remained developmental or inactive. The company had no approved drug products and reported no significant product revenue.
Financial performance and liquidity
| Metric | FY ended April 30, 2013 | FY ended April 30, 2012 |
|---|---|---|
| Total revenue | $1.191 million | $0.364 million |
| Product revenue | $92,683 | $100,519 |
| Government grant revenue | $1.141 million | $314,515 |
| Gross profit on product sales | $49,572; 53% margin | $49,266; 49% margin |
| Operating expenses | $6.380 million | $8.584 million |
| Research and development | $2.456 million | $2.463 million |
| Net loss | $9.416 million | $15.712 million |
| Net cash used in operations | $4.921 million | $8.278 million |
| Cash and cash equivalents at year-end | $783,528 | $1.880 million |
At April 30, 2013, current assets were $1.842 million, current liabilities $1.910 million, and working capital was negative $67,326. Notes payable, net of discounts, totaled approximately $3.052 million, including $2.994 million long-term. The company disclosed $4.9 million principal outstanding on convertible notes. Stockholders’ deficit was $1.778 million; accumulated deficit was $117.044 million.
Material changes versus prior year
- Net loss narrowed by about 40%, while operating cash use declined by about 41%; management attributed lower cash use chiefly to reduced selling, general and administrative costs and higher Army grant reimbursements.
- Grant revenue rose $826,841 as study milestones were achieved. Product revenue fell 8%, primarily after the company eliminated its internal sales force and suspended direct marketing and advertising.
- Research and development spending was nearly flat overall, with higher TBI clinical and preclinical study costs offset by lower personnel, consulting, and facility costs.
- Interest expense declined 43% to $4.238 million, including noncash debt-discount amortization and preferred-stock-related charges. Series A preferred stock was converted into common stock by maturity in January 2013.
- The company recorded $220,715 of restructuring expense after closing its California facility and consolidating operations in North Carolina.
Outlook, risks, and unusual items
- Funding and going concern: The auditor and management cited substantial doubt about the company’s ability to continue as a going concern. Management estimated available resources would fund operations only through July 31, 2013 and said further development depended on financing, licensing income, or strategic arrangements. No assurance of funding was given.
- Oxycyte: The FDA had placed the U.S. Phase II protocol on clinical hold over safety concerns. Clinical studies continued abroad, but enrollment had been paused while the company reviewed the protocol, sites, and CRO arrangements. It had secured cGMP supply and targeted resumption of the second cohort in the first quarter of fiscal 2014. A successful Phase II program would still require Phase III trials and regulatory approval.
- Dermacyte license: A February 2013 agreement granted Valor SA exclusive worldwide commercialization rights for five years, subject to becoming effective after Valor paid 75% of estimated costs for specified formulation and safety studies. Terms include bulk supply at 125% of manufacturing cost, a $140,000 annual nonrefundable license fee, and 5% royalties after aggregate net sales reach $10 million. The filing says no additional studies had been requested as of year-end; it does not establish that the agreement had become effective.
- Settlement: A lawsuit concerning a 2011 financing was settled for $600,000 plus 15% annual interest, payable in six quarterly installments, with possible acceleration following certain financings. The company accrued $500,000 at April 30, 2013.
- Financing and dilution: A February 2013 Series B financing generated approximately $1.9 million net proceeds and included convertible preferred stock and warrants. The filing also warned that outstanding convertible and exercisable instruments could materially dilute existing shareholders.
- Listing: Nasdaq had granted extensions after listing deficiencies. The company reported regaining the minimum bid-price requirement by June 3, 2013, partly through a 1-for-20 reverse split, but still needed to evidence compliance with an additional listing requirement by July 31, 2013.
- Other key risks include clinical failure or delay, dependence on third-party manufacturers and financing, competition, regulatory uncertainty, and inability to commercialize products. The company had 12 full-time employees and relied on external manufacturers and collaborators.
Most important facts for investors to verify
- Whether the company obtained financing or other resources after the stated July 31, 2013 cash runway, and its subsequent cash position and going-concern status.
- The actual status and results of Oxycyte’s clinical program, including FDA safety concerns, enrollment resumption, trial milestones, and cGMP supply.
- Whether the Valor Dermacyte agreement became effective, whether fees or royalties were received, and whether sales developed.
- Current debt obligations, settlement payments, preferred-stock and warrant terms, and resulting potential dilution.
- Whether Nasdaq listing requirements were satisfied and the post-reverse-split share count and trading status.