SECURITIES
AND EXCHANGE COMMISSION
Washington
D.C., 20549
FORM
10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2016
Commission
File No. 001-34600
TENAX
THERAPEUTICS, INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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26-2593535
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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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ONE
Copley Parkway, Suite 490, Morrisville, NC 27560
(Address
of Principal Executive Offices) (Zip Code)
Registrant’s
Telephone Number and area code: (919) 855-2100
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of Each Class
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Name
of Each Exchange on Which Registered
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Common Stock,
$0.0001 par value per share
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The Nasdaq Stock
Market LLC
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Securities
registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. Yes ☐ No
☒
Indicate by check
mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ☐
No ☒
Indicate by check
mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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 ☒ No ☐
Indicate by check
mark whether the registrant has submitted electronically and posted
on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes ☒ No
☐
Indicate by check
mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated
filer,” “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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☐
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Accelerated filer
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☒
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Non-accelerated filer
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☐
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Smaller reporting company
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☐
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(Do not
check if a 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 ☒
State the aggregate
market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the
common equity was last sold as of June 30, 2016, the last business
day of the registrant’s most recently completed second fiscal
quarter: $68,589,804.
The number of
shares outstanding of the registrant’s class of $0.0001 par
value common stock as of March 9, 2017 was 28,120,021.
DOCUMENTS
INCORPORATED BY REFERENCE:
Portions of the
registrant’s proxy statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A in connection
with the registrant’s 2017 Annual Meeting of Stockholders,
which will be filed subsequent to the date hereof, are incorporated
by reference into Part III of this Form 10-K. Such proxy statement
will be filed with the Securities and Exchange Commission not later
than 120 days following the end of the registrant’s fiscal
year ended December 31, 2016.
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PART I
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4
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ITEM 1—BUSINESS
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4
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ITEM 1A—RISK FACTORS
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11
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ITEM 1B—UNRESOLVED STAFF COMMENTS
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23
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ITEM 2—PROPERTIES
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23
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ITEM 3—LEGAL PROCEEDINGS
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23
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ITEM 4— MINE SAFETY DISCLOSURES
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23
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PART II
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23
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ITEM 5—MARKET FOR THE REGISTRANT’S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
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23
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ITEM 6—SELECTED FINANCIAL DATA
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25
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ITEM 7—MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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26
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ITEM 7A—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
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41
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ITEM 8—CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
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42
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ITEM 9—CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
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78
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ITEM 9A—CONTROLS AND PROCEDURES
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78
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ITEM 9B—OTHER INFORMATION
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80
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PART III
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80
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PART IV
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81
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FORWARD-LOOKING STATEMENTS
All
statements contained in this report, other than statements of
historical fact, which address activities, actions, goals,
prospects, or new developments, that we expect or anticipate will
or may occur in the future, including plans for clinical tests and
other such matters pertaining to testing and development products,
are forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as
“may”, “will”, “should”,
“expects”, “plans”,
“anticipates”, “believes”,
“estimates”, “predicts”,
“potential” or “continue” or the negative
of such terms or other comparable terminology. These statements are
only predictions and involve known and unknown risks, uncertainties
and other factors, including, but not limited to, progress in our
product development and testing activities, obtaining financing for
operations, development of new technologies and other competitive
pressures, legal and regulatory initiatives affecting our products,
conditions in the capital markets, the risks discussed in Item 1A
– “Risk Factors,” and the risks discussed
elsewhere in this report that may cause our or our industry’s
actual results, levels of activity, performance or achievements to
be materially different from any future results, levels of
activities, performance or achievements expressed or implied by
such forward-looking statements.
Although
we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Moreover, neither
we nor any other person assumes responsibility for the accuracy and
completeness of such statements. We are under no duty to update any
of the forward-looking statements after the date of filing of this
report or to conform such statements to actual results, except as
may be required by law.
All
references in this Annual Report to “Tenax
Therapeutics”, “we”, “our” and
“us” means Tenax Therapeutics, Inc.
Tenax
Therapeutics was originally formed as a New Jersey corporation in
1967 under the name Rudmer, David & Associates, Inc., and
subsequently changed its name to Synthetic Blood International,
Inc. Effective June 30, 2008, we changed the domiciliary state of
the corporation to Delaware and changed the company name to Oxygen
Biotherapeutics, Inc. On September 19, 2014, we changed the company
name to Tenax Therapeutics, Inc.
Tenax
Therapeutics, Inc. is a specialty pharmaceutical company focused on
identifying, developing and commercializing products for the
critical care market. On November 13, 2013, through our wholly
owned subsidiary, Life Newco, Inc., or Life Newco, we acquired a
license granting Life Newco an exclusive, sublicenseable right in
the United States and Canada to develop and commercialize
pharmaceutical products containing levosimendan, 2.5 mg/ml
concentrate for solution for infusion / 5ml vial, for use in the
reduction of morbidity and mortality in cardiac surgery patients at
risk for developing Low Cardiac Output Syndrome, or
LCOS.
We were
previously developing Oxycyte®, a systemic perfluorocarbon, or
PFC, product we believed to be a safe and effective oxygen carrier
for use in situations of acute ischemia. In addition, we previously
developed a family of perfluorocarbon-based oxygen carriers for use
in personal care, topical wound healing, and other topical
indications. During 2014, we suspended the development of these PFC
products while we evaluate strategic alternatives for future
development and commercialization of these product
candidates.
In
2015, our Board of Directors approved a change in our fiscal year
to a fiscal year beginning on January 1 and ending on December 31
of each year, such change beginning as of January 1, 2016.
Accordingly, this annual report on Form 10-K includes financial
statements as of and for (i) the calendar year ended December 31,
2016; (ii) the eight months ended December 31, 2015; and (iii) the
fiscal years ended April 30, 2015 and 2014.
For
comparative purposes, an unaudited consolidated statement of
operations and comprehensive loss has been included for the year
ended December 31, 2015 and for the eight month period from May 1,
2014 to December 31, 2014. The financial information for the year
ended December 31, 2015 and the eight months ended December 31,
2014 has not been audited and is derived from our books and
records. In the opinion of management, the financial information
for the year ended December 31, 2015 and the eight months ended
December 31, 2014 reflects all adjustments necessary to present the
financial position and results of operations in accordance with
generally accepted accounting principles. Prior to the year-end
change, our fiscal year ended on April 30 of each
year.
Business Strategy
Our
principal business objective is to identify, develop, and
commercialize novel therapeutic products for disease indications
that represent significant areas of clinical need and commercial
opportunity. The key elements of our business strategy are outlined
below.
Efficiently conduct clinical development to establish clinical
proof of concept with our lead product candidates.
Levosimendan represents novel therapeutic modalities for the
treatment of LCOS and other critical care conditions. We are
conducting clinical development with the intent to establish proof
of concept in several important disease areas where these
therapeutics would be expected to have benefit. Our focus is on
conducting well-designed studies to establish a robust foundation
for subsequent development, partnership and expansion into
complementary areas.
Efficiently explore new high potential therapeutic applications,
leveraging third-party research collaborations and our results from
related areas
. Our product candidates have shown promise in
multiple disease areas. We are committed to exploring potential
clinical indications where our therapies may achieve best-in-class
profile, and where we can address significant unmet medical needs.
In order to achieve this goal, we have established collaborative
research relationships with [investigators from research and
clinical institutions and] our strategic partners. These
collaborative relationships have enabled us to cost effectively
explore where our product candidates may have therapeutic
relevance, and how it may be utilized to advance treatment over
current clinical care. Additionally, we believe we will be able to
leverage clinical safety data and preclinical results from some
programs to support accelerated clinical development efforts in
other areas, saving substantial development time and resources
compared to traditional drug development.
Continue to expand our intellectual property portfolio
. Our
intellectual property is important to our business and we take
significant steps to protect its value. We have ongoing research
and development efforts, both through internal activities and
through collaborative research activities with others, which aim to
develop new intellectual property and enable us to file patent
applications that cover new applications of our existing
technologies or product candidates.
Enter into licensing or product co-development arrangements in
certain areas, while out-licensing opportunities in non-core
areas
. In addition to our internal development efforts, an
important part of our product development strategy is to work with
collaborators and partners to accelerate product development,
reduce our development costs, and broaden our commercialization
capabilities. We believe this strategy will help us to develop a
portfolio of high quality product development opportunities,
enhance our clinical development and commercialization
capabilities, and increase our ability to generate value from our
proprietary technologies.
Our Current Programs
Levosimendan Background
Levosimendan
was discovered and developed by Orion Pharma, a Finnish company.
Levosimendan is a
calcium
sensitizer/K-ATP activator
developed for intravenous use in
hospitalized patients with acutely decompensated heart failure. It
is currently approved in over 60 countries for this indication and
not available in the United States or Canada. It is estimated that
to date over 1,000,000 patients have been treated worldwide with
levosimendan
.
Levosimendan
is a novel, first in class
calcium
sensitizer/K-ATP activator
. The therapeutic effects of
levosimendan are mediated through:
●
Increased cardiac
contractility by calcium sensitization of troponin C, resulting in
a positive inotropic effect which is not associated with
substantial increases in oxygen demand.
●
Opening of
potassium channels in the vasculature smooth muscle, resulting in a
vasodilatory effect on all vascular beds.
●
Opening of
mitochondrial potassium channels in cardiomyocytes, resulting in a
cardioprotective effect.
This
triple mechanism of action helps to preserve heart function during
cardiac surgery. Several studies have demonstrated that
levosimendan protects the heart and improves tissue perfusion while
minimizing tissue damage during cardiac surgery.
In
2013, we acquired certain assets of Phyxius Pharma, Inc., or
Phyxius, including its North American rights to develop and
commercialize levosimendan for any indication in the United States
and Canada. In the countries where levosimendan is marketed,
Levosimendan is indicated for the short-term treatment of acutely
decompensated severe chronic heart failure in situations where
conventional therapy is not sufficient, and in cases where
inotropic support is considered appropriate.
In acute decompensated heart failure patients,
levosimendan has been shown to significantly improve
patients’ symptoms as well as acute hemodynamic measurements
such as increased cardiac output, reduced preload and reduced
afterload. Other unique properties of levosimendan include
sustained efficacy through the formation of a long acting
metabolite, lack of impairment of diastolic function, and evidence
of better compatibility with beta blockers than
dobutamine.
The European Society of Cardiology, or the ESC, recommends
levosimendan as a preferable agent over dobutamine to reverse the
effect of beta blockade if it is thought to be contributing to
hypotension. The ESC guidelines also state that levosimendan is not
appropriate for patients with systolic blood pressure less than
85mmHg or in patients in cardiogenic shock unless it is used in
combination with other inotropes or
vasopressors
.
Levosimendan
Development for Cardiac Surgery Patients
Levosimendan
is under development in North America for reduction in morbidity
and mortality of cardiac surgery patients at risk of LCOS. As noted
above, we have the exclusive rights in the United States and Canada
to develop and commercialize intravenous levosimendan.
The FDA
granted Fast Track status for the development of levosimendan to
reduce mortality and morbidity in cardiac surgery patients at risk
of LCOS and agreed to an SPA which represents agreement with the
Phase III clinical trial’s study protocol. The FDA also
provided guidance that a single successful trial will be sufficient
to support approval of levosimendan in this indication.
Pursuant to our license to
levosimendan, we are required to use the “Simdax®”
trademark to commercialize this product.
Substantial
published scientific research indicates that levosimendan may
provide important benefits to cardiac surgery patients, including
35 published prospectively designed clinical trials and multiple
published meta-analyses. Many of these publications indicate that
levosimendan provides substantial mortality and or morbidity
benefits to cardiac surgery patients, particularly those at risk of
developing LCOS.
LCOS is
generally defined as a patient’s inability to maintain a
cardiac index >2.2 L/min/m2 and hence requiring use of inotropic
agents and/or mechanical assist devices such as an intra-aortic
balloon pump or a left ventricular assistance device. LCOS in the
cardiac surgery setting is reported to occur in 5-10% of patients
undergoing cardiac surgery and is associated with 10-15 fold higher
mortality or severe sequelae as a result of poor organ
perfusion.
Currently,
no pharmacologic therapies are approved for management or
prevention of post-cardiotomy LCOS. While conventional inotropes
are used to manage cardiac hemodynamics in the peri-operative
setting, none have been shown to improve outcomes.
In
2014, we initiated a Phase III trial (LEVO-CTS) to investigate the
safety and efficacy of pre-operative administration of levosimendan
treatment to reduce the mortality and morbidity in cardiac surgery
patients at risk for developing LCOS. The Phase III trial was
conducted under a United States Food and Drug Administration, or
FDA, approved Special Protocol Assessment, or SPA, and with FDA
granted Fast Track status for the development of levosimendan in
cardiac surgery patients at risk of LCOS.
The
LEVO-CTS trial design was guided by the published literature,
including important dosing refinements and inclusion of patients
with low preoperative ejection fraction. In addition, we relied
heavily on the input of European clinicians who have significant
personal clinical experience with the use of levosimendan in
treating cardiac surgery patients.
Current
data in cardiac surgery suggest that levosimendan is superior to
traditional inotropes (dobutamine, phosphodiesterase
[PDE]-inhibitors) as it achieves:
●
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.
We
selected Duke University’s Duke Clinical Research Institute,
or DCRI, to conduct the Phase III trial of levosimendan. DCRI
is the world’s largest academic clinical research
organization, with substantial experience in conducting cardiac
surgery trials. The Phase III trial was conducted in
approximately 60-70 major cardiac surgery centers in North America.
The trial enrolled patients undergoing coronary artery bypass
grafts, or CABG, and/or mitral valve surgery, and CABG with aortic
valve surgery who are at risk for developing LCOS. The trial was
designed as a double blind, randomized, placebo controlled study
seeking to enroll 760 patients. During 2016 we made the decision to
increase enrollment in the LEVO-CTS trial to 880 patients. These
additional patients were necessary to ensure sufficient powering
and were necessary due to:
●
a small percentage
of patients who were randomized but did not receive the study
drug;
●
a small percentage
of patients who were missing one or more component measurements of
the primary endpoint; and
●
a slightly lower
primary endpoint event rate than we originally
projected.
Enrollment began in the third quarter of calendar year 2014, and
was completed in December of 2016. On January 31, 2017, we
announced top-line results from the Phase III LEVO-CTS trial.
Levosimendan, given prophylactically prior to cardiac surgery to
patients with reduced left ventricular function, had no effect on
the co-primary outcomes. The study did not achieve statistically
significant reductions in the dual endpoint of death or use of a
mechanical assist device at 30 days, nor in the quad endpoint of
death, myocardial infarction, need for dialysis, or use of a
mechanical assist device at 30 days.
However, the study results demonstrated statistically significant
reductions in two of three secondary endpoints including reduction
in LCOS and a reduction in postoperative use of secondary
inotropes. Additionally, levosimendan was found to be safe with no
clinically significant increases in hypotension or cardiac
arrhythmias and the clinical data showed a non-significant
numerical reduction in 90-day mortality.
Notwithstanding the fact that the trial’s primary endpoints
were not statistically significant, and given the statistically
significant reductions in the secondary endpoints, we continue to
believe levosimendan is an effective and safe inotrope to increase
cardiac output in patients at risk for or with perioperative low
cardiac output. Following the announcement of the Phase III
LEVO-CTS top-line results, we held a meeting with the FDA to review
the preliminary trial data and discuss a path forward to file a NDA
for levosimendan. As a follow-up to this meeting, a pre-NDA meeting
has been scheduled with the FDA in the second quarter of 2017 to
discuss the data that supports the approval of levosimendan for
acute decompensated heart failure. The FDA may not approve
levosimendan for this or any other indication, and if we are unable
to obtain regulatory approval, we will be unable to commercialize
levosimendan in the U.S.
Levosimendan
Development for Septic Shock Patients
Septic
shock is a serious life-threatening condition with high unmet
medical need.
Small clinical
studies suggest that levosimendan may provide important benefits to
septic shock patients in the form of improved cardiac function,
renal function, organ perfusion, and mitochondrial function. We
announced a collaboration with Imperial College London in August of
2014 which provided supplemental funding to support the accelerated
enrollment and completion of the ongoing LeoPARDS Trial
(Levosimendan for the Prevention of Acute oRgan Dysfunction in
Sepsis). The LeoPARDS trial was designed to determine whether
levosimendan reduces the incidence and severity of acute organ
dysfunction in adult patients who have septic shock, as well as
evaluate its safety profile.
On
October 5, 2016, Anthony Gordon, M.D., Chair in Anaesthesia and
Critical Care, Imperial College London, presented results from the
LeoPARDS trial evaluating levosimendan in septic shock at the
29
th
Annual Congress of the European Society of Intensive Care Medicine
(ESICM), held in Milan, Italy. Results presented by Dr. Gordon show
that the levosimendan treatment arm did not achieve the
trial’s primary endpoint of reducing the incidence and
severity of acute organ dysfunction in adult patients who have
septic shock, as well as the pre-specified secondary endpoints.
Based upon these results seen, we do not anticipate undertaking
further development with levosimendan in the septic shock
indication.
Other Products
In
addition to levosimendan described above, we have previously
developed Oxycyte, a PFC-based oxygen carrier, our Dermacyte®
line of topical cosmetic products, which contained our PFC
technology and other known cosmetic ingredients to promote the
appearance of skin health and other desirable cosmetic benefits, as
well as Wundecyte™, a novel gel developed under a contract
agreement with a lab in Virginia that was designed to be used as a
wound-healing gel. As we have suspended the development
of these PFC products while we evaluate strategic alternatives, we
do not expect that Oxycyte, Dermacyte or Wundecyte constitute a
material portion of our business going forward.
Suppliers
Pursuant
to the terms of our license for levosimendan, Orion Corporation is
our sole manufacturing source for levosimendan.
Intellectual Property
We rely
on a combination of patent applications, patents, trade secrets,
proprietary know-how, trademarks, and contractual provisions to
protect our proprietary rights. We believe that to have a
competitive advantage, we must develop and maintain the proprietary
aspects of our technologies. Currently, we require our officers,
employees, consultants, contractors, manufacturers, outside
scientific collaborators and sponsored researchers, and other
advisors to execute confidentiality agreements in connection with
their employment, consulting, or advisory relationships with us,
where appropriate. We also require our employees, consultants, and
advisors who we expect to work on our products to agree to disclose
and assign to us all inventions conceived during the work day,
developed using our property, or which relate to our
business.
To
date, we own or in-license the rights to seven U.S. and foreign
patents. In addition, we have numerous U.S. patent applications
pending that are complemented by the appropriate foreign patent
applications related to our product candidates and proprietary
processes, methods and technologies. Our issued and in-licensed
patents, as well as our pending patents, expire between 2017 and
2030.
We
have:
●
one U.S. patent
(6,167,887) and one Australian patent (759,557) 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 2 years;
●
one U.S. patent
(8,404,752) and one European patent (EPO9798325.8) held jointly
with Virginia Commonwealth University Intellectual Property
Foundation for the treatment of traumatic brain
injury;
●
exclusive
in-license to one fundamental gas transport patent application that
represents the core technology used in our products and product
candidates (other than levosimendan) with an average remaining life
of approximately 12 years;
●
one Israel patent
(215516) and numerous patent applications for the formulation of
perfluorocarbon emulsion with an average remaining life of
approximately 14 years; and
●
one U.S. patent
application for the use of levosimendan to treat left ventricular
systolic dysfunction in patients undergoing cardiac surgery
requiring cardiopulmonary bypass with an average remaining life of
approximately 19 years.
Our
patent and patent applications include claims
covering:
●
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
●
use of levosimendan
in patients undergoing cardiac surgery.
We have
received U.S. trademark registrations for Oxycyte®.
Simdax® is owned by Orion and is licensed to us for sales and
marketing purposes in the United States and Canada.
In
addition, we own numerous domain names relevant to our business,
such as www.tenaxthera.com, and others.
Competition
The
pharmaceutical and biotechnology industries are intensely
competitive. Many companies, including biotechnology, chemical and
pharmaceutical companies, are actively engaged in activities
similar to ours, including research and development of drugs for
the treatment of rare medical conditions. Many of these companies
have substantially greater financial and other resources, larger
research and development staffs, and more extensive marketing and
manufacturing organizations than we do. In addition, some of them
have considerable experience in preclinical testing, clinical
trials and other regulatory approval procedures. In addition, there
are also academic institutions, governmental agencies and other
research organizations that are conducting research in areas in
which we are working. We expect to encounter significant
competition for any of the pharmaceutical products we plan to
develop.
We believe the concept of using a medication to treat low
cardiac output syndrome is novel. Because therapies are currently
approved or commonly used to treat LCOS, our ability to succeed in
the market is dependent on our ability to change the established
practice paradigm, which is never an easy task. Key factors on
which we will compete with regards to the development and marketing
of levosimendan for the treatment of LCOS include, among others,
the ability to obtain adequate efficacy data, safety data, cost
effectiveness data and hospital formulary approval, as well as
sufficient distribution and handling. Furthermore, while we believe
the mechanism of action of levosimendan is novel, other low priced
generically available products possess some similar qualities,
which could present competition in the form of therapeutic
substitution.
In
order to compete successfully in this and other therapeutic areas,
we must develop proprietary positions in patented drugs for
therapeutic markets that have not been satisfactorily addressed by
conventional research strategies. Our product candidates, even if
successfully tested and developed, may not be adopted by physicians
over other products and may not offer economically feasible
alternatives to other therapies.
Government regulation
The
manufacture and distribution of levosimendan will require the
approval of United States government authorities as well as those
of foreign countries. In the United States, the FDA regulates
medical products. The Federal Food, Drug and Cosmetic Act and the
Public Health Service Act govern the testing, manufacture, safety,
effectiveness, labeling, storage, record keeping, approval,
advertising and promotion of our medical products. In addition to
FDA regulations, we are also subject to other federal and state
regulations, such as the Occupational Safety and Health Act and the
Environmental Protection Act. Product development and approval
within this regulatory framework requires a number of years and
involves the expenditure of substantial funds.
Preclinical
tests include evaluation of product chemistry and studies to assess
the safety and effectiveness of the product and its formulation.
The results of the preclinical tests are submitted to the FDA as
part of the application. The goal of clinical testing is the
demonstration in adequate and well-controlled studies of
substantial evidence of the safety and effectiveness of the product
in the setting of its intended use. The results of preclinical and
clinical testing are submitted to the FDA from time to time
throughout the trial process. In addition, before approval for the
commercial sale of a product can be obtained, results of the
preclinical and clinical studies must be submitted to the FDA. The
testing and approval process requires substantial time and effort
and there can be no assurance that any approval will be granted on
a timely basis, if at all. The approval process is affected by a
number of factors, including the severity of the condition being
treated, the availability of alternative treatments and the risks
and benefits demonstrated in clinical trials. Additional
preclinical studies or clinical trials may be requested during the
FDA review process and may delay product approval. After FDA
approval for its initial indications, further clinical trials may
be necessary to gain approval for the use of a product for
additional indications. The FDA may also require post-marketing
testing, which can involve significant expense, to monitor for
adverse effects.
As
noted above, following the announcement of the Phase III LEVO-CTS
top-line results, we held a meeting with the FDA to review the
preliminary trial data and discuss a path forward to file a NDA for
levosimendan. As a follow-up to this meeting, a pre-NDA meeting has
been scheduled with the FDA in the second quarter of
2017.
Research and Development
Our
research and development efforts are focused on the development and
commercialization of levosimendan for its use in clinical
indications, primarily LCOS. Previously, we were also focused on
furthering the development and manufacture of Oxycyte for its use
in clinical indications, primarily TBI, spinal cord injury, and
decompression sickness. However, we have suspended the development
of Oxycyte while we evaluate strategic alternatives.
We
spent approximately $13.1 million and $6.5 million on research and
development during the fiscal year ended December 31, 2016 and the
eight months ended December 31, 2015, respectively. During each of
the fiscal years ended April 30, 2015 and 2014 we spent
approximately $6.7 million and $3.0 million, respectively, on
research and development.
Employees
We
believe that our success will be based on, among other things, the
quality of our clinical programs, our ability to invent and develop
superior and innovative technologies and products, and our ability
to attract and retain capable management and other personnel. We
have assembled a high quality team of scientists, clinical
development managers, and executives with significant experience in
the biotechnology and pharmaceutical industries.
As of
December 31, 2016, we had ten full-time employees and one part-time
employee. In addition to our employees, we also use the service and
support of outside consultants and advisors. None of our employees
are represented by a union, and we believe relationships with our
employees are good.
Financial Information by Geographic Area
For the
year ended December 31, 2016, the eight months ended December 31,
2015 and the years ended April 30, 2015 and 2014, all revenues from
external customers were attributed to United States customers. As
of December 31, 2016, December 31, 2015 and April 30, 2015 and
2014, all long-lived assets with a net book value were located in
the United States.
Available Information
Our
website address is www.tenaxthera.com, and our investor relations
website is located at http://investors.tenaxthera.com. Information
on our website is not incorporated by reference herein. Copies of
our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and our Proxy Statements for our annual
meetings of stockholders, and any amendments to those reports, as
well as Section 16 reports filed by our insiders, are available
free of charge on our website as soon as reasonably practicable
after we file the reports with, or furnish the reports to, the
Securities and Exchange Commission, or the SEC. Our SEC filings are
also available for reading and copying at the SEC’s Public
Reference Room at 100 F Street, NE, Washington, D.C. 20549.
Information on the operation of the Public Reference Room may be
obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains an Internet site (http://www.sec.gov) containing reports,
proxy and information statements, and other information regarding
issuers that file electronically with the SEC.
ITEM
1A—RISK FACTORS
Risks Related to Our Financial Position and Need for Additional
Capital
We have a limited operating history, and we expect a number of
factors to cause our operating results to fluctuate on a quarterly
and annual basis, which may make it difficult to predict our future
performance.
Our
operations, to date, have been primarily limited to organizing and
staffing our company, developing our technology and undertaking
preclinical studies and clinical trials of our product candidates.
We have not yet obtained regulatory approvals for any of our
clinical product candidates. Consequently, any predictions you make
about our future success or viability may not be as accurate as
they could be if we had a longer operating history.
Specifically,
our financial condition and operating results have varied
significantly in the past and will continue to fluctuate from
quarter-to-quarter and year-to-year in the future due to a variety
of factors, many of which are beyond our control. Factors relating
to our business that may contribute to these fluctuations include
the following factors, among others:
●
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 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.
Due to
the various factors mentioned above, and others, the results of any
prior quarterly or annual periods should not be relied upon as
indications of our future operating performance.
We may need additional funding and if we are unable to raise
capital when needed, we would be forced to delay, reduce or
eliminate our product development programs.
Developing
biopharmaceutical products, including conducting preclinical
studies and clinical trials and establishing manufacturing
capabilities, is expensive. We expect our research and development
expenses to increase in connection with our ongoing activities. In
addition, our expenses could increase beyond expectations if
applicable regulatory authorities, including the FDA, require that
we perform additional studies to those that we currently
anticipate, in which case the timing of any potential product
approval may be delayed. As of December 31, 2016, we had $21.9
million of cash, including the fair value of our marketable
securities on hand. Based on our current operating plans, we
believe that our existing cash and cash equivalents will be
sufficient to fund our projected operating requirements through the
first half of calendar year 2018. We will need substantial
additional capital in the future in order to complete the
commercialization of levosimendan and to fund the development and
commercialization of future product candidates. Until we can
generate a sufficient amount of product revenue, if ever, we expect
to finance future cash needs through public or private equity
offerings, debt financings or corporate collaboration and licensing
arrangements. Such funding, if needed, may not be available on
favorable terms, if at all. In the event we are unable to obtain
additional capital, we may delay or reduce the scope of our current
research and development programs and other expenses.
If
adequate funds are not available, we may also be required to
eliminate one or more of our research or development programs or
our commercialization efforts. To the extent that we raise
additional funds by issuing equity securities, our stockholders may
experience additional significant dilution, and debt financing, if
available, may involve restrictive covenants. To the extent that we
raise additional funds through collaboration and licensing
arrangements, it may be necessary to relinquish some rights to our
technologies or our product candidates or to grant licenses on
terms that may not be favorable to us. We may seek to access the
public or private capital markets whenever conditions are
favorable, even if we do not have an immediate need for additional
capital at that time.
Our
forecast of the period of time through which our financial
resources will be adequate to support our operations is a
forward-looking statement and involves risks and uncertainties, and
actual results could vary as a result of a number of factors,
including the factors discussed elsewhere in this “Risk
Factors” section. We have based this estimate on assumptions
that may prove to be wrong, and we could utilize our available
capital resources sooner than we currently expect. Our future
funding requirements will depend on many factors, including, but
not limited to:
●
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.
Risks Related to Commercialization and Product
Development
We are limited in the number of products we can simultaneously
pursue and therefore our survival depends on our success with a
small number of product opportunities.
We have
limited financial resources, so at present we are primarily
focusing these resources on developing levosimendan for the
treatment of LCOS. However, on January 31, 2017, we announced
top-line results from the Phase III LEVO-CTS trial. The study did
not achieve statistically significant reductions in the dual
endpoint of death or use of a mechanical assist device at 30 days,
nor in the quad endpoint of death, myocardial infarction, need for
dialysis, or use of a mechanical assist device at 30 days.
Nevertheless, the study demonstrated statistically significant
reductions in two of three secondary endpoints including reduction
in LCOS and a reduction in postoperative use of secondary
inotropes. Additionally, we observed a non-significant numerical
reduction in 90-day mortality. At present, we intend to commit most
of our resources to advancing levosimendan to the point it receives
regulatory approval for one or more medical uses. If as a
consequence of the results of our Phase III LEVO-CTS trial, we are
unable to receive regulatory approval of levosimendan, then we may
not have resources to pursue development of any other products and
our business could terminate.
We currently have no approved drug products for sale and we cannot
guarantee that we will ever have marketable drug
products.
We
currently have no approved drug products for sale. The research,
testing, manufacturing, labeling, approval, selling, marketing, and
distribution of drug products are subject to extensive regulation
by the FDA and other regulatory authorities in the United States
and other countries, with regulations differing from country to
country. We are not permitted to market our product in the United
States until we receive approval of a new drug application, or an
NDA, from the FDA for each product candidate. While we have not
submitted a NDA or received marketing approval for any of our
product candidates, and obtaining approval of an NDA is a lengthy,
expensive and uncertain process, we held a meeting with the FDA to
review the preliminary trial data for our Phase III LEVO-CTS trial
and discuss a path forward to file a NDA for levosimendan. As a
follow-up to this meeting, we scheduled a pre-NDA meeting with the
FDA to take place in the second quarter of 2017. In addition,
markets outside of the United States also have requirements for
approval of drug candidates which we must comply with prior to
marketing. Accordingly, we cannot guarantee that we will ever have
marketable drug products.
The development of levosimendan is subject to a high level of
technological risk.
We have
devoted a substantial portion of our financial and managerial
resources to pursue Phase III clinical trials for levosimendan. The
biomedical field has undergone rapid and significant technological
changes. Technological developments may result in our products
becoming obsolete or non-competitive before we are able to recover
any portion of the research and development and other expenses we
have incurred to develop and clinically test levosimendan. As our
opportunity to generate substantial product revenues within the
next three to four years is most likely dependent on successful
testing and commercialization of levosimendan for surgical
applications, any such occurrence would have a material adverse
effect on our operations and could result in the cessation of our
business.
We may be required to conduct additional clinical trials in the
future, which are expensive and time consuming, and the outcome of
the trials is uncertain.
We
expect to commit a substantial portion of our financial and
business resources over the next two years to preclinical and
clinical testing of levosimendan and advancing this product to
regulatory approval for use in one or more medical applications.
All of these clinical trials and testing will be expensive and time
consuming and the timing of the regulatory review process is
uncertain. The applicable regulatory agencies may suspend clinical
trials at any time if they believe that the subjects participating
in such trials are being exposed to unacceptable health risks. We
cannot ensure that we will be able to complete our clinical trials
successfully or obtain FDA or other governmental or regulatory
approval of our products, or that such approval, if obtained, will
not include limitations on the indicated uses for which our
products may be marketed. For example, the top-line results of our
Phase III LEVO-CTS trial for levosimendan did not achieve
statistically significant reductions in dual or quad primary
endpoints but did meet two secondary endpoints with statistically
significant reduction in incidence of LCOS and use of postoperative
secondary inotropes. Our business, financial condition and results
of operations are critically dependent on obtaining capital to
advance our testing program and receiving FDA and other
governmental and regulatory approvals of our products. A
significant delay in or failure of our planned clinical trials or a
failure to achieve these approvals would have a material adverse
effect on us and could result in major setbacks or jeopardize our
ability to continue as a going concern. For instance, based on the
results of our LeoPARDS clinical trial, we do not anticipate
undertaking further development with levosimendan in the septic
shock indication.
The market may not accept our products.
Even if
regulatory approval is obtained, there is a risk that the efficacy
and pricing of our products, considered in relation to our
products’ expected benefits, will not be perceived by health
care providers and third-party payers as cost-effective, and that
the price of our products will not be competitive with other new
technologies or products. Our results of operations may be
adversely affected if the price of our products is not considered
cost-effective or if our products do not otherwise achieve market
acceptance.
Any collaboration we enter with third parties to develop and
commercialize our product candidates may place the development of
our product candidates outside our control, may require us to
relinquish important rights or may otherwise be on terms
unfavorable to us.
We may
enter into collaborations with third parties to develop and
commercialize our product candidates. Our dependence on future
partners for development and commercialization of our product
candidates would subject us to a number of risks,
including:
●
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.
Delays in the enrollment and completion of clinical testing could
result in increased costs to us and delay or limit our ability to
obtain regulatory approval for our product candidates.
Delays
in the enrollment and completion of clinical testing could
significantly affect our product development costs. The completion
of clinical trials requires us to identify and maintain a
sufficient number of trial sites, many of which may already be
engaged in other clinical trial programs for the same indication as
our product candidates or may be required to withdraw from our
clinical trial as a result of changing standards of care or may
become ineligible to participate in clinical studies. The
enrollment and completion of clinical trials can be delayed for a
variety of other reasons, including delays related to:
●
reaching agreements
on acceptable terms with prospective trial sites, the terms of
which can be subject to extensive negotiation and may vary
significantly among trial sites;
●
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;
●
maintaining and
supplying clinical trial material on a timely basis;
and
●
collecting,
analyzing and reporting final data from the clinical
trials.
In
addition, a clinical trial may be suspended or terminated by us,
the FDA or other regulatory authorities due to a number of factors,
including:
●
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 contract research organizations, or CROs, and other third
parties.
Changes
in regulatory requirements and guidance may occur and we may need
to amend clinical trial protocols to reflect these changes with
appropriate regulatory authorities. Amendments may require us to
resubmit our clinical trial protocols to IRBs for re-examination,
which may impact the costs, timing or successful completion of a
clinical trial. If we experience delays in the completion of, or if
we terminate, our clinical trials, the commercial prospects for our
product candidates will be harmed, and our ability to generate
product revenues will be delayed. In addition, many of the factors
that cause, or lead to, a delay in the commencement or completion
of clinical trials may also ultimately lead to the denial of
regulatory approval of a product candidate. Even if we are able to
ultimately commercialize our product candidates, other therapies
for the same or similar indications may have been introduced to the
market and established a competitive advantage.
Risks Relating to Regulatory Matters
Our activities are and will continue to be subject to extensive
government regulation, which is expensive and time consuming, and
we will not be able to sell our products without regulatory
approval.
Our
research, development, testing, manufacturing, marketing and
distribution of levosimendan is, and will continue to be, subject
to extensive regulation, monitoring and approval by the FDA and
other regulatory agencies. There are significant risks at each
stage of the regulatory scheme.
Product approval stage
During
the product approval stage we attempt to prove the safety and
efficacy of our product for its indicated uses. There are numerous
problems that could arise during this stage,
including:
●
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.
Post-commercialization stage
Discovery
of previously unknown problems with our products, or unanticipated
problems with our manufacturing arrangements, even after FDA and
other regulatory approvals of our products for commercial sale may
result in the imposition of significant restrictions, including
withdrawal of the product from the market.
Additional
laws and regulations may also be enacted that could prevent or
delay regulatory approval of our products, including laws or
regulations relating to the price or cost-effectiveness of medical
products. Any delay or failure to achieve regulatory approval of
commercial sales of our products is likely to have a material
adverse effect on our financial condition, results of operations
and cash flows.
The FDA
and other regulatory agencies continue to review products even
after they receive agency approval. If and when the FDA or another
regulatory agency outside the United States approves one of our
products, its manufacture and marketing will be subject to ongoing
regulation, which could include compliance with current good
manufacturing practices, adverse event reporting requirements and
general prohibitions against promoting products for unapproved or
“off-label” uses. We are also subject to inspection and
market surveillance by the FDA for compliance with these and other
requirements. Any enforcement action resulting from failure, even
by inadvertence, to comply with these requirements could affect the
manufacture and marketing of levosimendan or our other products. In
addition, the FDA or other regulatory agencies could withdraw a
previously approved product from the market upon receipt of newly
discovered information. The FDA or another regulatory agency could
also require us to conduct additional, and potentially expensive,
studies in areas outside our approved indicated uses.
We must continually monitor the safety of our products once
approved and marketed for signs that their use may elicit serious
and unexpected side effects and adverse events, which could
jeopardize our ability to continue marketing the products. We may
also be required to conduct post-approval clinical studies as a
condition to licensing a product.
As with
all pharmaceutical products, the use of our products could
sometimes produce undesirable side effects or adverse reactions or
events (referred to cumulatively as adverse events). For the most
part, we would expect these adverse events to be known and occur at
some predicted frequency. When adverse events are reported to us,
we will be required to investigate each event and circumstances
surrounding it to determine whether it was caused by our product
and whether it implies that a previously unrecognized safety issue
exists. We will also be required to periodically report summaries
of these events to the applicable regulatory
authorities.
In
addition, the use of our products could be associated with serious
and unexpected adverse events, or with less serious reactions at a
greater than expected frequency. This may be especially true when
our products are used in critically ill or otherwise compromised
patient populations. When these unexpected events are reported to
us, we will be required to make a thorough investigation to
determine causality and implications for product safety. These
events must also be specifically reported to the applicable
regulatory authorities. If our evaluation concludes, or regulatory
authorities perceive, that there is an unreasonable risk associated
with the product, we would be obligated to withdraw the impacted
lot(s) of that product. Furthermore, an unexpected adverse event of
a new product could be recognized only after extensive use of the
product, which could expose us to product liability risks,
enforcement action by regulatory authorities and damage to our
reputation and public image.
A
serious adverse finding concerning the risk of our products by any
regulatory authority could adversely affect our reputation,
business and financial results.
When a
new product is approved, the FDA or other regulatory authorities
may require post-approval clinical trials, sometimes called Phase
IV clinical trials. If the results of such trials are unfavorable,
this could result in the loss of the license to market the product,
with a resulting loss of sales.
After our products are commercialized, we expect to spend
considerable time and money complying with federal and state laws
and regulations governing their sale, and, if we are unable to
fully comply with such laws and regulations, we could face
substantial penalties.
Health
care providers, physicians and others will play a primary role in
the recommendation and prescription of our clinical products. Our
arrangements with third-party payers and customers may expose us to
broadly applicable fraud and abuse and other health care laws and
regulations that may constrain the business or financial
arrangements and relationships through which we will market, sell
and distribute our products. Applicable federal and state health
care laws and regulations are expected to include, but not be
limited to, the following:
●
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
failure to comply with any of these federal and state health care
laws and regulations, or health care laws in foreign jurisdictions,
could have a material adverse effect on our business, financial
condition, result of operations and cash flows.
Health care reform and controls on health care spending may limit
the price we can charge for our products and the amount we can
sell.
As a
result of Patient Protection and Affordable Care Act and the Health
Care and Education Affordability Reconciliation Act of 2010,
collectively, the ACA, enacted in March 2010, substantial changes
have occurred and are expected to continue to occur in the system
for paying for health care in the United States, including changes
made in order to extend medical benefits to those who currently
lack insurance coverage. This comprehensive health care reform
legislation also included provisions to control health care costs
and improve health care quality. Together with ongoing statutory
and budgetary policy developments at a federal level, this health
care reform legislation could include changes in Medicare and
Medicaid payment policies and other health care delivery
administrative reforms that could potentially negatively impact our
business. Because not all the administrative rules implementing
health care reform under the legislation have been finalized, and
because of ongoing federal fiscal budgetary pressures not yet
resolved for federal health programs, the full impact of the ACA
and of further statutory actions to reform healthcare payment on
our business is unknown, but there can be no assurances that health
care reform legislation will not adversely impact either our
operational results or the manner in which we operate our business.
There have been judicial and Congressional challenges to the ACA
and there may be additional challenges and amendments to the ACA in
the future, particularly in light of the new presidential
administration and U.S. Congress. We expect that the ACA, as well
as other healthcare reform measures that may be adopted in the
future, may result in more rigorous coverage criteria and lower
reimbursement, and in additional downward pressure on the price
that we receive for any approved product. Cost of care could be
reduced by reducing the level of reimbursement for medical services
or products (including those biopharmaceuticals that we intend to
produce and market), or by restricting coverage (and, thereby,
utilization) of medical services or products. In either case, a
reduction in the utilization of, or reimbursement for, our products
could have a materially adverse impact on our financial
performance. Moreover, recently there has been heightened
governmental scrutiny over the manner in which manufacturers set
prices for their commercial products. We cannot predict what
healthcare reform initiatives may be adopted in the
future.
Uncertainty of third-party reimbursement could affect our future
results of operations.
Sales
of medical products largely depend on the reimbursement of
patients’ medical expenses by governmental health care
programs and private health insurers. We will be required to report
detailed pricing information, net of included discounts, rebates
and other concessions, to the Centers for Medicare and Medicaid
Services, or CMS, for the purpose of calculating national
reimbursement levels, certain federal prices, and certain federal
rebate obligations. If we report pricing information that is not
accurate to the federal government, we could be subject to fines
and other sanctions that could adversely affect our business. In
addition, the government could change its calculation of
reimbursement, federal prices, or federal rebate obligations which
could negatively impact us. There is no guarantee that government
health care programs or private health insurers will reimburse for
the sales of our products, or permit us to sell our products at
high enough prices to generate a profit.
Governments outside the United States tend to impose strict price
controls and reimbursement approval policies, which may adversely
affect our prospects for generating revenue outside the United
States.
In some
countries, particularly European Union countries and Canada, the
pricing of prescription pharmaceuticals is subject to governmental
control. In these countries, pricing negotiations with governmental
authorities can take considerable time after the receipt of
marketing approval for a product. In addition, there can be
considerable pressure by governments and other stakeholders on
prices and reimbursement levels, including as part of cost
containment measures. Political, economic and regulatory
developments may further complicate pricing negotiations, and
pricing negotiations may continue after reimbursement has been
obtained. To obtain or maintain reimbursement or pricing approval
in some countries with respect to any product candidate that
achieves regulatory approval, we may be required to conduct a
clinical trial that compares the cost-effectiveness of our product
candidate to other available therapies. If reimbursement of our
products upon approval, if at all, is unavailable or limited in
scope or amount, or if pricing is set at unsatisfactory levels, our
prospects for generating revenue, if any, could be adversely
affected which would have a material adverse effect on our business
and results of operations. Further, if we achieve regulatory
approval of any product, we must successfully negotiate product
pricing for such product in individual countries. As a result, the
pricing of our products, if approved, in different countries may
vary widely, thus creating the potential for third-party trade in
our products in an attempt to exploit price differences between
countries. This third-party trade of our products could undermine
our sales in markets with higher prices.
Risks Relating to Our Dependence on Third Parties
We depend on third parties to manufacture our
products.
We do
not own or operate any manufacturing facilities for the
commercial-scale production of our products. Instead, we rely on
third party manufacturers. For example, pursuant to the terms
of our license for levosimendan, Orion Corporation is our sole
manufacturing source for levosimendan. Accordingly, our
business is susceptible to disruption, and our results of
operations can be adversely affected, by any disruption in supply
or other adverse developments in our relationship with Orion
Corporation. If supply from Orion Corporation is delayed or
terminated, or if its facilities suffer any damage or disruption,
we may need to successfully qualify an alternative supplier in a
timely manner in order to not disrupt our business. If we
cannot obtain an alternate manufacturer in a timely manner, we
would experience a significant interruption in supply of
levosimendan, which could negatively affect our financial
condition, results of operations and cash flows.
We depend on the services of a limited number of key
personnel.
Our
success is highly dependent on the continued services of a limited
number of scientists and support personnel. The loss of any of
these individuals, in particular, John P. Kelley, our Chief
Executive Officer, could have a material adverse effect on us. In
addition, our success will depend, among other factors, on the
recruitment and retention of additional highly skilled and
experienced management and technical personnel. There is a risk
that we will not be able to retain existing employees or to attract
and retain additional skilled personnel on acceptable terms given
the competition for such personnel among numerous large and
well-funded pharmaceutical and health care companies, universities,
and non-profit research institutions, which could negatively affect
our financial condition, results of operations and cash
flows.
We have limited experience in the sale and marketing of medical
products.
We have
limited experience in the sale and marketing of approved medical
products and marketing the licensing of such products before FDA or
other regulatory approval. We have not decided upon a
commercialization strategy in these areas. We do not know of any
third party that is prepared to distribute our products should they
be approved. If we decide to establish our own commercialization
capability, we will need to recruit, train and retain a marketing
staff and sales force with sufficient technical expertise. We do
not know whether we can establish a commercialization program at a
cost that is acceptable in relation to revenue or whether we can be
successful in commercializing our product. Factors that may inhibit
our efforts to commercialize our products directly and without
strategic partners include:
●
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.
Failure
to successfully commercialize our products or to do so on a cost
effective basis would likely result in failure of our
business.
We may enter into distribution arrangements and marketing alliances
for certain products and any failure to successfully identify and
implement these arrangements on favorable terms, if at all, may
impair our ability to commercialize our product
candidates.
We do
not anticipate having the resources in the foreseeable future to
develop global sales and marketing capabilities for all of the
products we develop, if any. We may pursue arrangements regarding
the sales and marketing and distribution of one or more of our
product candidates and our future revenues may depend, in part, on
our ability to enter into and maintain arrangements with other
companies having sales, marketing and distribution capabilities and
the ability of such companies to successfully market and sell any
such products. Any failure to enter into such arrangements and
marketing alliances on favorable terms, if at all, could delay or
impair our ability to commercialize our product candidates and
could increase our costs of commercialization. Any use of
distribution arrangements and marketing alliances to commercialize
our product candidates will subject us to a number of risks,
including the following:
●
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.
We may
need to enter into additional co-promotion arrangements with third
parties where our own sales force is neither well situated nor
large enough to achieve maximum penetration in the market. We may
not be successful in entering into any co-promotion arrangements,
and the terms of any co-promotion arrangements we enter into may
not be favorable to us.
Risks Relating to Intellectual Property
It is difficult and costly to protect our proprietary rights, and
we may not be able to ensure their protection.
Our
commercial success will depend in part on obtaining and maintaining
patent protection and trade secret protection of our product
candidates and the methods used to manufacture them, as well as
successfully defending these patents against third-party
challenges. Our ability to stop third parties from making, using,
selling, offering to sell or importing our products is dependent
upon the extent to which we have rights under valid and enforceable
patents or trade secrets that cover these activities.
We
license certain intellectual property from third parties that
covers our product candidates. We rely on certain of these third
parties to file, prosecute and maintain patent applications and
otherwise protect the intellectual property to which we have a
license, and we have not had and do not have primary control over
these activities for certain of these patents or patent
applications and other intellectual property rights. We cannot be
certain that such activities by third parties have been or will be
conducted in compliance with applicable laws and regulations or
will result in valid and enforceable patents and other intellectual
property rights. Our enforcement of certain of these licensed
patents or defense of any claims asserting the invalidity of these
patents would also be subject to the cooperation of the third
parties.
The
patent positions of pharmaceutical and biopharmaceutical companies
can be highly uncertain and involve complex legal and factual
questions for which important legal principles remain unresolved.
No consistent policy regarding the breadth of claims allowed in
biopharmaceutical patents has emerged to date in the United States.
The biopharmaceutical patent situation outside the United States is
even more uncertain. Changes in either the patent laws or in
interpretations of patent laws in the United States and other
countries may diminish the value of our intellectual property.
Accordingly, we cannot predict the breadth of claims that may be
allowed or enforced in the patents we own or to which we have a
license from a third-party. Further, if any of our patents are
deemed invalid and unenforceable, it could impact our ability to
commercialize or license our technology.
The
degree of future protection for our proprietary rights is uncertain
because legal means afford only limited protection and may not
adequately protect our rights or permit us to gain or keep our
competitive advantage. For example:
●
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.
We also
may rely on trade secrets to protect our technology, especially
where we do not believe patent protection is appropriate or
obtainable. However, trade secrets are difficult to protect.
Although we use reasonable efforts to protect our trade secrets,
our employees, consultants, contractors, outside scientific
collaborators and other advisors may unintentionally or willfully
disclose our information to competitors. Enforcing a claim that a
third party illegally obtained and is using any of our trade
secrets is expensive and time consuming, and the outcome is
unpredictable. In addition, courts outside the United States are
sometimes less willing to protect trade secrets. Moreover, our
competitors may independently develop equivalent knowledge, methods
and know-how.
We rely on confidentiality agreements that, if breached, may be
difficult to enforce and could have a material adverse effect on
our business and competitive position.
Our
policy is to enter agreements relating to the non-disclosure and
non-use of confidential information with third parties, including
our contractors, consultants, advisors and research collaborators,
as well as agreements that purport to require the disclosure and
assignment to us of the rights to the ideas, developments,
discoveries and inventions of our employees and consultants while
we employ them. However, these agreements can be difficult and
costly to enforce. Moreover, to the extent that our contractors,
consultants, advisors and research collaborators apply or
independently develop intellectual property in connection with any
of our projects, disputes may arise as to the proprietary rights to
the intellectual property. If a dispute arises, a court may
determine that the right belongs to a third party, and enforcement
of our rights can be costly and unpredictable. In addition, we rely
on trade secrets and proprietary know-how that we seek to protect
in part by confidentiality agreements with our employees,
contractors, consultants, advisors or others. Despite the
protective measures we employ, we still face the risk
that:
●
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.
Any
breach of our confidentiality agreements or our failure to
effectively enforce such agreements would have a material adverse
effect on our business and competitive position.
We may incur substantial costs as a result of litigation or other
proceedings relating to patent and other intellectual property
rights and we may be unable to protect our rights to, or use, our
technology.
If we
or our partners choose to go to court to stop someone else from
using the inventions claimed in our patents, that individual or
company has the right to ask the court to rule that these patents
are invalid and/or should not be enforced against that third party.
These lawsuits are expensive and would consume time and other
resources even if we were successful in stopping the infringement
of these patents. In addition, there is a risk that the court will
decide that these patents are not valid and that we do not have the
right to stop the other party from using the inventions. There is
also the risk that, even if the validity of these patents is
upheld, the court will refuse to stop the other party on the ground
that such other party’s activities do not infringe our rights
to these patents.
Furthermore,
a third party may claim that we or our manufacturing or
commercialization partners are using inventions covered by the
third party’s patent rights and may go to court to stop us
from engaging in our normal operations and activities, including
making or selling our product candidates. These lawsuits are costly
and could affect our results of operations and divert the attention
of managerial and technical personnel. There is a risk that a court
would decide that we or our commercialization partners are
infringing the third party’s patents and would order us or
our partners to stop the activities covered by the patents. In
addition, there is a risk that a court will order us or our
partners to pay the other party damages for having violated the
other party’s patents. We have agreed to indemnify certain of
our commercial partners against certain patent infringement claims
brought by third parties. The biotechnology industry has produced a
proliferation of patents, and it is not always clear to industry
participants, including us, which patents cover various types of
products or methods of use. The coverage of patents is subject to
interpretation by the courts, and the interpretation is not always
uniform. If we are sued for patent infringement, we would need to
demonstrate that our products or methods of use either does not
infringe the patent claims of the relevant patent and/or that the
patent claims are invalid, and we may not be able to do this.
Proving invalidity, in particular, is difficult since it requires a
showing of clear and convincing evidence to overcome the
presumption of validity enjoyed by issued patents.
Because
some patent applications in the United States may be maintained in
secrecy until the patents are issued, because patent applications
in the United States and many foreign jurisdictions are typically
not published until eighteen months after filing and because
publications in the scientific literature often lag behind actual
discoveries, we cannot be certain that others have not filed patent
applications for technology covered by our issued patents or our
pending applications, or that we were the first to invent the
technology. Our competitors may have filed, and may in the future
file, patent applications covering technology similar to ours. Any
such patent application may have priority over our patent
applications or patents, which could further require us to obtain
rights to issued patents by others covering such technologies. If
another party has filed a U.S. patent application on inventions
similar to ours, we may have to participate in an interference
proceeding declared by the U.S. Patent and Trademark Office to
determine priority of invention in the United States. The costs of
these proceedings could be substantial, and it is possible that
such efforts would be unsuccessful if, unbeknownst to us, the other
party had independently arrived at the same or similar invention
prior to our own invention, resulting in a loss of our U.S. patent
position with respect to such inventions.
Some of
our competitors may be able to sustain the costs of complex patent
litigation more effectively than we can because they have
substantially greater resources. In addition, any uncertainties
resulting from the initiation and continuation of any litigation
could have a material adverse effect on our ability to raise the
funds necessary to continue our operations.
Our collaborations with outside scientists and consultants may be
subject to restriction and change.
We work
with chemists, biologists and other scientists at academic and
other institutions, and consultants who assist us in our research,
development, regulatory and commercial efforts, including the
members of our scientific advisory board. These scientists and
consultants have provided, and we expect that they will continue to
provide, valuable advice on our programs. These scientists and
consultants are not our employees, may have other commitments that
would limit their future availability to us and typically will not
enter into non-compete agreements with us. If a conflict of
interest arises between their work for us and their work for
another entity, we may lose their services. In addition, we will be
unable to prevent them from establishing competing businesses or
developing competing products. For example, if a key scientist
acting as a principal investigator in any of our clinical trials
identifies a potential product or compound that is more
scientifically interesting to his or her professional interests,
his or her availability to remain involved in our clinical trials
could be restricted or eliminated.
Under current law, we may not be able to enforce all
employees’ covenants not to compete and therefore may be
unable to prevent our competitors from benefiting from the
expertise of some of our former employees.
We have
entered into non-competition agreements with certain of our
employees. These agreements prohibit our employees, if they cease
working for us, from competing directly with us or working for our
competitors for a limited period. Under current law, we may be
unable to enforce these agreements against certain of our employees
and it may be difficult for us to restrict our competitors from
gaining the expertise our former employees gained while working for
us. If we cannot enforce our employees’ non-compete
agreements, we may be unable to prevent our competitors from
benefiting from the expertise of our former employees.
We may infringe or be alleged to infringe intellectual property
rights of third parties.
Our
products or product candidates may infringe on, or be accused of
infringing on, one or more claims of an issued patent or may fall
within the scope of one or more claims in a published patent
application that may be subsequently issued and to which we do not
hold a license or other rights. Third parties may own or control
these patents or patent applications in the United States and
abroad. These third parties could bring claims against us or our
collaborators that would cause us to incur substantial expenses
and, if successful against us, could cause us to pay substantial
damages. Further, if a patent infringement suit were brought
against us or our collaborators, we or they could be forced to stop
or delay research, development, manufacturing or sales of the
product or product candidate that is the subject of the
suit.
If we
are found to infringe the patent rights of a third party, or in
order to avoid potential claims, we or our collaborators may choose
or be required to seek a license from a third party and be required
to pay license fees or royalties or both. These licenses may not be
available on acceptable terms, or at all. Even if we or our
collaborators were able to obtain a license, the rights may be
nonexclusive, which could result in our competitors gaining access
to the same intellectual property. Ultimately, we could be
prevented from commercializing a product, or be forced to cease
some aspect of our business operations, if, as a result of actual
or threatened patent infringement claims, we or our collaborators
are unable to enter into licenses on acceptable terms.
There
have been substantial litigation and other proceedings regarding
patent and other intellectual property rights in the pharmaceutical
and biotechnology industries. In addition to infringement claims
against us, we may become a party to other patent litigation and
other proceedings, including interference proceedings declared by
the United States Patent and Trademark Office and opposition
proceedings in the European Patent Office, regarding intellectual
property rights with respect to our products. Our products, after
commercial launch, may become subject to Paragraph IV certification
under the Hatch-Waxman Act, thus forcing us to initiate
infringement proceedings against such third-party filers. The cost
to us of any patent litigation or other proceeding, even if
resolved in our favor, could be substantial. Some of our
competitors may be able to sustain the costs of such litigation or
proceedings more effectively than we can because of their
substantially greater financial resources. Uncertainties resulting
from the initiation and continuation of patent litigation or other
proceedings could have a material adverse effect on our ability to
compete in the marketplace. Patent litigation and other proceedings
may also absorb significant management time.
Many of
our employees were previously employed at universities or other
biotechnology or pharmaceutical companies, including our
competitors or potential competitors. We try to ensure that our
employees do not use the proprietary information or know-how of
others in their work for us. We may, however, be subject to claims
that we or these employees have inadvertently or otherwise used or
disclosed intellectual property, trade secrets or other proprietary
information of any such employee’s former employer.
Litigation may be necessary to defend against these claims and,
even if we are successful in defending ourselves, could result in
substantial costs to us or be distracting to our management. If we
fail to defend any such claims, in addition to paying monetary
damages, we may lose valuable intellectual property rights or
personnel.
Product liability lawsuits against us could cause us to incur
substantial liabilities, limit sales of our existing products and
limit commercialization of any products that we may
develop.
Our
business exposes us to the risk of product liability claims that
are inherent in the manufacturing, distribution, and sale of
biotechnology products. We face an inherent risk of product
liability exposure related to the testing of our product candidates
in human clinical trials and an even greater risk when we
commercially sell any products. If we cannot successfully defend
ourselves against claims that our product candidates or products
caused injuries, we could incur substantial liabilities. Regardless
of merit or eventual outcome, liability claims may result
in:
●
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.
We
currently maintain limited product liability insurance coverage for
our clinical trials in the total amount of $3 million. However, our
profitability will be adversely affected by a successful product
liability claim in excess of our insurance coverage. There can be
no assurance that product liability insurance will be available in
the future or be available on reasonable terms.
Risks Related to Owning Our Common Stock
Our share price has been volatile and may continue to be volatile
which may subject us to securities class action litigation in the
future.
Our
stock price has in the past been, and is likely to be in the
future, volatile. The stock market in general has experienced
extreme volatility that has often been unrelated to the operating
performance of particular companies. During the period from January
20, 2017 to March 9, 2017, the closing sales price of our common
stock ranged from a high of $2.50 per share to a low of $0.46 per
share. Our stock price experienced significant volatility during
that period after we announced the top-line results of our Phase
III LEVO-CTS clinical trial. As a result of this volatility, our
existing stockholders may not be able to sell their stock at a
favorable price. The market price for our common stock may be
influenced by many factors, including:
●
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.
In the
past, securities class action litigation has often been brought
against a company following a decline in the market price of its
securities. If we face such litigation, it could result in
substantial costs and a diversion of management’s attention
and resources.
We are likely to attempt to raise additional capital through
issuances of debt or equity securities, which may cause our stock
price to decline, dilute the ownership interests of our existing
stockholders, and/or limit our financial flexibility.
Historically
we have financed our operations through the issuance of equity
securities and debt financings, and we expect to continue to do so
for the foreseeable future. As of December 31, 2016, we had $21.9
million of cash and cash equivalents on hand. Based on our current
operating plans, we believe our existing cash and cash equivalents
are sufficient to continue to fund operations through the first
half of calendar year 2018. To the extent that we raise additional
funds by issuing equity securities, our stockholders may experience
significant dilution of their ownership interests. Debt financing,
if available, may involve restrictive covenants that limit our
financial flexibility or otherwise restrict our ability to pursue
our business strategies. Additionally, if we issue shares of common
stock, or securities convertible or exchangeable for common stock,
the market price of our existing common stock may decline. There
can be no assurance that we will be successful in obtaining any
additional capital resources in a timely manner, on favorable
terms, or at all.
We have issued in the past, and may issue in the future,
substantial amounts of instruments that are convertible into or
exercisable for common stock, and our existing stockholders may
face substantial dilution if such instruments are converted or
exercised.
As of
March 9, 2017, we had outstanding warrants and options, securities
purchase agreements, and other instruments that are exercisable
into an aggregate of 7,157,921 shares of our common stock, which,
if exercised, would represent approximately 20% of our current
outstanding common stock. These instruments carry a wide variety of
different terms and prices, and there can be no assurance as to
when or whether exercises of these instruments may occur. If all or
any substantial portion of these instruments are exercised, our
existing stockholders may face substantial dilution of their
ownership interests.
None.
We own
no real property. We lease our principal executive office at ONE
Copley Parkway, Suite 490, Morrisville, North Carolina 27560. The
current rent is approximately $9,179 per month for the
facility.
The
Company is subject to litigation in the normal course of business,
none of which management believes will have a material adverse
effect on the Company’s Consolidated Financial
Statements.
Not
applicable
ITEM 5—MARKET FOR THE
REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Price and Number of Stockholders
Our
common stock is listed on the Nasdaq Capital Market under the
symbol “TENX.” The following table sets forth, for the
periods indicated, the range of high and low sales prices in each
fiscal quarter for our common stock, all as adjusted for the
1-for-20 reverse split effective May 10, 2013.
|
Year-Ended April 30, 2015
|
High
|
Low
|
|
First
Quarter
|
$
5.18
|
$
3.60
|
|
Second
Quarter
|
$
4.40
|
$
3.34
|
|
Third
Quarter
|
$
4.76
|
$
3.01
|
|
Fourth
Quarter
|
$
3.54
|
$
2.88
|
|
Transition Period Ended December 31, 2015
|
High
|
Low
|
|
First
Quarter
|
$
3.88
|
$
3.26
|
|
Second
Quarter
|
$
3.98
|
$
2.88
|
|
Two
Months Ended December 31, 2015
|
$
3.40
|
$
2.98
|
|
Year-Ended December 31, 2016
|
High
|
Low
|
|
First
Quarter
|
$
3.37
|
$
1.94
|
|
Second
Quarter
|
$
2.94
|
$
2.00
|
|
Third
Quarter
|
$
2.77
|
$
2.16
|
|
Fourth
Quarter
|
$
2.43
|
$
1.21
|
As of
March 9, 2017, there were 1,347 holders of record of our common
stock. In addition, we believe that a significant number of
beneficial owners of our common stock hold their shares in nominee
or in “street name” accounts through brokers, and any
such beneficial owners are not included in this number of holders
of record. On March 9, 2017, the last sale price reported on the
Nasdaq Capital Market for our common stock was $0.70 per
share.
Performance Graph
The following graph compares the percentage change in cumulative
total return from April 30, 2011 through December 31, 2016 for
(i) our common stock (ii) the Nasdaq Composite Index
(iii) the Nasdaq Biotechnology Index and (iv) the Standard
& Poor’s Global Healthcare Index. All values assume the
investment on April 30, 2011 of $100 at the closing price on such
date and reinvestment of the full amount of all dividends (to date,
we have not declared any dividends). The stock price performance of
the following graph is not necessarily indicative of future stock
price performance.
This stock performance graph and related information shall not be
deemed “soliciting material” or “filed”
with the SEC, or subject to Section 18 of the Securities
Exchange Act of 1934, as amended, nor shall it be deemed
incorporated by reference in any of our filings under the
Securities Act of 1933, as amended, except to the extent that we
specifically incorporate it by reference into such
filing.
Comparison of cumulative total return on investment since April 30,
2011:
|
|
2011-4-30
|
2012-4-30
|
2013-4-30
|
2014-4-30
|
2015-4-30
|
2015-12-31
|
2016-12-31
|
|
Tenax
Therapeutics, Inc.
|
$
100.00
|
$
100.56
|
$
14.12
|
$
13.79
|
$
9.66
|
$
9.27
|
$
5.51
|
|
Nasdaq
Composite
|
$
100.00
|
$
106.01
|
$
115.84
|
$
143.19
|
$
171.96
|
$
174.26
|
$
187.33
|
|
Nasdaq
Biotechnology
|
$
100.00
|
$
116.54
|
$
160.98
|
$
215.04
|
$
313.15
|
$
316.91
|
$
248.19
|
|
S&P
Global Heathcare
|
$
100.00
|
$
103.13
|
$
130.72
|
$
156.02
|
$
184.01
|
$
175.33
|
$
162.00
|
Dividend Policy
Since
our inception, we have not paid dividends on our common stock. We
intend to retain any earnings for use in our business activities,
so it is not expected that any dividends on our common stock will
be declared and paid in the foreseeable future.
Repurchases of Common Stock
None.
Unregistered Sales of Equity Securities
None.
The following consolidated financial and operating data set forth
below with respect to our consolidated statements of operations and
cash flows for the year ended December 31, 2016, the eight months
ended December 31, 2015, the fiscal year ended April 30, 2015 and
the fiscal year ended April 30, 2014, and the consolidated balance
sheets as of December 31, 2016 and December 31, 2015 are derived
from the consolidated financial statements included elsewhere in
this report. The consolidated statements of operations and cash
flows data for fiscal years ended April 30, 2013 and 2012, and the
consolidated balance sheet data as of April 30, 2015, 2014, 2013
and 2012 are derived from previously filed consolidated financial
statements. The data set forth below should be read in conjunction
with our “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and our
consolidated financial statements and related notes beginning on
page 42 and other financial information included in this report.
Our historical results are not necessarily indicative of the
results we may achieve in any future period.
|
|
Fiscal Year Ended December 31,
|
Eight Months Ended December 31,
|
Fiscal Year Ended April 30,
|
|||
|
|
2016
|
2015
|
2015
|
2014
|
2013
|
2012
|
|
|
|
|
|
|
|
|
|
Statements
of Operations Data:
|
|
|
|
|
|
|
|
Total
net revenue
|
$
-
|
$
-
|
$
49,286
|
$
158,926
|
$
1,190,928
|
$
363,781
|
|
Operating
loss
|
(52,650,739
)
|
(10,425,498
)
|
(14,816,743
)
|
(16,611,120
)
|
(5,189,072
)
|
(8,220,197
)
|
|
Net
loss
|
(43,923,904
)
|
(10,067,964
)
|
(14,081,812
)
|
(19,541,839
)
|
(9,415,800
)
|
(15,712,410
)
|
|
Diluted
net loss per share (1)
|
(1.57
)
|
(0.36
)
|
(0.50
)
|
(2.71
)
|
(6.68
)
|
(14.07
)
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
Cash,
short-term and long-term investments
|
21,866,681
|
38,208,001
|
48,101,534
|
58,320,555
|
783,528
|
1,879,872
|
|
Total
assets
|
23,340,175
|
72,987,078
|
82,908,344
|
93,429,440
|
3,180,643
|
4,141,934
|
|
Long-term
liabilities
|
-
|
7,962,100
|
7,962,100
|
7,973,032
|
3,049,102
|
1,361,110
|
|
Accumulated
deficit
|
(204,659,603
)
|
(160,735,699
)
|
(150,667,735
)
|
(136,585,923
)
|
(117,044,084
)
|
(107,628,284
)
|
|
Total
stockholders’ equity (deficit)
|
17,140,938
|
60,423,348
|
70,429,034
|
82,885,361
|
(1,778,036
)
|
(346,046
)
|
|
Statements
of Cash Flows Data:
|
|
|
|
|
|
|
|
Net
cash flows from operating activities
|
(15,871,300
)
|
(8,950,610
)
|
(9,748,794
)
|
(9,261,571
)
|
(4,921,283
)
|
(8,278,366
)
|
(1)
Computed as
described in Note B to our consolidated financial statements
included in this report.
You should read the following discussion and analysis together with
the Consolidated Financial Statements and the related notes to
those statements included in “Item 8 – Consolidated
Financial Statements and Supplementary Data.” This discussion
contains forward-looking statements that involve risks and
uncertainties. As a result of many factors, such as those set forth
under “Risk Factors” and elsewhere in this Annual
Report on Form 10-K, our actual results may differ materially from
those anticipated in these forward-looking statements.
Change in Fiscal Year
In
2015, our Board of Directors approved a change in our fiscal year
to a fiscal year beginning on January 1 and ending on December 31
of each year, such change beginning as of January 1, 2016. As a
result of this change, financial results for the year ended
December 31, 2016 are compared to the unaudited results for the
year ended December 31, 2015, and the financial results for the
eight months ended December 31, 2015 are compared to the unaudited
financial results for the eight months ended December 31, 2014.
When financial results for the fiscal year ended April 30, 2015 are
compared to the prior year, the results are presented on the basis
of our previous fiscal year-end on a twelve month
basis.
Results of operations- Comparison of the years ended December 31,
2016 and 2015
General and Administrative Expenses
General
and administrative expenses consist primarily of compensation for
executive, finance, legal and administrative personnel, including
stock-based compensation. Other general and administrative expenses
include facility costs not otherwise included in research and
development expenses, legal and accounting services, other
professional services, and consulting fees. General and
administrative expenses and percentage changes for the years ended
December 31, 2016 and 2015, respectively, are as
follows:
|
|
Year ended December 31,
|
Increase/ (Decrease)
|
% Increase/ (Decrease)
|
|
|
|
2016
|
2015
|
|
|
|
Legal
and professional fees
|
$
1,878,032
|
$
2,164,910
|
$
(286,878
)
|
(13
)%
|
|
Personnel
costs
|
3,390,457
|
3,269,639
|
120,818
|
4
%
|
|
Other
costs
|
824,307
|
1,024,092
|
(199,785
)
|
(20
)%
|
|
Facilities
|
140,575
|
153,227
|
(12,652
)
|
(8
)%
|
|
Depreciation
and amortization
|
12,587
|
59,700
|
(47,113
)
|
(79
)%
|
Legal and professional fees:
Legal
and professional fees consist of the costs incurred for legal fees,
accounting fees, recruiting costs and investor relations services,
as well as fees paid to our Board of Directors. Legal and
professional fees decreased approximately $287,000 for the
year ended December 31, 2016,
compared to the prior year. This decrease was primarily due to a
reduction in costs incurred for investor relations services, legal
fees and fees paid to our Board of Directors, partially offset by
an increase in consulting costs.
–
Costs associated
with investor relations and communication decreased approximately
$220,000 in the current year. This decrease was due primarily to
fees paid in the prior year to a third-party investor relations
firm that is no longer providing marketing and corporate
communications services to us in the current year, as well as the
costs incurred for conferences and presentations during the prior
year.
–
Legal fees
decreased in the current year by approximately $127,000. This
decrease was due primarily to additional costs incurred in the
prior year related to our filing of a Form 10-KT to transition to a
calendar year filer and fees associated with our PFC-based
intellectual property portfolio which were not incurred in the
current year.
–
Fees paid to our
Board of Directors decreased approximately $89,000 in the current
year. This decrease was due primarily to the recognized vested
value of stock options awarded during the year as compared to the
prior year.
–
Consulting costs
increased approximately $151,000 in the current year. The increase
in costs was due primarily to services performed for market
research and channel strategy and implementation which were not
incurred during the prior year.
Personnel costs:
Personnel
costs increased approximately $121,000 for the year
ended December 31, 2016
compared to the
prior year. The increase was due primarily to an increase of
approximately $267,000 in the recognized expense for the vesting of
outstanding stock option awards partially offset by a decrease of
approximately $68,000 in salaries and bonuses paid as well as an
overall decrease in payroll taxes and benefits paid as compared to
the prior year.
Other costs:
Other
costs include costs incurred for travel, supplies, insurance and
other miscellaneous charges. The approximately $200,000 decrease in
other costs for the
year ended
December 31, 2016
was due primarily to an approximately
$181,000 decrease in franchise taxes paid, a $29,000 decrease in
banking fees, as well as general decreases in costs incurred for
travel and supplies; partially offset by an increase of
approximately $31,000 in insurance costs, as compared to the prior
year.
Facilities:
Facilities
include costs paid for rent and utilities at our corporate
headquarters in North Carolina. Facilities costs remained
relatively consistent for the
years
ended December 31, 2016 and 2015
.
Depreciation and Amortization:
Depreciation
and amortization costs decreased approximately $47,000 for the
year ended December 31, 2016,
compared to the prior year. The decrease in costs was due primarily
to amortization costs incurred in the prior year on our PFC-based
intellectual property portfolio that was fully impaired as of April
30, 2015
.
Research and Development
Expenses
Research
and development expenses include, but are not limited to,
(i) expenses incurred under agreements with CROs and
investigative sites, which conduct our clinical trials and a
substantial portion of our pre-clinical studies; (ii) the cost
of manufacturing and supplying clinical trial materials;
(iii) payments to contract service organizations, as well as
consultants; (iv) employee-related expenses, which include
salaries and benefits; and (v) facilities, depreciation and
other allocated expenses, which include direct and allocated
expenses for rent and maintenance of facilities and equipment,
depreciation of leasehold improvements, equipment, laboratory and
other supplies. All research and development expenses are expensed
as incurred. Research and development expenses and percentage
changes for the years ended December 31, 2016 and 2015,
respectively, are as follows:
|
|
Year ended
December 31,
|
Increase/
(Decrease)
|
%
Increase/
(Decrease) |
|
|
|
2016
|
2015
|
|
|
|
Clinical
and preclinical development
|
$
11,681,352
|
$
7,775,366
|
$
3,905,986
|
50
%
|
|
Personnel
costs
|
785,550
|
594,306
|
191,244
|
32
%
|
|
Consulting
|
640,088
|
490,210
|
149,878
|
31
%
|
|
Other
costs
|
26,326
|
25,901
|
425
|
2
%
|
|
Depreciation
|
6,365
|
19,004
|
(12,639
)
|
(67
)%
|
Clinical and preclinical development:
Clinical
and preclinical development costs include the costs associated with
our Phase III and Phase II clinical trials for levosimendan and
Oxycyte. The increase of approximately $3.9 million in clinical and
preclinical development costs for the
year ended December 31, 2016,
compared to
the prior year, was primarily due to increased expenditures for CRO
costs to manage the Phase III LEVO-CTS clinical trial, partially
offset by a reduction in costs incurred in the current period for
the development and clinical testing of Oxycyte, which development
we decided to suspend in September 2014.
Levosimendan
We
incurred approximately $11.7 million in research and development
costs for levosimendan during the
year
ended December 31, 2016
, an increase of approximately $4.6
million compared to the prior year. The increase in levosimendan
development costs is due primarily to the direct costs of our Phase
III LEVO-CTS clinical trial for LCOS. For the
year ended December 31, 2016
, we recorded
CRO costs of approximately $11.7 million for the management of the
Phase III trial which includes approximately $4.7 million in
pass-through site activation and enrolled patient costs, compared
to CRO costs of approximately $7.1 million during the prior
year.
Oxycyte
We
incurred approximately $12,000 in research and development costs
for Oxycyte during the
year ended
December 31, 2016
, a decrease of approximately $576,000
compared to the prior year. The decrease in Oxycyte development
costs was due to our decision to suspend development of the Oxycyte
product in September 2014 and close out all our sites for the Phase
II-B clinical trial for TBI. We do not anticipate any significant
additional costs in the future related to this clinical trial or
other close-out activities related to the discontinuance of the
Oxycyte product development.
Personnel costs:
Personnel
costs increased approximately $191,000 for the
year ended December 31, 2016
compared to
the prior year. This increase was primarily due to severance
payments of approximately $156,000 upon resignation of our prior
Chief Medical Officer and an increase of approximately $73,000 in
overall salaries, including payroll taxes and benefits, paid due to
headcount additions during the year to support the clinical
development of levosimendan, partially offset by a decrease in
bonuses paid of approximately $33,000 as compared to the prior
year.
Consulting fees:
Consulting
fees increased approximately $150,000 for the
year ended December 31, 2016
compared to
the same period in the prior year, primarily due to an increase in
fees paid to a third-party consulting firm for services provided to
improve training and communication with active sites in support of
our Phase III LEVO-CTS clinical trial as well as fees paid for
pharmacokinetic study analysis, partially offset by a reduction in
costs associated with LCOS and septic shock cost and incidence
studies.
Other costs:
Other
costs remained relatively consistent for the
years ended December 31, 2016 and
2015.
Depreciation:
Depreciation
costs decreased approximately $13,000 for the
year ended December 31, 2016,
compared to
the prior year. This decrease was due primarily to depreciation of
lab equipment that was written off and disposed of in the prior
year following our decision to suspend development of our Oxycyte
products.
Loss on impairment of long
lived assets
Impairment
losses and percentage changes for the years ended December 31, 2016
and 2015, respectively, are as follows:
|
|
Year ended
December 31,
|
Increase/
(Decrease)
|
% Increase/
(Decrease)
|
|
|
|
2016
|
2015
|
|
|
|
Loss
on impairment of long-lived assets
|
$
33,265,100
|
$
1,034,863
|
$
32,230,237
|
3114
%
|
During
the year ended December 31, 2016, we recognized an impairment of
$33.3 million related to our levosimendan product in Phase III
clinical trial, which represents approximately $22 million for
in-process research and development, or IPR&D, assets and
approximately $11.3 million for Goodwill, as compared to
approximately $1.0 million during the year ended December 31,
2015.
The LEVO-CTS trial was completed in December of 2016. Based on the
data from the trial, levosimendan, given prophylactically prior to
cardiac surgery to patients with reduced left ventricular function,
had no effect on the co-primary outcomes. The study did not achieve
statistically significant reductions in the dual endpoint of death
or use of a mechanical assist device at 30 days, nor in the quad
endpoint of death, myocardial infarction, need for dialysis, or use
of a mechanical assist device at 30 days. Based on the results of
the LEVO-CTS trial, we do not anticipate additional development of
levosimendan for the treatment of LCOS in patients undergoing
cardiac surgery. As of December 31, 2016, management determined the
IPR&D asset, and corresponding Goodwill, was more than
temporarily impaired.
Other income and expense, net
Other
income and expense includes non-operating income and expense items
not otherwise recorded in our consolidated statement of operations.
These items include, but are not limited to, revenue earned under
sublease agreements for our California facility, changes in the
fair value of financial assets and liabilities, interest income
earned and fixed asset disposals. Other income for the
years ended December 31, 2016
and 2015,
respectively, is as follows:
|
|
Year ended
December 31,
|
(Increase)/
Decrease |
|
|
|
2016
|
2015
|
|
|
Other
(income) expense, net
|
$
(764,735
)
|
$
(633,632
)
|
$
(131,103
)
|
Other
income increased approximately $131,000 for the year ended December
31, 2016 compared to the prior year. This increase is due to
primarily to a gain of approximately $74,000 on the disposal of
fixed assets previously used in the manufacturing of Oxycyte,
partially offset by the change in fair value of our Series C
warrant derivative liability and a decrease in interest income
earned in the current period as compared to the same period in the
prior year.
During the year ended December 31, 2016, we recorded a derivative
gain of approximately $298,000 which compared to a derivative gain
of approximately $154,000 in the prior year. These charges to
income are derived from the free-standing Series C warrants which
are measured at their fair market value each period using the Monte
Carlo simulation model
.
During
the
year ended December 31
,
2016, we recorded interest income of approximately $392,000 from
our investments in marketable securities. This income is derived
from approximately $992,000 in bond interest paid, partially offset
by approximately $603,000 in charges for amortization of premiums
paid and fair-value adjustments measured each period, which
compares to approximately $1.3 million in bond interest paid,
partially offset by approximately $862,000 in charges for
amortization of premiums paid and fair-value adjustments during the
prior year.
Results of operations- Comparison of the eight months ended
December 31, 2015 and 2014
General and Administrative Expenses
General
and administrative expenses and percentage changes for the eight
months ended December 31, 2015 and 2014, respectively, are as
follows:
|
|
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
%
|
Personnel costs:
Personnel
costs increased approximately $283,000 for the eight
months ended December 31, 2015
compared to
the same period in the prior year. The increase was due primarily
to approximately $400,000 for annual bonuses accrued and the
recognition of approximately $98,000 for the vesting of stock
options granted during the period, partially offset by a $215,000
accrual for severance payments in the prior year paid to certain
employees following the stoppage of the TBI trials.
Legal and professional fees:
Legal
and professional fees decreased approximately $853,000 for the
eight months ended December 31,
2015
compared to the same period in the prior year. This
decrease was primarily due to a reduction in costs incurred for
investor relations services and the vested value of stock option
grants to our Board of Directors, partially offset by an increase
in legal and consulting fees paid.
–
Costs associated
with investor relations and communications decreased approximately
$912,000 in the current period. This decrease was due primarily to
the recognition of approximately $475,000 for the fair value of
warrants issued to a third party investor relations firm during the
same period in the prior year as well as a reduction of
approximately $437,000 in fees paid in the prior year to third
party investor relations firms for providing marketing and
corporate communications services to us in the current
period.
–
Board of Directors
fees decreased in the current period by approximately $64,000. This
decrease was due primarily to a reduction in the recognized expense
for the vesting of stock options awarded in the current period as
compared to the recognized expense for stock options awarded in the
same period of the prior year.
–
Consulting costs
increased approximately $87,000 due to the costs incurred for
market research and commercial development services during the
current period that were not incurred during the same period in the
prior year.
Other costs:
The
approximately $133,000 increase in other costs for the
eight months ended December 31, 2015
was
due primarily to an approximately $132,000 increase in franchise
taxes paid, approximately $20,000 in costs incurred for our
sponsorship of the National Sepsis Foundation and approximately
$30,000 in legal and proxy-related data services, partially offset
by a reductions of approximately $33,000 and $31,000 in travel and
employee relocation costs, respectively, as compared to the same
period in the prior year.
Facilities:
Facilities
costs remained relatively consistent for the eight months
ended December 31, 2015 and
2014
.
Depreciation and Amortization:
Depreciation
and amortization costs decreased approximately $55,000 for the
eight months ended December 31, 2015 compared to the same period in
the prior year. The decrease in costs was due primarily to
amortization costs incurred in the same period of the prior year on
our PFC-based intellectual property portfolio that was fully
impaired as of April 30, 2015
.
Research and Development Expenses
Research
and development expenses and percentage changes for the eight
months ended December 31, 2015 and 2014
, respectively
, are as
follows:
|
|
Eight months ended
December 31,
|
Increase/
(Decrease) |
%
Increase/
(Decrease) |
|
|
|
2015
|
2014
|
|
|
|
Clinical
and preclinical development
|
$
5,560,860
|
$
3,820,196
|
$
1,740,664
|
46
%
|
|
Consulting
|
470,335
|
15,231
|
455,104
|
2988
%
|
|
Personnel
costs
|
427,873
|
359,129
|
68,744
|
19
%
|
|
Other
costs
|
25,799
|
45,911
|
(20,112
)
|
(44
)%
|
Clinical and preclinical development:
The
increase of approximately $1.7 million in clinical and preclinical
development costs for the eight months ended December 31, 2015,
compared to the same period in the prior year, was primarily due to
increased expenditures for CRO costs to manage the Phase III
LEVO-CTS clinical trial, partially offset by a reduction in costs
incurred in the current period for the development and clinical
testing of Oxycyte, which development we decided to suspend in the
prior year.
Levosimendan
We
incurred approximately $5.5 million in research and development
costs for levosimendan during the eight months ended December 31,
2015, an increase of approximately $3.1 million compared to the
same period in the prior year. The increase in levosimendan
development costs is due primarily to the direct costs of our Phase
III LEVO-CTS clinical trial for LCOS, partially offset by a
reduction of approximately $500,000 in costs to support the
LeoPARDS trial for septic shock that was conducted during the same
period of the prior year. For the eight months ended December 31,
2015, we recorded CRO costs of approximately $5.5 million for the
management of the Phase III trial which includes approximately $2.3
million in pass-through site activation and enrolled patient costs,
compared to CRO costs of approximately $2.4 million during the same
period in the prior year.
Oxycyte
We
incurred approximately $25,000 in research and development costs
for Oxycyte during the eight months ended December 31, 2015, a
decrease of approximately $897,000 compared to the same period in
the prior year. The decrease in Oxycyte development costs was due
to our decision to suspend development of the Oxycyte product in
the prior year and close out all of our sites for the Phase II-B
clinical trial for TBI. We do not anticipate any significant
additional costs in the future related to this clinical trial or
other close-out activities related to the discontinuance of the
Oxycyte product development.
Consulting fees:
Consulting
fees increased approximately $455,000 for the eight months ended
December 31, 2015 compared to the same period in the prior year,
primarily due to an increase in fees paid to third party consulting
firms for services provided to improve training and communication
with active sites in support of our Phase III LEVO-CTS clinical
trial and to conduct market research for sepsis and cardiac
surgery.
Personnel costs:
Personnel
costs increased approximately $69,000 for the eight months ended
December 31, 2015 compared to the same period in the prior year,
primarily due to approximately $75,000 for annual bonuses accrued,
partially offset by reduced costs for benefits and payroll taxes
paid due to the headcount reductions in positions responsible for
the development of our Oxycyte products as compared to the same
period in the prior year.
Other costs:
Other
costs decreased approximately $20,000 for the eight months ended
December 31, 2015 compared to the same period in the prior year.
This decrease was due primarily to depreciation of lab equipment
and other lab related costs that were written off and disposed of
on April 30, 2015.
Interest expense
Interest
expense includes the interest payments due under our long-term
debt, amortization of debt issuance costs and accretion of
discounts recorded against our outstanding convertible notes and
noncash interest charges related to our Series A Stock, when it was
outstanding. Interest expense and percentage changes for the eight
months ended December 31, 2015 and 2014, respectively, are as
follows:
During
the eight months ended December 31, 2015, interest expense
decreased approximately $45,000 compared to the same period in the
prior year. The decrease was due primarily to the maturity and
settlement of our outstanding convertible notes in June
2014.
Other income and expense, net
Other
income for the eight months ended December 31, 2015 and 2014,
respectively, is as follows:
|
|
Eight Months ended
December 31, |
(Increase)/
Decrease
|
|
|
|
2015
|
2014
|
|
|
Other
(income) expense, net
|
$
(359,041
)
|
$
(509,420
)
|
$
150,379
|
Other
income decreased approximately $150,000 for the eight months ended
December 31, 2015 compared to the same period in the prior year.
This decrease was primarily due to changes in the recognized fair
value of our derivative warrant liability during the current
period, partially offset by an increase of approximately $71,000 in
interest income earned, net of amortization of premiums and market
adjustments.
Results of operations- Comparison of the years ended April 30, 2015
and 2014
Revenue
Product Revenue and Gross Profit
In
prior years, we generated revenue from the sale of Dermacyte®
through distribution agreements, on-line retailers and direct sales
to physician and medical spa facilities. Product revenue, cost of
sales and gross profit, as well as corresponding percentage
changes, for the years ended April 30, 2015 and 2014 are as
follows:
|
|
Year ended
April 30,
|
Increase/
(Decrease)
|
% Increase/
(Decrease)
|
|
|
|
2015
|
2014
|
|
|
|
Product
revenue
|
$
-
|
$
25,731
|
$
(25,731
)
|
(100
)%
|
|
Cost
of sales
|
-
|
129,800
|
(129,800
)
|
(100
)%
|
|
Gross
profit
|
$
-
|
$
(104,069
)
|
$
104,069
|
(100
)%
|
The
decrease in product revenue for the year ended April 30, 2015 was
due to our decision to stop producing and selling the Dermacyte
product in the year ended April 30, 2014.
Gross
profit as a percentage of revenue was (404) % for the year ended
April 30, 2014. There was no gross profit during the year ended
April 30, 2015 due to the write down of Dermacyte product in the
prior year that is no longer being marketed for sale.
Government Grant Revenue
Revenues
from a cost-reimbursement grant sponsored by the United States
Army, or Grant Revenue, are recognized as milestones under the
Grant program are achieved. Grant Revenue is earned through
reimbursements for the direct costs of labor, travel, and supplies,
as well as the pass-through costs of subcontracts with third-party
CROs.
|
|
Year ended
April 30,
|
Increase/
(Decrease)
|
% Increase/
(Decrease)
|
|
|
|
2015
|
2014
|
|
|
|
Government
grant revenue
|
$
49,286
|
$
262,995
|
$
(213,709
)
|
(81
)%
|
For the
year ended April 30, 2015, we recorded approximately $49,000 in
revenue under the grant program as compared to approximately
$263,000 in revenue during the prior year. The decrease in revenue
earned under the grant is due primarily to our completion of
multiple studies in the prior year.
General and Administrative Expenses
General
and administrative expenses and percentage changes for the year
ended April 30, 2015 and 2014, respectively, are as
follows:
|
|
Year ended
April 30,
|
Increase/
(Decrease) |
%
Increase/
(Decrease) |
|
|
|
2015
|
2014
|
|
|
|
Legal
and professional fees
|
$
3,017,584
|
$
2,556,643
|
$
460,941
|
18
%
|
|
Personnel
costs
|
2,986,589
|
10,593,234
|
(7,606,645
)
|
(72
)%
|
|
Other
costs
|
890,940
|
350,855
|
540,085
|
154
%
|
|
Facilities
|
160,818
|
157,449
|
3,369
|
2
%
|
|
Depreciation
and amortization
|
114,848
|
115,042
|
(194
)
|
(0
)%
|
Legal and professional fees:
Legal
and professional fees increased approximately $460,000 for the
year ended April 30, 2015
compared to the year ended April 30, 2014. This increase was
primarily due to costs incurred for investor relations services,
consulting fees and Board of Directors fees, partially offset by a
decrease in legal fees.
–
Costs associated
with investor relations and communication increased approximately
$636,000 in the year ended April 30, 2015. This increase was due
primarily to the issuance of 175,000 warrants with a calculated
fair value of approximately $475,000 and an increase of
approximately $161,000 in fees paid to outsourced corporate
communication firms for investor relations services and website
development.
–
Board of Directors
fees increased in the year ended April 30, 2015 by approximately
$420,000. This increase was due primarily to approximately $280,000
in recognized expense for the vesting of stock options awarded and
an increase of approximately $140,000 in fees paid due to the
addition of a director and the restructuring of directors’
fees in the year ended April 30, 2015.
–
Consulting costs
increased approximately $132,000 in the year ended April 30, 2015
due primarily to fees paid for recruiting firms for placement
services and contract labor in the year ended April 30,
2015.
–
Legal, accounting
and capital market fees decreased in the year ended April 30, 2015
by approximately $600,000. This decrease was due primarily to a
reduction of approximately $530,000 in accounting and legal fees
incurred in the year ended April 30, 2014 related to the
acquisition of the rights to develop levosimendan and the issuance
of our Series C and Series D Preferred Stock and a reduction of
approximately $70,000 in fees paid for the listing of additional
shares with Nasdaq and SEC filings made during the year ended April
30, 2014.
Personnel costs:
Personnel
costs decreased approximately $7.6 million for the year
ended April 30, 2015
compared
to the prior year. The decrease was due primarily to the
recognition of approximately $8.3 million of stock based
compensation in the year ended April 30, 2014, partially offset by
an increase of approximately $633,000 in salaries and benefits paid
during the year ended April 30, 2015.
–
Stock based
compensation and the vested value of issued stock options decreased
approximately $8.3 million in the year ended April 30, 2015 due
primarily to the expense recognition of approximately $8.3 million
for the granting and vesting of stock options and restricted stock
in the year ended April 30, 2014. These option grants were made
pursuant to employment agreements, which were negotiated in
connection with our acquisition of a license for levosimendan in
November 2013.
–
Salaries and
benefits increased approximately $633,000 in the year ended April
30, 2015. This increase was due primarily to full-year salaries
paid in the year ended April 30, 2015 to our Chief Executive
Officer and the two additional management positions added in
connection with our acquisition of certain assets of Phyxius, and
approximately $210,000 for severance payments related to the
stoppage of Oxycyte development programs.
Other costs:
The
approximately $540,000 increase in other costs was due primarily to
an increase of approximately $320,000 in franchise tax payments
made to North Carolina and Delaware in the year ended April 30,
2015, an increase of approximately $100,000 in banking fees paid to
manage our investment portfolio, an increase of approximately
$45,000 in travel related costs, an increase of approximately
$45,000 in insurance costs related to our Phase III clinical study,
and approximately $30,000 in relocation costs paid in the year
ended April 30, 2015.
Facilities:
Facilities
costs remained relatively consistent for the
years ended April 30, 2015 and
2014.
Depreciation and Amortization:
Depreciation
and amortization costs remained relatively consistent for the
years ended April 30, 2015 and
2014
.
Research and Development Expenses
Research
and development expenses and percentage changes for the years ended
April 30, 2015 and 2014
,
respectively
, are as follows:
|
|
Year ended
April 30,
|
Increase/
(Decrease)
|
% Increase/
(Decrease)
|
|
|
|
2015
|
2014
|
|
|
|
Clinical
and preclinical development
|
$
6,034,702
|
$
1,947,461
|
$
4,087,241
|
210
%
|
|
Personnel
costs
|
525,561
|
818,264
|
(292,703
)
|
(36
)%
|
|
Consulting
|
35,106
|
153,506
|
(118,400
)
|
(77
)%
|
|
Depreciation
|
33,292
|
35,447
|
(2,155
)
|
(6
)%
|
|
Other
costs
|
27,287
|
31,780
|
(4,493
)
|
(14
)%
|
|
Facilities
|
4,439
|
10,263
|
(5,824
)
|
(57
)%
|
Clinical and preclinical development:
The
increase of approximately $4.1 million in clinical and preclinical
development costs for the year ended April 30, 2015 compared to the
year ended April 30, 2014 was primarily due to increased
expenditures related to levosimendan and additional costs related
to the decision to suspend the development of Oxycyte.
Levosimendan
We
incurred approximately $4.5 million in research and development
costs for levosimendan in the year ended April 30, 2015, an
increase of approximately $4.3 million compared to the year ended
April 30, 2014. The increase in levosimendan development costs is
due primarily to the direct costs of our Phase III LEVO-CTS
clinical trial for LCOS. In the year ended April 30, 2015, we
recorded clinical trial costs of approximately $4.0 million for the
management of the Phase III trial and pass-through site activation
and enrolled patient costs. In addition to the costs associated
with the Phase III trial, we incurred expenses of approximately
$516,000 to support the development of levosimendan for septic
shock by providing financial support for the LeoPaRDS trial, which
is currently being conducted through the Imperial College of
London.
Oxycyte
We
incurred approximately $1.5 million in research and development
costs for Oxycyte in the year ended April 30, 2015, a decrease of
approximately $248,000 compared to year ended April 30, 2014. The
decrease in Oxycyte development costs was due primarily to our
decision to suspend development of the Oxycyte product in the year
ended April 30, 2015 and close out all of our sites for the Phase
II-B clinical trial for TBI. We recorded costs of approximately
$837,000 for these close-out activities and we do not anticipate
any significant additional costs in the future related to this
clinical trial.
We
incurred approximately $98,000 in preclinical research and
development costs, a decrease of approximately $147,000 compared to
the year ended April 30, 2014. The decrease in preclinical
development costs was due primarily to the completion and
preparation of the final study reports for the Army funded safety
studies and we do not anticipate any significant additional costs
in the future related to these preclinical studies.
We
incurred approximately $550,000 in manufacturing and stability
costs for Oxycyte in the year ended April 30, 2015. These costs
were due primarily to early termination fees for API and clinical
drug manufacturing supply agreements due to our decision to suspend
the development of Oxycyte, and we do not anticipate any
significant additional costs in the future related to the
manufacture and stability of Oxycyte.
Personnel costs:
Personnel
costs decreased approximately $293,000 for the year ended April 30,
2015 compared to the year ended April 30, 2014 primarily due to
headcount reductions in the year ended April 30, 2015, partially
offset by the addition of our Chief Medical Officer in the fourth
quarter of the year ended April 30, 2015. The headcount reductions
were primarily in positions responsible for managing the
manufacturing of Oxycyte clinical drug material, the preclinical
safety studies for Oxycyte and the Phase II-B clinical trial for
TBI.
Consulting fees:
Consulting
fees decreased approximately $118,000 for the year ended April 30,
2015 compared to the year ended April 30, 2014 primarily due to
approximately $142,000 of fees incurred to plan and prepare for
clinical trial expansions and other clinical support activities for
Oxycyte in the year ended April 30, 2014, partially offset by an
increase of approximately $24,000 of consulting fees associated
with levosimendan development in the year ended April 30,
2015.
Depreciation:
Depreciation
expense remained relatively consistent for the years ended April
30, 2015 and 2014.
Other costs:
Other
costs remained relatively consistent for the years ended April 30,
2015 and 2014.
Facilities:
Facilities
expense remained relatively consistent for the years ended April
30, 2015 and 2014.
Interest expense
Interest
expense and percentage changes for the year ended April 30, 2015
and 2014, respectively, are as follows:
|
|
Year ended
April 30,
|
Increase/
(Decrease)
|
% Increase/
(Decrease)
|
|
|
|
2015
|
2014
|
|
|
|
Interest
expense
|
$
49,081
|
$
2,212,283
|
$
(2,163,202
)
|
(98
)%
|
During
the
year ended April 30, 2015
,
interest expense decreased approximately $2.2 million compared to
the year ended April 30, 2014. The decrease was due primarily to
noncash interest charges recorded in the year ended April 30, 2014
related to our convertible notes which matured in the first quarter
of the year ended April 30, 2015.
Other income and expense, net
Other
expense for the year ended April 30, 2015 and 2014, respectively,
is as follows:
|
|
Year ended
April 30,
|
(Increase)/
Decrease
|
|
|
|
2015
|
2014
|
|
|
Other
(income) expense, net
|
$
(784,012
)
|
$
718,436
|
$
(1,502,448
)
|
Other
income increased approximately $1.5 million for the year ended
April 30, 2015 compared to the year ended April 30, 2014. This
increase was primarily due to approximately $393,000 in interest
income, net of amortization of premiums and market adjustments, and
the reduction of the recognized fair value of our derivative
warrant liability during the year ended April 30,
2015.
Liquidity, capital resources and plan of operation
We have
incurred losses since our inception and as of December 31, 2016, we
had an accumulated deficit of approximately $205 million. We will
continue to incur losses until we generate sufficient revenue to
offset our expenses, and we anticipate that we will continue to
incur net losses for at least the next several years. We expect to
incur additional expenses related to our development and potential
commercialization of levosimendan for heart failure and other
potential indications, as well as identifying and developing other
potential product candidates, and, as a result, we will need to
generate significant net product sales, royalty and other revenues
to achieve profitability.
Liquidity
We have
financed our operations since September 1990 through the issuance
of debt and equity securities and loans from stockholders. We had
total current assets of $13,628,175 and $20,560,353 and working
capital of $7,428,938 and $15,958,723 as of December 31, 2016 and
December 31, 2015, respectively. Our practice is to invest excess
cash, where available, in short-term money market investment
instruments and high quality corporate and government
bonds.
Clinical and Preclinical Product Development
We are
in the clinical trial stage in the development of our product
candidates. We recently completed a Phase III clinical trial for
levosimendan. We expect our primary focus will be on initiating
additional clinical and preclinical studies for levosimendan for
heart failure or other potential indications. Our ability to
continue to pursue testing and development of our products beyond
the first half of calendar year 2018 may depend on obtaining
license income or outside financial resources. There is no
assurance that we will obtain any license agreement or outside
financing or that we will otherwise succeed in obtaining any
necessary resources.
Financings
During the years ended April 30, 2015 and 2014, we received
approximately $544,000 and $7.1 million and issued 209,230 and
3,161,145 shares of common stock, respectively upon the exercise of
our outstanding warrants. We did not complete any financings during
the year ended December 31, 2016 or the eight months ended December
31, 2015.
On March 21, 2014, we sold 9,285,714 shares of common stock for net
proceeds of approximately $55 million.
On July
23, 2013, we sold 5,369
shares of
Series C 8% convertible preferred stock and warrants for net
proceeds of approximately $4.9 million.
Additionally, on
August 22, 2013 we issued 4,600 shares of Series D convertible
preferred stock and warrants in exchange for $4.6 million of
convertible notes that were scheduled to mature in June
2014.
Cash Flows
The
following table shows a summary of our cash flows for the periods
indicated:
|
|
Year ended December 31,
|
|
|
|
2016
|
2015
|
|
Net
cash used in operating activities
|
$
(15,871,300
)
|
$
(12,057,891
)
|
|
Net
cash provided by investing activities
|
22,206,802
|
4,206,244
|
|
Net
cash used in financing activities
|
-
|
(164,224
)
|
Net cash used in operating activities.
Net cash used
in operating activities was $15.9 million for the year ended
December 31, 2016 compared to net cash used in operating activities
of $12.1 million for the year ended December 31, 2015. The increase
in cash used for operating activities of $3.8 million was due
primarily to cost incurred for the Phase III clinic trials for
LCOS.
Net cash provided by investing activities
. Net cash
provided by investing activities was $22.2 million for the year
ended December 31, 2016 compared to net cash used in investing
activities of $4.2 million for the year ended December 31, 2015.
The increase in cash provided by investing activities was due
primarily to the sales of marketable securities.
Net cash used in financing activities
. Net cash used in
financing activities was $0 for the year ended December 31, 2016
compared to net cash used in financing activities of $164,224 for
the year ended December 31, 2015. The decrease in net cash used in
financing activities was due to payments of short term notes in the
prior period.
Net cash used in operating activities.
Net cash used
in operating activities was $8.95 million for the eight months
ended December 31, 2015 compared to net cash used in operating
activities of $6.6 million for the eight months ended December 31,
2014. The increase in cash used for operating activities of $3.3
million was due primarily to cost incurred for the Phase III clinic
trials for LCOS, partially offset by a decrease in legal and
professional fees paid.
Net cash used in investing activities
. Net cash
provided by investing activities was $4.8 million for the eight
months ended December 31, 2015 compared to net cash used in
investing activities of $40.4 million for the eight months ended
December 31, 2014. The increase in cash provided by investing
activities was due primarily to the sales of marketable securities
that were purchased during the prior period.
Net cash provided by financing activities
. Net cash
used in financing activities was $100,160 for the eight months
ended December 31, 2015 compared to net cash provided by financing
activities of $344,654 for the eight months ended December 31,
2014. The increase in net cash used in financing activities was due
primarily to proceeds received from the exercise of warrants in the
prior period.
Net cash used in operating activities.
Net cash used in
operating activities was $9.75 million for the year ended April 30,
2015 compared to net cash used in operating activities of $9.26
million for the year ended April 30, 2014. The increase in cash
used for operating activities was due primarily to an increase in
our costs incurred for the Phase III clinical trials for LCOS and
an increase in personnel costs, partially offset by the payment of
approximately $1.25 million in assumed liabilities during the prior
year.
Net cash used in investing activities
. Net cash used in
investing activities was $40.93 million for the year ended April
30, 2015 compared to net cash used in investing activities of
$147,038 for the year ended April 30, 2014. The increase in cash
used for investing activities was due primarily to our investment
in marketable securities throughout the year.
Net cash provided by financing activities
. Net cash
provided by financing activities was $280,590 for the year ended
April 30, 2015 compared to net cash provided by financing
activities of $66.9 million for the year ended April 30, 2014. The
decrease of net cash provided by financing activities was due
primarily to net proceeds of $55 million received from the issuance
of common stock, $4.9 million received from the issuance of
Series C 8% Convertible Preferred
Stock
and proceeds of $7 million received from the exercise
of certain warrants in the prior year.
Operating Capital and Capital Expenditure Requirements
Our
future capital requirements will depend on many factors that
include, but are not limited to the following:
-
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.
Based
on our working capital at December 31, 2016 we believe we have
sufficient capital on hand to continue to fund operations through
the first half of calendar year 2018.
We will
need substantial additional capital in the future in order to fund
the development and commercialization of levosimendan and our
future product candidates. Until we can generate a sufficient
amount of product revenue, if ever, we expect to finance future
cash needs through public or private equity offerings, debt
financings or corporate collaboration and licensing arrangements.
Such funding, if needed, may not be available on favorable terms,
if at all. In the event we are unable to obtain additional capital,
we may delay or reduce the scope of our current research and
development programs and other expenses.
To the
extent that we raise additional funds by issuing equity securities,
our stockholders may experience additional significant dilution,
and debt financing, if available, may involve restrictive
covenants. To the extent that we raise additional funds through
collaboration and licensing arrangements, it may be necessary to
relinquish some rights to our technologies or our product
candidates or grant licenses on terms that may not be favorable to
us. We may seek to access the public or private capital markets
whenever conditions are favorable, even if we do not have an
immediate need for additional capital.
Contractual Obligations
Contractual obligations represent future cash commitments and
liabilities under agreements with third parties and exclude
contingent contractual liabilities for which we cannot reasonably
predict future payment, including contingencies related to
potential future development, financing, contingent royalty
payments and/or scientific, regulatory or commercial milestone
payments under development agreements. The following table
summarizes our contractual obligations as of December 31,
2016:
|
|
Payments Due by Period
|
||||
|
|
Total
|
Less than
1 Year
|
1-3 Years
|
3-5 Years
|
More than
5 Years
|
|
Operating
Lease Obligations
|
$
528,655
|
$
112,431
|
$
354,421
|
$
61,803
|
$
-
|
Off-Balance Sheet Arrangements
Since
our inception, we have not engaged in any off-balance sheet
arrangements, including the use of structured finance, special
purpose entities or variable interest entities.
Summary of Critical Accounting Policies
Use of Estimates
—The preparation of the accompanying
Consolidated Financial Statements in conformity with accounting
principles generally accepted in the United States of America, or
GAAP, requires management to make certain estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
Consolidated Financial Statements and reported amounts of expenses
during the reporting period. Actual results could differ from those
estimates.
Preclinical Study and Clinical Accruals
—We estimate
our preclinical study and clinical trial expenses based on the
services received pursuant to contracts with several research
institutions and CROs that conduct and manage preclinical and
clinical trials on our behalf. The financial terms of the
agreements vary from contract to contract and may result in uneven
expenses and payment flows. Preclinical study and clinical trial
expenses include the following:
-
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.
Revenue Recognition
—Revenues from merchandise sales
are recognized upon transfer of ownership, including passage of
title to the customer and transfer of the risk of loss related to
those goods. Revenues are reported on a net sales basis, which is
computed by deducting from gross sales the amount of actual product
returns received, discounts, incentive arrangements with retailers
and an amount established for anticipated product
returns.
Grant
Revenue is recognized as milestones under the Grant program are
achieved. Grant Revenue is earned through reimbursements for the
direct costs of labor, travel, and supplies, as well as the
pass-through costs of subcontracts with third-party
CROs.
Stock-Based Compensation
—We account for stock-based
awards to employees in accordance with Accounting Standards
Codification, or ASC, 718 Compensation — Stock Compensation,
which provides for the use of the fair value based method to
determine compensation for all arrangements where shares of stock
or equity instruments are issued for compensation. Fair values of
equity securities are determined by management based predominantly
on the trading price of our common stock. The values of these
awards are based upon their grant-date fair value. That cost is
recognized over the period during which the employee is required to
provide service in exchange for the reward.
We
account for equity instruments issued to non-employees in
accordance with ASC 505-50 Accounting for Equity Instruments That
Are Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling, Goods or Services. Equity instruments issued to
non-employees are recorded at their fair value on the measurement
date and are subject to periodic adjustment as the underlying
equity instruments vest.
Impairment Testing
—
In
accordance with GAAP, goodwill impairment testing is performed
annually, or more frequently if indicated by events or conditions.
In the course of the evaluation of the potential impairment of
goodwill, either a qualitative or a quantitative assessment may be
performed. If a qualitative evaluation determines that no
impairment exists, then no further analysis is performed. If a
qualitative evaluation is unable to determine whether impairment
has occurred, a quantitative evaluation is performed. The
quantitative impairment test first identifies potential impairments
by comparing the fair value of the reporting unit with its carrying
value. If the fair value exceeds the carrying amount, goodwill is
not impaired. If the carrying value exceeds the fair value, the
implied fair value of goodwill is calculated and an impairment is
recorded if the implied fair value is less than the carrying
amount. The determination of goodwill impairment is highly
subjective. It considers many factors both internal and external
and is subject to significant changes from period to
period.
During
the year ended December 31, 2016, we recognized an impairment
charge of $33.3 million related to our levosimendan product in
Phase III clinical trial, which represents approximately $22
million for IPR&D assets and approximately $11.3 million for
goodwill.
The
LEVO-CTS trial was completed in December of 2016. Based on the data
from the trial, l
evosimendan, given
prophylactically prior to cardiac surgery to patients with reduced
left ventricular function, had no effect on the co-primary
outcomes
.
The study
did not achieve statistically significant reductions in the dual
endpoint of death or use of a mechanical assist device at 30 days,
nor in the quad endpoint of death, myocardial infarction, need for
dialysis, or use of a mechanical assist device at 30 days. Based on
the results of the LEVO-CTS trial,
we
do not anticipate additional development of levosimendan for the
treatment of LCOS in patients undergoing cardiac surgery
. As
of December 31, 2016, management determined the IPR&D asset,
and corresponding Goodwill, was more than temporarily
impaired.
No goodwill impairment charges have resulted from this analysis for
the eight months ended December 31, 2015, or the years ended April
30, 2015 and 2014.
Fair market value accounting (derivative warrant
liability)
—
A significant
estimate that could have a material effect on net (loss) gain is
the fair market value accounting for our derivative
liability. Our derivative liability consists of free standing
warrants that are recorded as liabilities due to the price
protection anti-dilution provisions in the event of a subsequent
equity sale. As a result, the warrants must be recorded as a
liability at fair value. The changes in fair value are posted
in other (income) expense. We utilize the Monte Carlo method
to estimate the fair value of our warrants. The three most
significant factors in the Monte Carlo method are (i) our
stock price, (ii) the volatility of our stock price and
(iii) the remaining term of the warrants. During the year
ending December 31, 2016, a $1.33 decrease in the value of our
stock was the primary cause of the $298,248 derivative
gain.
Recent Accounting Pronouncements
In
January 2017, the
Financial Accounting
Standards Board, or the
FASB, issued a new accounting
standard that provides guidance for evaluating whether transactions
should be accounted for as acquisitions (or disposals) of assets or
businesses. The guidance provides a screen to determine when an
integrated set of assets and activities, or a set, does not qualify
to be a business. The screen requires that when substantially all
of the fair value of the gross assets acquired (or disposed of) is
concentrated in an identifiable asset or a group of similar
identifiable assets, the set is not a business. If the screen is
not met, the guidance requires a set to be considered a business to
include, at a minimum, an input and a substantive process that
together significantly contribute to the ability to create outputs
and removes the evaluation as to whether a market participant could
replace the missing elements. The new standard will be effective
for us on January 1, 2018 and will be adopted on a prospective
basis. Early adoption is permitted. We are currently evaluating the
effect that the standard will have on our consolidated financial
statements and related disclosures.
In
August 2016, the FASB issued a new accounting standard that
clarifies how companies present and classify certain cash receipts
and cash payments in the statement of cash flows where diversity in
practice exists. The new standard is effective for us in our first
quarter of fiscal 2018 and earlier adoption is permitted. We are
currently evaluating the effect that the updated standard will have
on our consolidated financial statements and related
disclosures.
In June
2016,
the
FASB, issued a new
accounting standard that amends how credit losses are measured and
reported for certain financial instruments that are not accounted
for at fair value through net income. This new standard will
require that credit losses be presented as an allowance rather than
as a write-down for available-for-sale debt securities and will be
effective for interim and annual reporting periods beginning
January 1, 2020, with early adoption permitted, but not
earlier than annual reporting periods beginning January 1,
2019. A modified retrospective approach is to be used for certain
parts of this guidance, while other parts of the guidance are to be
applied using a prospective approach. We are currently evaluating
the impact that this new standard will have on our
consolidated financial statements and related
disclosures
.
In
March 2016,
the FASB
issued a
new accounting standard intended to simplify various aspects
related to how share-based payments are accounted for and presented
in the financial statements.
The new
guidance includes provisions to reduce the complexity related to
income taxes, statement of cash flows, and forfeitures when
accounting for share-based payment transactions. The new standard
is effective for annual periods beginning after December 15, 2016,
and interim periods within those annual periods. Early adoption is
permitted.
We do not believe the
adoption of this standard will have a material impact on our
consolidated financial statements
.
In May 2014, the FASB issued a new accounting standard that
supersedes nearly all existing revenue recognition guidance under
GAAP. The new standard is principles-based and provides a five-step
model to determine when and how revenue is recognized. The core
principle of the new standard is that revenue should be recognized
when a company transfers promised goods or services to customers in
an amount that reflects the consideration to which the Company
expects to be entitled in exchange for those goods or services. In
March 2016, the FASB issued a new standard to
clarify the
implementation guidance on principal versus agent considerations,
and in April 2016, the FASB issued a new standard to clarify the
implementation guidance on identifying performance obligations and
licensing.
The new standard also
requires disclosure of qualitative and quantitative information
surrounding the amount, nature, timing and uncertainty of revenues
and cash flows arising from contracts with customers. In July 2015,
the FASB agreed to defer the effective date of the standard from
annual periods beginning after December 15, 2016, to annual periods
beginning after December 15, 2017, with an option that permits
companies to adopt the standard as early as the original effective
date. Early application prior to the original effective date is not
permitted. The standard permits the use of either the retrospective
or cumulative effect transition method. We do not believe the
adoption of this standard will have a material impact on our
consolidated financial statements
.
In February 2016, the FASB issued a new accounting standard
intended to improve financial reporting regarding leasing
transactions. The new standard will require us to recognize on the
balance sheet the assets and liabilities for the rights and
obligations created by all leased assets. The new standard will
also require us to provide enhanced disclosures designed to enable
users of financial statements to understand the amount, timing, and
uncertainty of cash flows arising from all leases, operating and
capital, with lease terms greater than 12 months. The new standard
is effective for financial statements beginning after December 15,
2018, and interim periods within those annual periods. Early
adoption is permitted. We are currently evaluating the impact that
this new standard will have on our financial statements and related
disclosures.
In January 2016, the FASB issued a new accounting standard that
will enhance our reporting for financial instruments. The new
standard is effective for financial statements issued for annual
periods beginning after December 15, 2017, and interim periods
within those annual periods. Earlier adoption is permitted for
interim and annual reporting periods as of the beginning of the
fiscal year of adoption. We do not believe the adoption of this
standard will have a material impact on our consolidated financial
statements.
In November 2015, the FASB issued a new accounting standard that
changes the balance sheet classifications of deferred income taxes.
This standard amends existing guidance to require that deferred tax
liabilities and assets be classified as noncurrent in a classified
statement of financial position. It is effective for annual
reporting periods beginning after December 15, 2016, and interim
periods within those annual periods. Early adoption is permitted.
We do not expect adoption of this standard will have a material
impact on our consolidated financial statements.
In
August 2014, the FASB issued a new accounting standard that will
require management to assess and evaluate whether conditions or
events exist, considered in the aggregate, that raise substantial
doubt about the entity’s ability to continue as a going
concern within one year after the financial statements issue date.
It is effective for annual periods ending after December 15,
2016 and for annual and interim periods thereafter; early adoption
is permitted.
The adoption of this
standard did not have a material impact on our consolidated
financial statements
.
Interest Rate Risk
We are
subject to interest rate risk on our investment
portfolio.
We
invest in marketable securities in accordance with our investment
policy. The primary objectives of our investment policy are to
preserve capital, maintain proper liquidity to meet operating needs
and maximize yields. Our investment policy specifies credit quality
standards for our investments and limits the amount of credit
exposure to any single issue, issuer or type of investment. We
place our excess cash with high credit quality financial
institutions, commercial companies, and government agencies in
order to limit the amount of credit exposure. Some of the
securities we invest in may have market risk. This means that a
change in prevailing interest rates may cause the principal amount
of the investment to fluctuate.
Our
investment exposure to market risk for changes in interest rates
relates to the increase or decrease in the amount of interest
income we can earn on our portfolio, changes in the market value
due to changes in interest rates and other market factors as well
as the increase or decrease in any realized gains and losses. Our
investment portfolio includes only marketable securities and
instruments with active secondary or resale markets to help ensure
portfolio liquidity. A hypothetical 100 basis point drop in
interest rates along the entire interest rate yield curve would not
significantly affect the fair value of our interest sensitive
financial instruments. We generally have the ability to hold our
fixed-income investments to maturity and therefore do not expect
that our operating results, financial position or cash flows will
be materially impacted due to a sudden change in interest rates.
However, our future investment income may fall short of
expectations due to changes in interest rates, or we may suffer
losses in principal if forced to sell securities which have
declined in market value due to changes in interest rates or other
factors, such as changes in credit risk related to the
securities’ issuers. To minimize this risk, we schedule our
investments to have maturities that coincide with our expected cash
flow needs, thus avoiding the need to redeem an investment prior to
its maturity date. Accordingly, we do not believe that we have
material exposure to interest rate risk arising from our
investments. Generally, our investments are not collateralized. We
have not realized any significant losses from our
investments.
We do
not use interest rate derivative instruments to manage exposure to
interest rate changes. We ensure the safety and preservation of
invested principal funds by limiting default risk, market risk and
reinvestment risk. We reduce default risk by investing in
investment grade securities.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
CONSOLIDATED BALANCE SHEETS
|
43
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
|
44
|
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
45
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
46
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
|
47
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
48
|
Report of Independent Registered Public Accounting
Firm
To the Board of Directors and Stockholders
Tenax Therapeutics, Inc.
Morrisville, North Carolina
We have audited the accompanying consolidated balance sheets
of
Tenax Therapeutics, Inc. and Subsidiary (the
“Company”)
as
of December 31, 2016 and 2015, and the related consolidated
statements of operations and comprehensive loss,
stockholders’ equity, and cash flows for the year ended
December 31, 2016, eight months ended December 31, 2015 and the
years ended April 30, 2015 and 2014. We also have audited the
Company’s internal control over financial reporting as of
December 31, 2016, based on criteria established in
Internal Control -
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). The
Company’s management is responsible for these consolidated
financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Management’s Annual Report on
Internal Control over Financial Reporting included in Item 9A -
Controls and Procedures in the Company’s December 31, 2016
Annual Report on Form 10-K. Our responsibility is to express an
opinion on these consolidated financial statements and an opinion
on the Company’s internal control over financial reporting
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 and whether effective
internal control over financial reporting was maintained in all
material respects. Our audits of the consolidated financial
statements included 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, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable
basis for our opinions.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
consolidated financial statements for external purposes in
accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of consolidated
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of
management and directors of the Company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Company’s assets that
could have a material effect on the consolidated financial
statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of the Company as of December 31, 2016 and 2015, and the
results of its operations and its cash flows for the year ended
December 31, 2016, the eight months ended December 31, 2015 and the
years ended April 30, 2015 and 2014, in conformity with accounting
principles generally accepted in the United States of America. Also
in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December
31, 2016, based on criteria established in
Internal Control -
Integrated Framework
issued by the COSO.
For the period ended December 31, 2016, the Company recognized a
net loss of approximately $43.9 million and as of December 31,
2016, the Company had incurred cumulative net losses of
approximately $204.7 million. Management’s plans with regard
to liquidity and capital resources are described in Note
B.
/s/ CHERRY BEKAERT LLP
|
Raleigh, North Carolina
|
|
|
March 16, 2017
|
|
The
accompanying notes are an integral part of these Consolidated
Financial Statements.
44
TENAX THERAPEUTICS, INC.
|
|
Year ended
December 31,
|
Eight
months ended December 31,
|
Year
ended April 30,
|
|
|
|
2016
|
2015
|
2015
|
2014
|
|
|
|
|
|
|
|
Product
revenue
|
$
-
|
$
-
|
$
-
|
$
25,731
|
|
Cost
of sales
|
-
|
-
|
-
|
129,800
|
|
Net
product revenue
|
-
|
-
|
-
|
(104,069
)
|
|
Government
grant revenue
|
-
|
-
|
49,286
|
262,995
|
|
Total
net revenue
|
-
|
-
|
49,286
|
158,926
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
General
and administrative
|
6,245,958
|
3,940,631
|
7,170,779
|
13,773,325
|
|
Research
and development
|
13,139,681
|
6,484,867
|
6,660,387
|
2,996,721
|
|
Loss
on impairment of long-lived assets
|
33,265,100
|
-
|
1,034,863
|
-
|
|
Total
operating expenses
|
52,650,739
|
10,425,498
|
14,866,029
|
16,770,046
|
|
|
|
|
|
|
|
Net
operating loss
|
52,650,739
|
10,425,498
|
14,816,743
|
16,611,120
|
|
|
|
|
|
|
|
Interest
expense
|
-
|
1,507
|
49,081
|
2,212,283
|
|
Other
(income) expense
|
(764,735
)
|
(359,041
)
|
(784,012
)
|
718,436
|
|
Income
tax benefit
|
(7,962,100
)
|
-
|
-
|
-
|
|
Net
loss
|
$
43,923,904
|
$
10,067,964
|
$
14,081,812
|
$
19,541,839
|
|
|
|
|
|
|
|
Unrealized
(gain) loss on marketable securities
|
(110,724
)
|
156,160
|
(26,718
)
|
-
|
|
Total
comprehensive loss
|
$
43,813,180
|
$
10,224,124
|
$
14,055,094
|
$
19,541,839
|
|
|
|
|
|
|
|
Reconciliation
of net loss to net loss attributable to common
stockholders
|
|
|
|
|
|
Net
loss
|
$
43,923,904
|
$
10,067,964
|
$
14,081,812
|
$
19,541,839
|
|
Preferred
stock dividend
|
-
|
-
|
-
|
5,803,362
|
|
Net
loss attributable to common stockholders
|
$
43,923,904
|
$
10,067,964
|
$
14,081,812
|
$
25,345,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share, basic and diluted
|
$
(1.56
)
|
$
(0.36
)
|
$
(0.50
)
|
$
(2.71
)
|
|
Weighted
average number of common shares outstanding, basic and
diluted
|
28,119,835
|
28,119,597
|
28,077,963
|
9,362,031
|
The
accompanying notes are an integral part of these Consolidated
Financial Statements.
45
TENAX THERAPEUTICS, INC.
|
|
Preferred Stock
|
Common Stock
|
|
|
|
|
||
|
|
Number of
Shares |
Amount
|
Number of
Shares |
Amount
|
Additional paid-in capital
|
Accumulated other comprehensive gain
(loss)
|
Accumulated
deficit |
Total stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Compensation
on options and restricted stock issued
|
|
|
29,956
|
3
|
465,151
|
|
|
465,154
|
|
Common stock
issued for services rendered
|
|
|
22,079
|
2
|
99,998
|
|
|
100,000
|
|
Common stock
issued as interest on convertible debt
|
|
|
255
|
-
|
11,500
|
|
|
11,500
|
|
Issuance of
warrants
|
|
|
|
|
478,115
|
|
|
478,115
|
|
Exercise of
warrants
|
|
|
209,230
|
21
|
543,977
|
|
|
543,998
|
|
Unrealized
gain (loss) on marketable securities
|
|
|
|
|
|
26,718
|
-
|
26,718
|
|
Net
loss
|
|
|
|
|
|
|
(14,081,812
)
|
(14,081,812
)
|
|
Balance at April
30, 2015
|
-
|
$
-
|
28,119,520
|
$
2,812
|
$
221,067,239
|
$
26,718
|
$
(150,667,735
)
|
$
70,429,034
|
|
Compensation
on options and restricted stock issued
|
|
|
174
|
-
|
218,438
|
|
|
218,438
|
|
Unrealized
gain (loss) on marketable securities
|
|
|
|
|
|
(156,160
)
|
|
(156,160
)
|
|
Net
loss
|
|
|
|
|
|
|
(10,067,964
)
|
(10,067,964
)
|
|
Balance at
December 31, 2015
|
-
|
$
-
|
28,119,694
|
$
2,812
|
$
221,285,677
|
$
(129,442
)
|
$
(160,735,699
)
|
$
60,423,348
|
|
Compensation
on options and restricted stock issued
|
|
|
327
|
-
|
530,770
|
|
|
530,770
|
|
Unrealized
gain (loss) on marketable securities
|
|
|
|
|
|
110,724
|
|
110,724
|
|
Net
loss
|
|
|
|
|
|
|
(43,923,904
)
|
(43,923,904
)
|
|
Balance at
December 31, 2016
|
-
|
$
-
|
28,120,021
|
$
2,812
|
$
221,816,447
|
$
(18,718
)
|
$
(204,659,603
)
|
$
17,140,938
|
The
accompanying notes are an integral part of these Consolidated
Financial Statements.
46
TENAX THERAPEUTICS, INC.
The
accompanying notes are an integral part of these Consolidated
Financial Statements.
47
TENAX THERAPEUTICS, INC.
Non-cash financing activities during the year ended April 30,
2015:
-
The
Company issued 255 shares of restricted common stock for the
payment of interest accrued on convertible notes. The shares were
issued at a conversion price of $45.10 per share for the payment of
$11,500 interest payable on convertible notes with a gross carrying
value of $300,000.
Non-cash financing activities during the year ended April 30,
2014:
-
TheCompany issued
4,881 shares of restricted common stock for the payment of interest
accrued on convertible notes. The shares were issued at a
conversion price of $45.10 for the payment of $220,041 interest
payable on convertible notes with a gross carrying value of
$4,900,000.
-
The Company issued
831,401 shares of its common stock for the payment of $1,300,204 as
dividends on the Series C 8% Convertible Preferred
stock.
-
The Company issued
4,600 shares of Series D 8% Convertible Preferred Stock as
consideration for cancellation of $4.6 million in outstanding
principal amount of a convertible promissory note issued by the
Company on July 1, 2011.
-
The Company issued
576,084 shares of its common stock for the payment of $1,104,000 as
dividends on the Series D 8% Convertible Preferred
stock.
-
The Company issued
1,366,844 shares of its common stock that had a fair value of
approximately $8.7 million and 32,992 shares of its Series E
Convertible Preferred Stock, which are convertible into an
aggregate of 3,299,200 shares of common stock that had a fair value
of approximately $15.3 million in exchange for the assets of
Phyxius Pharma, Inc. The Company recorded Goodwill of $11,265,100
as a result of this issuance.
The
accompanying notes are an integral part of these Consolidated
Financial Statements.
48
TENAX THERAPEUTICS, INC.
NOTE A—DESCRIPTION OF BUSINESS
Description
of Business—Tenax Therapeutics (the “Company”)
was originally formed as a New Jersey corporation in 1967 under the
name Rudmer, David & Associates, Inc., and subsequently changed
its name to Synthetic Blood International, Inc. On June 17, 2008,
the stockholders of Synthetic Blood International approved the
Agreement and Plan of Merger dated April 28, 2008, between
Synthetic Blood International and Oxygen Biotherapeutics, Inc., a
Delaware corporation. Oxygen Biotherapeutics was formed on April
17, 2008, by Synthetic Blood International to participate in the
merger for the purpose of changing the state of domicile of
Synthetic Blood International from New Jersey to Delaware.
Certificates of Merger were filed with the states of New Jersey and
Delaware, and the merger was effective June 30, 2008. Under the
Plan of Merger, Oxygen Biotherapeutics was the surviving
corporation and each share of Synthetic Blood International common
stock outstanding on June 30, 2008 was converted to one share of
Oxygen Biotherapeutics common stock. On September 19, 2014, the
Company changed its name to Tenax Therapeutics, Inc.
On October 18, 2013, the Company created a wholly owned subsidiary,
Life Newco, Inc., a Delaware corporation (“Life
Newco”), to acquire certain assets of Phyxius Pharma, Inc., a
Delaware corporation (“Phyxius”), pursuant to an Asset
Purchase Agreement, dated October 21, 2013 (the “Asset
Purchase Agreement”), by and among the Company, Life Newco,
Phyxius and the stockholders of Phyxius (the “Phyxius
Stockholders”). As further discussed in Note D below, on
November 13, 2013, under the terms and subject to the conditions of
the Asset Purchase Agreement, Life Newco acquired certain assets,
including a license granting Life Newco an exclusive,
sublicenseable right to develop and commercialize pharmaceutical
products containing Levosimedan, 2.5 mg/ml concentrate for solution
for infusion / 5ml vial in the United States and
Canada.
Reverse Stock Split
The
Company initiated a 1-for-20 reverse stock split effective May 10,
2013. All shares and per share amounts in these Consolidated
Financial Statements and notes thereto have been retroactively
adjusted to give effect to the reverse stock split.
NOTE B—SUMMARY OF CRITICAL ACCOUNTING POLICIES
Use of Estimates
The
preparation of the accompanying consolidated financial statements
in conformity with accounting principles generally accepted in the
United States of America requires management to make certain
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
On an
ongoing basis, management reviews its estimates to ensure that
these estimates appropriately reflect changes in the
Company’s business and new information as it becomes
available. If historical experience and other factors used by
management to make these estimates do not reasonably reflect future
activity, the Company’s results of operations and financial
position could be materially impacted.
Principles of Consolidation
The
accompanying consolidated financial statements include the accounts
and transactions of Tenax Therapeutics, Inc. and
Life Newco, Inc. All material intercompany
transactions and balances have been eliminated in
consolidation
.
Goodwill
Acquired
businesses are accounted for using the acquisition method of
accounting, which requires that assets acquired, including
identifiable intangible assets, and liabilities assumed be recorded
at fair value, with limited exceptions. Any excess of the purchase
price over the fair value of the net assets acquired is recorded as
goodwill. If the acquired net assets do not constitute a business,
the transaction is accounted for as an asset acquisition and no
goodwill is recognized.
Goodwill
is reviewed for impairment on an annual basis or more frequently if
events or circumstances indicate potential impairment. The
Company’s goodwill evaluation is based on both qualitative
and quantitative assessments regarding the fair value of goodwill
relative to its carrying value. The Company assesses qualitative
factors to determine if its sole reporting unit’s fair value
is more likely than not to exceed its carrying value, including
goodwill. In the event the Company determines that it is more
likely than not that its reporting unit’s fair value is less
than its carrying amount, quantitative testing is performed
comparing recorded values to estimated fair values. If the fair
value exceeds the carrying value, goodwill is not impaired. If the
carrying value exceeds the fair value, an impairment charge is
recognized through a charge to operations based upon the excess of
the carrying value of goodwill over the implied fair
value.
During
the year ended December 31, 2016, the Company recognized an
impairment charge of $33.3 million related to our levosimendan
product in Phase III clinical trial, which represents approximately
$22 million for in-process research and development
(“IPR&D”) assets and approximately $11.3 million
for goodwill.
The
LEVO-CTS trial was completed in December of 2016. Based on the data
from the trial, l
evosimendan, given
prophylactically prior to cardiac surgery to patients with reduced
left ventricular function, had no effect on the co-primary
outcomes
.
The study
did not achieve statistically significant reductions in the dual
endpoint of death or use of a mechanical assist device at 30 days,
nor in the quad endpoint of death, myocardial infarction, need for
dialysis, or use of a mechanical assist device at 30 days. Based on
the results of the LEVO-CTS trial, the Company does not anticipate
additional development of levosimendan for the treatment of LCOS
in patients undergoing cardiac
surgery
. As of December 31, 2016, management determined the
IPR&D asset, and corresponding Goodwill, was more than
temporarily impaired.
There
was no impairment to goodwill recognized during 2015 and
2014.
Cash and Cash Equivalents
The
Company considers all highly liquid instruments with a maturity
date of three months or less, when acquired, to be cash
equivalents.
Cash Concentration Risk
On July
21, 2010, the Wall Street Reform and Consumer Protection Act
permanently increased the Federal Deposit Insurance Corporation
(the “FDIC”) insurance limits to $250,000 per depositor
per insured bank. The Company had cash balances of $9,362,812 and
$2,908,446 uninsured by the FDIC as of December 31, 2016 and 2015,
respectively.
Liquidity and Capital Resources
The
Company has financed its operations since September 1990 through
the issuance of debt and equity securities and loans from
stockholders. The Company had total current assets of $13,628,175
and $20,560,353 and working capital of $7,428,937 and $15,958,723
as of December 31, 2016 and 2015, respectively.
Cash
resources, including the fair value of the Company’s
available for sale marketable securities as of December 31, 2016
were approximately $21.9 million, compared to approximately $38.2
million as of December 31, 2015.
The
Company expects to continue to incur expenses related to
development of levosimendan for heart failure and other potential
indications, as well as identifying and developing other potential
product candidates. Based on its resources at December 31, 2016,
the Company believes that it has sufficient capital to fund its
planned operations through the first half of calendar year 2018.
However, the Company will need substantial additional financing in
order to fund its operations beyond such period and thereafter
until it can achieve profitability, if ever. The Company depends on
its ability to raise additional funds through various potential
sources, such as equity and debt financing, or to license its
product candidates to another pharmaceutical company. The Company
will continue to fund operations from cash on hand and through
sources of capital similar to those previously described. The
Company cannot assure that it will be able to secure such
additional financing, or if available, that it will be sufficient
to meet its needs.
To the
extent that the Company raises additional funds by issuing shares
of its common stock or other securities convertible or exchangeable
for shares of common stock, stockholders will experience dilution,
which may be significant. In the event the Company raises
additional capital through debt financings, the Company may incur
significant interest expense and become subject to covenants in the
related transaction documentation that may affect the manner in
which the Company conducts its business. To the extent that the
Company raises additional funds through collaboration and licensing
arrangements, it may be necessary to relinquish some rights to its
technologies or product candidates, or grant licenses on terms that
may not be favorable to the Company. Any or all of the foregoing
may have a material adverse effect on the Company’s business
and financial performance.
Deferred financing costs
Deferred
financing costs represent legal, due diligence and other direct
costs incurred to raise capital or obtain debt. Direct costs
include only “out-of-pocket” or incremental costs
directly related to the effort, such as a finder’s fee and
accounting and legal fees. These costs will be capitalized if the
efforts are successful, or expensed when unsuccessful. Indirect
costs are expensed as incurred. Deferred financing costs related to
debt are amortized over the life of the debt. Deferred financing
costs related to issuing equity are charged to Additional Paid-in
Capital.
Derivative financial instruments
The
Company does not use derivative instruments to hedge exposures to
cash flow, market or foreign currency risk. Terms of convertible
promissory note instruments and other convertible equity
instruments are reviewed to determine whether or not they contain
embedded derivative instruments that are required under FASB ASC
815, Derivatives and Hedging (“ASC 815”) to be
accounted for separately from the host contract, and recorded on
the balance sheet at fair value. The fair value of derivative
liabilities, if any, is required to be revalued at each reporting
date, with corresponding changes in fair value recorded in current
period operating results.
Freestanding
warrants issued by the Company in connection with the issuance or
sale of debt and equity instruments are considered to be derivative
instruments, and are evaluated and accounted for in accordance with
the provisions of ASC 815.
Beneficial conversion and warrant valuation
In
accordance with FASB ASC 470-20, Debt with Conversion and Other
Options, the Company records a beneficial conversion feature
(“BCF”) related to the issuance of convertible debt
that have conversion features at fixed rates that are in-the-money
when issued and the fair value of warrants issued in connection
with those instruments. The BCF for the convertible instruments is
recognized and measured by allocating a portion of the proceeds to
warrants, based on their relative fair value, and as a reduction to
the carrying amount of the convertible debt equal to the intrinsic
value of the conversion feature. As described in Note F, the
discount recorded in connection with the BCF and warrant valuation
is recognized as non-cash interest expense and is amortized over
the life of the convertible note.
Preclinical Study and Clinical Accruals
The
Company estimates its preclinical study and clinical trial expenses
based on the services received pursuant to contracts with several
research institutions and contract research organizations
(“CROs”) that conduct and manage preclinical and
clinical trials on its behalf. The financial terms of the
agreements vary from contract to contract and may result in uneven
expenses and payment flows. Preclinical study and clinical trial
expenses include the following:
-
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.
Property and Equipment, Net
Property
and equipment are stated at cost, subject to adjustments for
impairment, less accumulated depreciation and amortization.
Depreciation and amortization are computed using the straight-line
method over the following estimated useful lives:
|
Laboratory
equipment
|
3
– 5 years
|
|
Office
equipment
|
5
years
|
|
Office
furniture and fixtures
|
7
years
|
|
Computer
equipment and software
|
3
years
|
|
Leasehold
improvements
|
Shorter
of useful life or remaining lease term
|
Maintenance
and repairs are charged to expense as incurred, improvements to
leased facilities and equipment are capitalized.
Revenue Recognition
Revenues
from merchandise sales are recognized upon transfer of ownership,
including passage of title to the customer and transfer of the risk
of loss related to those goods. Revenues are reported on a net
sales basis, which is computed by deducting from gross sales the
amount of actual product returns received, discounts, incentive
arrangements with retailers and an amount established for
anticipated product returns. The Company’s practice is to
accept product returns from retailers only if properly requested,
authorized and approved.
Revenues
from a cost-reimbursement grant sponsored by the United States Army
(“Grant Revenue”), are recognized as milestones under
the Grant program are achieved. Grant Revenue is earned through
reimbursements for the direct costs of labor, travel, and supplies,
as well as the pass-through costs of subcontracts with third-party
CROs.
Research and Development Costs
Research
and development costs include, but are not limited to, (i) expenses
incurred under agreements with CROs and investigative sites, which
conduct our clinical trials and a substantial portion of our
preclinical studies; (ii) the cost of manufacturing and supplying
clinical trial materials; (iii) payments to contract service
organizations, as well as consultants; (iv) employee-related
expenses, which include salaries and benefits; and (v) facilities,
depreciation and other allocated expenses, which include direct and
allocated expenses for rent and maintenance of facilities and
equipment, depreciation of leasehold improvements, equipment,
laboratory and other supplies. All research and development
expenses are expensed as incurred.
Income Taxes
Deferred
tax assets and liabilities are recorded for differences between the
financial statement and tax bases of the assets and liabilities
that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income
tax expense is recorded for the amount of income tax payable or
refundable for the period increased or decreased by the change in
deferred tax assets and liabilities during the period.
Stock-Based Compensation
The
Company accounts for stock based compensation in accordance with
ASC 718 Compensation — Stock Compensation, which requires the
measurement and recognition of compensation expense for all
stock-based payment awards granted, modified and settled to our
employees and directors. The Company chose the
“straight-line” attribution method for allocating
compensation costs of each stock option on a straight-line basis
over the requisite service period using the Black-Scholes Option
Pricing Model to calculate the grant date fair value.
Loss Per Share
Basic
loss per share, which excludes antidilutive securities, is computed
by dividing net loss by the weighted-average number of common
shares outstanding for that particular period. In contrast, diluted
loss per share considers the potential dilution that could occur
from other equity instruments that would increase the total number
of outstanding shares of common stock. Such amounts include shares
potentially issuable under outstanding options, restricted stock
and warrants.
The
following outstanding options, restricted stock grants, convertible
note shares and warrants were excluded from the computation of
basic and diluted net loss per share for the periods presented
because including them would have had an anti-dilutive
effect.
|
|
Year ended
December 31,
|
Eight months ended December 31,
|
Year ended April 30,
|
|
|
|
2016
|
2015
|
2015
|
2014
|
|
|
|
|
|
|
|
Options
to purchase common stock
|
4,742,032
|
4,032,698
|
3,718,298
|
3,647,858
|
|
Warrants
to purchase common stock
|
2,415,675
|
2,728,236
|
2,728,236
|
2,762,466
|
|
Restricted
stock grants
|
214
|
394
|
90
|
42,629
|
|
Convertible
note shares outstanding
|
-
|
-
|
-
|
6,652
|
Operating Leases
The
Company maintains operating leases for its office and laboratory
facilities. The lease agreements may include rent escalation
clauses and tenant improvement allowances. The Company recognizes
scheduled rent increases on a straight-line basis over the lease
term beginning with the date the company takes possession of the
leased space. Differences between rental expense and actual rental
payments are recorded as deferred rent liabilities and are included
in “Other liabilities” on the consolidated balance
sheets.
Recent Accounting Pronouncements
In
January 2017, the
Financial Accounting
Standards Board (the “
FASB”), issued a new
accounting standard that provides guidance for evaluating whether
transactions should be accounted for as acquisitions (or disposals)
of assets or businesses. The guidance provides a screen to
determine when an integrated set of assets and activities, or a
set, does not qualify to be a business. The screen requires that
when substantially all of the fair value of the gross assets
acquired (or disposed of) is concentrated in an identifiable asset
or a group of similar identifiable assets, the set is not a
business. If the screen is not met, the guidance requires a set to
be considered a business to include, at a minimum, an input and a
substantive process that together significantly contribute to the
ability to create outputs and removes the evaluation as to whether
a market participant could replace the missing elements. The new
standard will be effective for the Company on January 1, 2018 and
will be adopted on a prospective basis. Early adoption is
permitted. The Company is currently evaluating the effect that the
standard will have on its consolidated financial statements and
related disclosures.
In
August 2016, the FASB issued a new accounting standard that
clarifies how companies present and classify certain cash receipts
and cash payments in the statement of cash flows where diversity in
practice exists. The new standard is effective for the Company in
its first quarter of fiscal 2018 and earlier adoption is permitted.
The Company is currently evaluating the effect that the updated
standard will have on its consolidated financial statements and
related disclosures.
In June
2016,
the
FASB issued a new
accounting standard that amends how credit losses are measured and
reported for certain financial instruments that are not accounted
for at fair value through net income. This new standard will
require that credit losses be presented as an allowance rather than
as a write-down for available-for-sale debt securities and will be
effective for interim and annual reporting periods beginning
January 1, 2020, with early adoption permitted, but not
earlier than annual reporting periods beginning January 1,
2019. A modified retrospective approach is to be used for certain
parts of this guidance, while other parts of the guidance are to be
applied using a prospective approach. The Company is currently
evaluating the impact that this new standard will have on its
consolidated financial statements and
related disclosures
.
In
March 2016,
the FASB
issued a
new accounting standard intended to simplify various aspects
related to how share-based payments are accounted for and presented
in the financial statements.
The new
guidance includes provisions to reduce the complexity related to
income taxes, statement of cash flows, and forfeitures when
accounting for share-based payment transactions. The new standard
is effective for annual periods beginning after December 15, 2016,
and interim periods within those annual periods. Early adoption is
permitted.
The Company does not
believe adoption of this standard will have a material impact on
its consolidated financial statements and related
disclosures
.
In May 2014, the FASB issued a new accounting standard that
supersedes nearly all existing revenue recognition guidance under
GAAP. The new standard is principles-based and provides a five-step
model to determine when and how revenue is recognized. The core
principle of the new standard is that revenue should be recognized
when a company transfers promised goods or services to customers in
an amount that reflects the consideration to which the Company
expects to be entitled in exchange for those goods or services. In
March 2016, the FASB issued a new standard to
clarify the
implementation guidance on principal versus agent considerations,
and in April 2016, the FASB issued a new standard to clarify the
implementation guidance on identifying performance obligations and
licensing.
The new standard also
requires disclosure of qualitative and quantitative information
surrounding the amount, nature, timing and uncertainty of revenues
and cash flows arising from contracts with customers. In July 2015,
the FASB agreed to defer the effective date of the standard from
annual periods beginning after December 15, 2016, to annual periods
beginning after December 15, 2017, with an option that permits
companies to adopt the standard as early as the original effective
date. Early application prior to the original effective date is not
permitted. The standard permits the use of either the retrospective
or cumulative effect transition method. The Company has not yet
selected a transition method and the Company does not believe
adoption of this standard will have a material impact on its
consolidated financial statements and related
disclosures
.
In February 2016, the FASB issued a new accounting standard
intended to improve financial reporting regarding leasing
transactions. The new standard will require the Company to
recognize on the balance sheet the assets and liabilities for the
rights and obligations created by all leased assets. The new
standard will also require it to provide enhanced disclosures
designed to enable users of financial statements to understand the
amount, timing, and uncertainty of cash flows arising from all
leases, operating and capital, with lease terms greater than 12
month. The new standard is effective for financial statements
beginning after December 15, 2018, and interim periods within those
annual periods. Early adoption is permitted. See Note H for the
Company’s current lease commitments. The Company is currently
evaluating the impact that this new standard will have on its
financial statements and related disclosures.
In January 2016, the FASB issued a new accounting standard that
will enhance the Company’s reporting for financial
instruments. The new standard is effective for financial statements
issued for annual periods beginning after December 15, 2017, and
interim periods within those annual periods. Earlier adoption is
permitted for interim and annual reporting periods as of the
beginning of the fiscal year of adoption. The Company does not
believe the adoption of this standard will have a material impact
on its consolidated financial statements.
In November 2015, the FASB issued a new accounting standard that
changes the balance sheet classifications of deferred income taxes.
This standard amends existing guidance to require that deferred tax
liabilities and assets be classified as noncurrent in a classified
statement of financial position. It is effective for annual
reporting periods beginning after December 15, 2016, and interim
periods within those annual periods. Early adoption is permitted.
The Company does not expect adoption of this standard will have a
material impact on its consolidated financial
statements.
In
August 2014, the FASB issued a new accounting standard that will
require management to assess and evaluate whether conditions or
events exist, considered in the aggregate, that raise substantial
doubt about the entity’s ability to continue as a going
concern within one year after the financial statements issue date.
It is effective for annual periods ending after December 15,
2016 and for annual and interim periods thereafter; early adoption
is permitted. The adoption of this new standard did not have a
material effect on the Company’s consolidated financial
statements.
Fair Value
The
Company determines the fair value of its financial assets and
liabilities in accordance with the FASB Accounting Standards
Codification (“ASC”) 820 Fair Value Measurements. The
Company’s balance sheet includes the following financial
instruments: cash and cash equivalents, investments in marketable
securities, short-term notes payable, and warrant liabilities. The
Company considers the carrying amount of its cash and cash
equivalents and short-term notes payable to approximate fair value
due to the short-term nature of these instruments.
Accounting
for fair value measurements involves a single definition of fair
value, along with a conceptual framework to measure fair value,
with a fair value defined as “the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date.” The fair value measurement hierarchy consists of three
levels:
|
Level
one
|
Quoted
market prices in active markets for identical assets or
liabilities;
|
|
Level
two
|
Inputs
other than level one inputs that are either directly or indirectly
observable; and
|
|
Level
three
|
Unobservable
inputs developed using estimates and assumptions; which are
developed by the reporting entity and reflect those assumptions
that a market participant would use.
|
The
Company applies valuation techniques that (1) place greater
reliance on observable inputs and less reliance on unobservable
inputs and (2) are consistent with the market approach, the
income approach and/or the cost approach, and include enhanced
disclosures of fair value measurements in the Company’s
consolidated financial statements.
Investments in Marketable Securities
The
Company classifies all of its investments as available-for-sale.
Unrealized gains and losses on investments are recognized in
comprehensive income/(loss), unless an unrealized loss is
considered to be other than temporary, in which case the unrealized
loss is charged to operations. The Company periodically reviews its
investments for other than temporary declines in fair value below
cost basis and whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The
Company believes the individual unrealized losses represent
temporary declines primarily resulting from interest rate changes.
Realized gains and losses are reflected in other income (expense)
in the Consolidated Statements of Operations and Comprehensive Loss
and are determined using the specific identification method with
transactions recorded on a settlement date basis.
For the year ended December 31, 2016, the Company recognized a loss
of $41,955, and
a loss of $43,871 for the eight months ended
December 31, 2015
. For the fiscal
years ended April 30, 2015 and 2014,
the Company recognized
a gain of $1,025, and $0
,
respectively.
Investments
with original maturities at date of purchase beyond three months
and which mature at or less than 12 months from the balance sheet
date are classified as current. Investments with a maturity beyond
12 months from the balance sheet date are classified as long-term.
At December 31, 2016, the Company believes that the costs of its
investments are recoverable in all material respects.
The
following tables summarize the fair value of the Company’s
investments by type. The estimated fair value of the
Company’s fixed income investments are classified as Level 2
in the fair value hierarchy as defined in U.S. GAAP. These fair
values are obtained from independent pricing services which utilize
Level 2 inputs:
|
|
December 31, 2016
|
||||
|
|
Amortized Cost
|
Accrued Interest
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Estimated Fair
Value
|
|
Corporate
debt securities
|
$
11,780,631
|
$
108,813
|
$
5,385
|
$
(24,103
)
|
$
11,870,726
|
The
following table summarizes the scheduled maturity for the
Company’s investments at December 31, 2016 and 2015,
respectively:
|
|
December 31, 2016
|
December 31, 2015
|
|
Maturing
in one year or less
|
$
3,284,616
|
$
16,528,494
|
|
Maturing
after one year through three years
|
8,586,110
|
18,019,054
|
|
Total
investments
|
$
11,870,726
|
$
34,547,548
|
Warrant liability
On July 23, 2013, the Company issued common stock warrants in
connection with the issuance of Series C 8% Preferred Stock (the
“Series C Warrants”). As part of the offering, the
Company issued 2,753,348 warrants at an exercise price of $2.60 per
share and contractual term of 6 years
. On November 11, 2013,
the Company satisfied certain contractual obligations pursuant to
the Series C offering which caused
certain “down-round” price protection
clauses in the outstanding warrants to become effective on that
date. In accordance with ASC 815-40-35-9,
t
he Company reclassified these warrants as a
current liability and recorded a warrant liability of $1,380,883,
which represents the fair market value of the warrants at that
date. The initial fair value recorded as warrants within
stockholders’ equity of $233,036 was reversed and the
subsequent changes in fair value are recorded as a component of
other expense.
Financial
assets or liabilities are considered Level 3 when their fair
values are determined using pricing models, discounted cash flow
methodologies or similar techniques and at least one significant
model assumption or input is unobservable. The Series C Warrants
are measured using the Monte Carlo valuation model which is based,
in part, upon inputs for which there is little or no observable
market data, requiring the Company to develop its own
assumptions. The assumptions used in calculating the
estimated fair value of the warrants represent the Company’s
best estimates; however, these estimates involve inherent
uncertainties and the application of management judgment. As
a result, if factors change and different assumptions are used, the
warrant liabilities and the change in estimated fair value of the
warrants could be materially different.
Inherent
in the Monte Carlo valuation model are assumptions related to
expected stock-price volatility, expected life, risk-free interest
rate and dividend yield. The Company estimates the volatility
of its common stock based on historical volatility that matches the
expected remaining life of the warrants. The risk-free
interest rate is based on the U.S. Treasury zero-coupon yield curve
on the grant date for a maturity similar to the expected remaining
life of the warrants. The expected life of the warrants is
assumed to be equivalent to their remaining contractual term.
The dividend rate is based on the historical rate, which the
Company anticipates to remain at zero.
The
Monte Carlo model is used for the Series C Warrants to
appropriately value the potential future exercise price adjustments
triggered by the anti-dilution provisions. This requires Level 3
inputs which are based on the Company’s estimates of the
probability and timing of potential future financings and
fundamental transactions. The other assumptions used by the
Company are summarized in the following table for the Series C
Warrants that were outstanding as of December 31, 2016 and December
31, 2015:
|
Series C Warrants
|
December 31, 2016
|
December 31, 2015
|
|
Closing
stock price
|
$
1.95
|
$
3.28
|
|
Expected
dividend rate
|
0
%
|
0
%
|
|
Expected
stock price volatility
|
79.60
%
|
84.08
%
|
|
Risk-free
interest rate
|
1.35
%
|
1.44
%
|
|
Expected
life (years)
|
2.56
|
3.56
|
|
|
|
|
As of December 31, 2016, the fair value of the warrant liability
was $226,092. The Company recorded a gain of $298,248 for the
change in fair value as a component of other expense on the
consolidated statement of comprehensive loss for the year ended
December 31, 2016.
The Company recorded a gain of $48,105 for the change in fair value
as a component of other expense on the consolidated statement of
comprehensive loss for the eight months ended December 31,
2015.
For the fiscal years ended April 30, 2015 and 2014,
the
Company recognized a gain of $382,431 and a loss of
$721,840
, respectively, for the change
in fair value as a component of other expense on the consolidated
statement of operations.
A roll-forward of fair value measurements using significant
unobservable inputs (Level 3) for the warrants for the year ended
December 31, 2016, for the eight months ended December 31, 2015 and
the year ended April 30, 2015 are as follows:
|
Balance, at April 30, 2014
|
$
954,876
|
|
Issuance
of warrants
|
-
|
|
Exercise
of warrants
|
-
|
|
Gain
included in income from change in fair value of warrants for the
period
|
(382,431
)
|
|
Balance, at April 30, 2015
|
$
572,445
|
|
Issuance
of warrants
|
-
|
|
Exercise
of warrants
|
-
|
|
Gain
included in income from change in fair value of warrants for the
period
|
(48,105
)
|
|
Balance, at December 31, 2015
|
$
524,340
|
|
Issuance
of warrants
|
-
|
|
Exercise
of warrants
|
-
|
|
Gain
included in income from change in fair value of warrants for the
period
|
(298,248
)
|
|
Balance, at December 31, 2016
|
$
226,092
|
As of
December 31, 2016, 240,523 Series C Warrants are
outstanding.
The
following tables summarize information regarding assets and
liabilities measured at fair value on a recurring basis as of
December 31, 2016 and December 31, 2015:
There
were no significant transfers between levels during the year ended
December 31, 2016.
Change in Fiscal Year
In 2015, the Company’s Board of Directors approved a change
in the Company’s fiscal year to a fiscal year beginning on
January 1 and ending on December 31 of each year, such change
beginning as of January 1, 2016.
Accordingly, this annual
report on Form 10-K includes financial statements as of and for (i)
the calendar year ended December 31, 2016; (ii) the eight months
ended December 31, 2015; and (iii) the fiscal years ended April 30,
2015 and 2014.
For
comparative purposes, an unaudited consolidated statement of
operations and comprehensive loss has been included for the year
ended December 31, 2015 and for the eight month period from May 1,
2014 to December 31, 2014. The financial information for the year
ended December 31, 2015 and the eight months ended December 31,
2014 has not been audited and is derived from the Company’s
books and records. In the opinion of management, the financial
information for the year ended December 31, 2015 and the eight
months ended December 31, 2014 reflects all adjustments necessary
to present the financial position and results of operations in
accordance with generally accepted accounting principles. Prior to
the year-end change, the Company’s fiscal year ended on April
30 of each year
.
NOTE C—BALANCE SHEET COMPONENTS
Property and equipment, net
Property
and equipment consist of the following:
|
|
December 31, 2016
|
December 31, 2015
|
|
Laboratory
equipment
|
$
354,861
|
$
514,214
|
|
Computer
equipment and software
|
101,677
|
139,984
|
|
Office
furniture and fixtures
|
130,192
|
130,192
|
|
|
586,730
|
784,390
|
|
Less:
Accumulated depreciation
|
(567,625
)
|
(748,604
)
|
|
|
$
19,105
|
$
35,786
|
Depreciation
and amortization expense was $18,952 and $31,224 for the year ended
December 31, 2016 and for the eight months ended December 31, 2015,
respectively.
For the
fiscal years ended April 30, 2015 and 2014, depreciation and
amortization expense was $77,836 and $88,300,
respectively.
Accrued liabilities
Accrued
liabilities consist of the following:
|
|
December 31, 2016
|
December 31, 2015
|
|
Operating
costs
|
$
4,361,538
|
$
2,559,092
|
|
Employee
related
|
884,008
|
545,715
|
|
|
$
5,245,546
|
$
3,104,807
|
NOTE D—ACQUISITION
On November 13, 2013, the Company, through its wholly owned
subsidiary, Life Newco, acquired certain assets of Phyxius pursuant
to the Asset Purchase Agreement. The acquisition was accounted for
under the acquisition method of accounting for business
combinations in accordance with FASB ASC 805,
Business Combinations,
which requires, among other things
that the assets acquired and liabilities assumed be recognized at
their fair values as of the acquisition
date. Acquisition-related costs are not included as a
component of the acquisition accounting, but are recognized as
expenses in the periods in which the costs are
incurred. Any changes within the measurement period
resulting from facts and circumstances that existed as of the
acquisition date may result in retrospective adjustments to the
provisional amounts recorded at the acquisition
date.
Under the terms and subject to the conditions of the Asset Purchase
Agreement, Life Newco acquired (the “Acquisition”)
certain assets, including that certain License Agreement (the
“License”), dated September 20, 2013 by and between
Phyxius and Orion Corporation, a global healthcare company
incorporated under the laws of Finland (“Orion”), and
that certain Side Letter, dated October 15, 2013 by and between
Phyxius and Orion. The License grants Life Newco an
exclusive, sublicenseable right to develop and commercialize
pharmaceutical products containing Levosimedan, 2.5 mg/ml
concentrate for solution for infusion / 5ml vial (the
“Product”) in the United States and Canada (the
“Territory”). Pursuant to the License, Life
Newco must use Orion’s “Simdax®” trademark
to commercialize the Product. The License also grants to
Life Newco a right of first refusal to commercialize new
developments of the Product, including developments as to the
formulation, presentation, means of delivery, route of
administration, dosage or indication. Orion’s
ongoing role under the License includes sublicense approval,
serving as the sole source of manufacture, holding a first right to
enforce intellectual property rights in the Territory, and certain
regulatory participation rights. Additionally, Life
Newco must grant back to Orion a broad non-exclusive license to any
patents or clinical trial data related to the Product developed by
Life Newco under the License. The License has a fifteen
(15) year term, provided, however, that the License will continue
after the end of the fifteen year term in each country in the
Territory until the expiration of Orion’s patent rights in
the Product in such country (the
“Term”). Orion had the right to terminate
the License if the human clinical trial using the Product and
studying reduction in morbidity and mortality of cardiac surgery
patients at risk of low cardiac output syndrome (LCOS) as described
in the US Food and Drug Administration (the “FDA”)
agreed upon clinical study protocol (the “Study”) was
not started by July 31, 2014. While the Company did not commence
the trial by that date, on September 9, 2014, Orion notified the
Company in writing that it did not intend to terminate the License
so long as the trial was commenced on or before October 31, 2014.
The Company subsequently commenced the human clinical trial for
levosimendan on September 18, 2014 when the first patient was
enrolled.
The
following table summarizes the consideration transferred to acquire
Phyxius and the amounts of identified assets acquired and
liabilities assumed at the acquisition date.
Fair
Value of Consideration Transferred:
|
Common
stock
|
8,747,802
|
|
Series
E convertible preferred stock
|
15,299,198
|
|
Total
|
24,047,000
|
The
Company issued 1,366,844 shares of its common stock that had a
total fair value of approximately $8.7 million based on the closing
market price on November 13, 2013, the acquisition date. The
Company also issued 32,992
shares of
its Series E Convertible Preferred Stock (the “Series E
Stock”), which are convertible into an aggregate of 3,299,200
shares of common stock that had a total fair value of approximately
$
15.3 million
.
The rights, preferences and privileges of the Series E Stock are
set forth in the Certificate of Designation of Series E Convertible
Preferred Stock that the Company filed with the Secretary of State
of the State of Delaware on November 13, 2013. Each
share of Series E Stock automatically converted into 100 shares of
common stock following receipt of stockholder approval for the
transaction at the special meeting of stockholders held on March
13, 2014. Approximately 11% of the shares of converted
common stock vested immediately upon receipt of stockholder
approval for the transaction, while the remainder vested upon the
closing of the Company’s underwritten offering of
9,285,714 shares of common stock
on
March 21, 2014, which resulted in net proceeds of approximately $55
million.
The Series E Stock was convertible into restricted common shares
using a 100-for-one ratio at any time and in accordance with a
vesting schedule contingent upon achievement of Company-specific
non-financial conditions. As a result, the fair value of the
Preferred Shares was inferred based on their common stock
equivalent value given the conversion terms. The conditional
vesting of the Series E Stock was accounted for by subtracting the
fair value of an equal number of put options that would effectively
protect the common stock equivalent stock value as of the closing
date. The terms of the put options were as follows:
●
Exercise
price equal to the common stock price as of the Valuation
Date.
●
Term
based on management’s risk-adjusted expected time to meeting
the vesting condition, which was further increased by 6 months to
reflect the marketability restriction of the unregistered stock,
consistent with SEC Rule 144 of the Securities Act.
●
Volatility
was consistent with the term for the individual milestone payments
derived from the median historical asset volatility for a set of
comparable guideline companies. The volatility was then relevered
to estimate the equity volatility of the Company.
In accordance with the provisions of FASB ASC 805, the following
table presents the preliminary allocation of the total fair value
of consideration transferred, as discussed above, to the acquired
tangible and intangible assets and assumed liabilities of Phyxius
based on their estimated fair values as of the closing date of the
transaction, measurement period adjustments recorded since the
acquisition date and the adjusted allocation of the total fair
value:
|
|
November 13, 2013
(As initially reported)
|
Measurement
Period Adjustments (1)
|
November 13, 2013
(As adjusted)
|
|
IPR&D
|
$
22,000,000
|
$
-
|
$
22,000,000
|
|
Trade
and other payables
|
(256,000
)
|
-
|
(256,000
)
|
|
Liabilities
arising from a contingency
|
(1,000,000
)
|
-
|
(1,000,000
)
|
|
Deferred
tax liability related to intangibles acquired
|
-
|
(7,962,100
)
|
(7,962,100
)
|
|
Total
identifiable net assets
|
20,744,000
|
(7,962,100
)
|
12,781,900
|
|
Goodwill
|
3,303,000
|
7,962,100
|
11,265,100
|
|
Total
fair value of consideration
|
$
24,047,000
|
$
-
|
$
24,047,000
|
|
(1)
|
The measurement period adjustments primarily reflect the recording
of a deferred tax liability and resulting goodwill. The
measurement period adjustments were made to reflect facts and
circumstances existing as of the acquisition date and did not
result from intervening events subsequent to the acquisition
date.
|
The
fair value of the acquired IPR&D, intangible asset of
approximately $22.0 million was determined using the multi-period
excess earnings method. The Company did not acquire any other class
of assets as a result of the acquisition.
Pursuant to the terms of the License, the Company paid to Orion a
non-refundable up-front payment in the amount of $1
million.
The License also includes the following development milestones for
which the Company shall make non-refundable payments to Orion no
later than twenty-eight (28) days after the occurrence of the
applicable milestone event: (i) $2.0 million upon the grant of FDA
approval, including all registrations, licenses, authorizations and
necessary approvals, to develop and/or commercialize the Product in
the United States; and (ii) $1.0 million upon the grant of
regulatory approval for the Product in Canada. Once commercialized,
the Company is obligated to make certain non-refundable
commercialization milestone payments to Orion, aggregating up to
$13.0 million, contingent upon achievement of certain cumulative
net sales amounts in the Territory. The Company must also pay
Orion tiered royalties based on net sales of the Product in the
Territory made by the Company and its sublicensees. After the end
of the Term, the Company must pay Orion a royalty based on net
sales of the Product in the Territory for as long as the Company
sells the Product in the Territory.
In connection with the closing of the Acquisition, Phyxius’
co-founder, Chief Executive Officer and stockholder, John Kelley,
became the Company’s Chief Executive Officer and two other
Phyxius employees and stockholders, Doug Randall and Douglas Hay,
PhD became employees of the Company as Vice President, Business and
Commercial Operations and Vice President, Regulatory Affairs,
respectively. Michael Jebsen, the Company’s prior
Interim Chief Executive Officer and current Chief Financial
Officer, continued serving as the Company’s Chief Financial
Officer. In addition, Mr. Kelley was subsequently
appointed to the Company’s Board of Directors, and Gerald T.
Proehl, a designee of the Phyxius Stockholders, was appointed to
the Board of Directors on April 3, 2014 following receipt of
stockholder approval for the transaction. Pursuant to
the Asset Purchase Agreement, the Company agreed to propose that
its stockholders approve an amendment to the Company’s 1999
Stock Plan to increase the amount of stock options authorized for
issuance under the 1999 Stock Plan to not less than 4,000,000
shares of common stock. On March 13, 2014, the Company received
stockholder approval to increase the option plan. In accordance
with terms of the Acquisition, the Company issued an aggregate of
3,572,880 stock options with a grant date fair value of
$15,818,512, to the individuals described above. See Note G for
additional details.
The common stock and Series E Stock issued as the consideration in
the Acquisition were issued and sold without registration under the
Securities Act of 1933 (the “Securities Act”) in
reliance on the exemptions provided by Section 4(a)(2) of the
Securities Act and/or Regulation D promulgated thereunder and in
reliance on similar exemptions under applicable state
laws. Accordingly, the Phyxius Stockholders may sell the
shares of common stock and Series E Stock only pursuant to an
effective registration statement under the Securities Act covering
the resale of those securities, an exemption under Rule 144 under
the Securities Act or another applicable exemption under the
Securities Act.
NOTE E—INTANGIBLE ASSETS
The
following table summarizes our intangible assets as of December 31,
2016:
The
following table summarizes our intangible assets as of December 31,
2015:
|
Asset Category
|
Weighted
Average Amortization Period (in Years)
|
Value Assigned
|
Accumulated
Amortization
|
Impairments
|
Carrying
Value (Net of Impairments and Accumulated
Amortization)
|
|
|
|
|
|
|
|
|
IPR&D
|
N/A
|
$
22,000,000
|
$
-
|
$
-
|
$
(22,000,000
)
|
|
Total
|
|
$
22,000,000
|
|
$
-
|
$
(22,000,000
)
|
There
was no amortization expense for the year ended December 31, 2016
and the eight months ended December 31, 2015.
For the
fiscal years ended April 30, 2015 and 2014 the aggregate
amortization expense on intangible assets was $70,304 and $62,189,
respectively.
In Process Research and Development
— The levosimendan
product in Phase III clinical trial represents an IPR&D asset.
The IPR&D asset is a research and development project rather
than a product or processes already in service or being sold.
Research and development intangible assets are considered
indefinite-lived until the abandonment or completion of the
associated research and development efforts. If abandoned, the
assets would be impaired. Research and development expenditures
that are incurred after the acquisition, including those for
completing the research and development activities related to the
acquired intangible research and development assets, are generally
expensed as incurred.
During
the year ended December 31, 2016, the Company recognized an
impairment charge of $33.3 million related to our levosimendan
product in Phase III clinical trial, which represents approximately
$22 million for IPR&D assets and approximately $11.3 million
for goodwill.
The
LEVO-CTS trial was completed in December of 2016. Based on the data
from the trial, l
evosimendan, given
prophylactically prior to cardiac surgery to patients with reduced
left ventricular function, had no effect on the co-primary
outcomes
.
The study
did not achieve statistically significant reductions in the dual
endpoint of death or use of a mechanical assist device at 30 days,
nor in the quad endpoint of death, myocardial infarction, need for
dialysis, or use of a mechanical assist device at 30 days. Based on
the results of the LEVO-CTS trial, the Company does not anticipate
additional development of levosimendan for the treatment of LCOS
in patients undergoing cardiac
surgery
. As of December 31, 2016, the Company determined the
IPR&D asset, and corresponding Goodwill, was more than
temporarily impaired.
Patents and License Rights
—The Company currently
holds, has filed for, or owns exclusive rights to, U.S. and
worldwide patents covering 9 various methods and uses of its
perfluorocarbon (“PFC”) technology. It capitalizes
amounts paid to third parties for legal fees, application fees and
other direct costs incurred in the filing and prosecution of its
patent applications. These capitalized costs are amortized on a
straight-line method over their useful life or legal life,
whichever is shorter. For the fiscal years ended April 30, 2015 and
2014, the Company capitalized patent costs of approximately
$105,000 and $137,000, respectively.
The
Company completed its annual impairment test of its patents and
license rights during the fourth quarter of fiscal years 2015 and
2014. The Company wrote-off approximately $929,000 and $0 of
capitalized costs for patent applications that were withdrawn or
abandoned during the years ended April 30, 2015 and 2014,
respectively. These asset impairment charges primarily related to
the Company’s Oxycyte and other PFC formulations which were
determined not to be a core component of the Company’s
development strategy.
Trademarks
—The Company currently holds, or has filed
for, trademarks to protect the use of names and descriptions of its
products and technology. It capitalizes amounts paid to third
parties for legal fees, application fees and other direct costs
incurred in the filing and prosecution of its trademark
applications. These trademarks are evaluated annually for
impairment in accordance with ASC 350, Intangibles – Goodwill
and other. The Company evaluates (i) its expected use of the
underlying asset, (ii) any laws, regulations, or contracts that may
limit the useful life, (iii) the effects of obsolescence, demand,
competition, and stability of the industry, and (iv) the level of
costs to be incurred to commercialize the underlying asset. The
Company wrote-off trademark costs of approximately $106,000 and $0,
for the years ended April 30, 2015 and 2014, respectively. These
asset impairment charges primarily related to the Company’s
Oxycyte and other PFC formulations which were determined not to be
a core component of the Company’s development
strategy.
NOTE F—NOTES PAYABLE
Convertible Note
On June
29, 2011, the Company issued a note (the “June Note”)
with a principal amount of approximately $300,000 and Warrants to
purchase 6,652 shares of common stock. On July 1, 2011, the Company
issued a separate note (together with the June Note, the
“Notes”) with a principal amount of $4,600,000 and
warrants to purchase 101,996 shares of common stock. The aggregate
gross proceeds to the Company from the offering were approximately
$4.9 million, excluding any proceeds from the exercise of any
warrants. The aggregate placement agent fees were $297,000 and
legal fees associated with the offering were $88,839. These costs
have been capitalized as debt issue costs and will be amortized as
interest expense over the life of the Notes. The Company recorded
amortization of debt issue costs of $21,427 and $128,616, for the
years ended April 30, 2015 and 2014, respectively. All debt issue
costs were fully amortized in the first quarter of fiscal year
ending April 30, 2015.
Interest
on the Notes accrues at a rate of 15% annually and will be paid in
quarterly installments commencing on the third month anniversary of
issuance. The Notes were scheduled to mature 36 months from the
date of issuance. The Notes may be converted into shares of common
stock at a conversion price of $45.10 per share (subject to
adjustment for stock splits, dividends and combinations,
recapitalizations and the like) (the "Conversion Price") in whole
or in part, at any time at the option of the holders of the Notes.
The Notes also will automatically convert into shares of common
stock at the Conversion Price at the election of a
majority-in-interest of the holders of notes issued under the
purchase agreement or upon the acquisition or sale of all or
substantially all of the assets of the Company. The Company could
make each applicable interest payment or payment of principal in
cash, shares of common stock at the Conversion Price, or any
combination thereof. The Company could elect to prepay all or any
portion of the Notes without prepayment penalties only with the
approval of a majority-in-interest of the note holders under the
purchase agreement at the time of the
election. The Notes contained various events of
default such as failing to timely make any payment under the Note
when due, which would have resulted in all outstanding obligations
under the Note becoming immediately due and payable.
On
August 22, 2013 holders of $4.6 million of the Notes received 4,600
shares of the Company’s Series D 8% Convertible Preferred
Stock (the “Series D Stock”) as consideration for
cancelling their outstanding Notes. On that date, the Company
recognized non-cash interest expense of $1,311,847 for the
remaining unamortized debt discount associated with this
Notes.
On June
29, 2014, the Company paid the remaining principal balance of
$300,000 to the June Note holders upon maturity.
The
Company recorded interest expense of $45,606 and $2,181,955 for the
years ended April 30, 2015 and 2014, respectively.
The
total value allocated to the warrants was $1,960,497 and was
recorded as a debt discount against the proceeds of the
notes. In addition, the beneficial conversion features related
to the Notes were determined to be $2,939,504. As a result,
the aggregate discount on the Notes totaled $4,900,001, and was
amortized over the term of the notes. For the fiscal years ended
April 30, 2015 and 2014, the Company recorded interest expense for
the amortization of debt discount of $16,678 and $483,330,
respectively.
NOTE G—STOCKHOLDERS’ EQUITY
Preferred Stock
Under
the Company’s Certificate of Incorporation, the Board of
Directors is authorized, without further stockholder action, to
provide for the issuance of up to 10,000,000 shares of preferred
stock, par value $0.0001 per share, in one or more series, to
establish from time to time the number of shares to be included in
each such series, and to fix the designation, powers, preferences
and rights of the shares of each such series and the
qualifications, limitations and restrictions thereof.
On November 13, 2013
, the Company filed a Certificate of
Designation with the Secretary of State of the State of Delaware
designating 32,992 shares of its authorized but unissued shares of
preferred stock as Series E Stock.
On August 22, 2013
, the Company filed a Certificate of
Designation with the Secretary of State of the State of Delaware
designating 4,600 shares of its authorized but unissued shares of
preferred stock as Series D Stock.
On July
22, 2013, the Company filed a Certificate of Designation with the
Secretary of State of the State of Delaware designating 5,369
shares of its authorized but unissued shares of preferred stock as
Series C Stock.
On
February 25, 2013, the Company filed a Certificate of Designation
with the Secretary of State of the State of Delaware designating
1,600 shares and 500 shares of its authorized but unissued shares
of preferred stock as Series B-1 Convertible Preferred Stock (the
“Series B-1 Stock”) and Series B-2 Convertible
Preferred Stock (the “Series B-2 Stock” and together
with the Series B-1 Stock, the “Series B Stock”),
respectively.
On
December 8, 2011, the Company filed a Certificate of Designation
with the Secretary of State of the State of Delaware designating
7,500 shares of its authorized but unissued shares of preferred
stock as Series A Stock.
Series E Stock
As
further discussed in Note D above, on November 13, 2013 the Company
issued 32,992
shares of its Series E
Stock, which were convertible into an aggregate of 3,299,200 shares
of common stock, as partial consideration to acquire certain assets
of Phyxius Pharma, Inc. pursuant to the Asset Purchase
Agreement.
The
rights, preferences and privileges of the Series E Stock are set
forth in the Certificate of Designation of Series E Convertible
Preferred Stock (the “Certificate of Designation”) that
the Company filed with the Secretary of State of the State of
Delaware on November 13, 2013. Each share of Series E
Stock will automatically convert into 100 shares of common stock
following receipt of stockholder approval for the
transaction. Approximately 11% of the shares of
converted common stock vest immediately upon receipt of stockholder
approval for the transaction, while the remainder will vest upon
achievement of certain performance milestones related to the
development and commercialization of the levosimendan product in
North America. In addition, all unvested converted
common stock will vest if certain change of control transactions or
significant equity financings occur within 24 months of the closing
of the Acquisition. The number of shares of common stock
into which the Series E Stock converts is subject to adjustment in
the case of stock splits, stock dividends, combinations of shares
and similar recapitalization transactions. The Series E
Stock does not carry dividend or a liquidation
preference. The Series E Stock carries voting rights
aggregating 4.99% of the Company’s common stock voting power
immediately prior to the closing of the Acquisition.
During
the year ended April 30, 2014, all 32,992 shares of
Series E Stock
were converted into
3,299,200
shares of
common stock.
As of December
31, 2016 and December 31, 2015 there were no shares of
Series E
Stock outstanding
.
Series D Stock
On August 22, 2013, the Company closed its private placement of an
aggregate of $4.6 million of shares of the Company’s Series D
Stock to JP SPC 3 obo OXBT FUND, SP (“OXBT
Fund”). In connection with the purchase of shares
of Series D Stock, OXBT Fund received a warrant to purchase
2,358,975 shares of common stock at an exercise price equal to
$2.60 (the “Series D Warrant”). As
consideration for the sale of the Series D Stock and Series D
Warrant, $4.6 million in outstanding principal amount of a Note
issued by the Company on July 1, 2011 and held by OXBT Fund was
cancelled. The Note carried interest at a rate of 15%
per annum and matured on July 1, 2014. Mr. Gregory
Pepin, one of the Company’s directors, is the investment
manager of OXBT Fund. Pursuant to the terms of a lock-up
agreement (the “Lock-Up Agreement”) executed prior to
the closing, OXBT Fund and its affiliates are prohibited from
engaging in certain transactions with respect to shares of the
Company’s common stock and common stock equivalents until
such time as the lead investor in the Company’s offering of
Series C Stock ceases to own at least 25% of the shares of Series C
Stock originally issued to such investor.
The table below sets forth a summary of the designation, powers,
preferences and rights of the Series D Stock.
|
Conversion
|
Subject to certain ownership limitations, the Series D Stock is
convertible at any time at the option of the holder into shares of
the Company’s common stock at a conversion ratio determined
by dividing the stated value of the Series C Stock (or $1,000) by a
conversion price of $1.95 per share. The conversion price is
subject to adjustment in the case of stock splits, stock dividends,
combinations of shares and similar recapitalization
transactions.
Until such time that for at least 25 trading days during any 30
consecutive trading days, the volume weighted average price of the
Company’s common stock exceeds 250% of the initial conversion
price, if the Company sells or grants any option to purchase or
sell any common stock or common stock equivalents entitling any
person to acquire shares of common stock at an effective price per
share that is lower than the then conversion price, or the Base
Conversion Price, then the conversion price shall be reduced to
equal the Base Conversion Price.
|
|
Dividends and Make-Whole Payment
|
Until the third anniversary of the date of issuance of the Series D
Stock, the holder of the Series D Stock is entitled to receive
dividends at the rate of 8% per annum of the stated value for each
share of Series D Stock held by such holder payable quarterly on
January 1, April 1, July 1 and October 1, beginning on the first
such date after the original issue date, and on each dividend
payment date. The Company can elect to pay the dividends
in cash or in duly authorized, validly issued, fully paid and
non-assessable shares of common stock, or a combination
thereof. If the Company pays the dividends in shares of
common stock, the shares used to pay the dividends will be valued
at 90% of the average volume weighted average price for the 20
consecutive trading days ending on the trading day immediately
prior to the applicable dividend payment date. From and
after the third anniversary of the date of issuance of the Series D
Stock, the holder of Series D Stock will be entitled to receive
dividends equal, on an as-if-converted to common stock basis, to
and in the same form as dividends actually paid on shares of common
stock when, as, and if such dividends are paid on shares of common
stock. The Company has never paid dividends on its
common stock and the Company does not intend to do so for the
foreseeable future.
In the event OXBT Fund converts its Series D Stock prior to the
third anniversary of the date of issuance of the Series D Stock,
the Company must also pay to OXBT Fund in cash, or at the
Company’s option in common stock valued as described above,
or a combination of cash and shares of common stock, with respect
to the Series D Stock so converted, an amount equal to $240 per
$1,000 of the stated value of the Series D Stock, less the amount
of any dividends paid in cash or in common stock on such Series D
Stock on or before the date of conversion.
|
|
Liquidation
|
Upon any liquidation, dissolution or winding up of the Company
after payment or provision for payment of debts and other
liabilities of the Company, but before any distribution or payment
is made to the holders of any junior securities, the holder of
Series D Stock shall be entitled to be paid out of the assets of
the Company available for distribution to its stockholders an
amount equal to $1,000 per share, after which any remaining assets
of the Company shall be distributed among the holders of the other
class or series of stock in accordance with the Company’s
Certificate of Incorporation.
|
|
Voting rights
|
Shares of Series D Stock will generally have no voting rights,
except as required by law and except that the consent of the holder
of the outstanding Series D Stock will, among other things, be
required to amend the terms of the Series D Stock.
|
During
the year ended April 30, 2014, 4,600 shares of
Series D Stock
were converted into
2,358,974
shares of
common stock
and the
Company issued 576,084 shares of
its common stock in the form of Series D Stock
dividends
.
As of December 31,
2016 and December 31, 2015 there were no shares of
Series D
Stock outstanding.
Series C Stock
On
July 21, 2013, the Company entered into a Securities Purchase
Agreement with certain investors providing for the issuance and
sale by the Company (the “Series C Offering”) of an
aggregate of approximately $5.4 million of shares of the
Company’s Series C Stock, which are convertible into a
combined total of 2,753,348 shares of common stock (the
“Conversion Shares”). In connection with the
purchase of shares of Series C Stock in the Series C Offering, each
investor will receive a warrant to purchase a number of shares of
common stock equal to 100% of the number of Conversion Shares at an
exercise price equal to $2.60 (the
“Warrants”). On July 23, 2013, the Company
sold 5,369 units for net proceeds of approximately $4.9
million.
The
table below sets forth a summary of the designation, powers,
preferences and rights of the Series C Stock.
|
Conversion
|
Subject to certain ownership limitations, the Series C Stock is
convertible at any time at the option of the holder into shares of
the Company’s common stock at a conversion ratio determined
by dividing the stated value of the Series C Stock (or $1,000) by a
conversion price of $1.95 per share. The conversion price is
subject to adjustment in the case of stock splits, stock dividends,
combinations of shares and similar recapitalization
transactions.
Until such time that for at least 25 trading days during any 30
consecutive trading days, the volume weighted average price of the
Company’s common stock exceeds 250% of the initial conversion
price, if the Company sells or grants any option to purchase or
sell any common stock or common stock equivalents entitling any
person to acquire shares of common stock at an effective price per
share that is lower than the then conversion price, or the Base
Conversion Price, then the conversion price shall be reduced to
equal the Base Conversion Price.
|
|
Dividends and Make-Whole Payment
|
Until the third anniversary of the date of issuance of the Series C
Stock, each holder of the Series C Stock is entitled to receive
dividends at the rate of 8% per annum of the stated value for each
share of Series C Stock held by such holder payable quarterly on
January 1, April 1, July 1 and October 1, beginning on the first
such date after the original issue date, and on each dividend
payment date. The Company can elect to pay the dividends
in cash or in duly authorized, validly issued, fully paid and
non-assessable shares of common stock, or a combination
thereof. If the Company pays the dividends in shares of
common stock, the shares used to pay the dividends will be valued
at 90% of the average volume weighted average price for the 20
consecutive trading days ending on the trading day immediately
prior to the applicable dividend payment date. From and
after the third anniversary of the date of issuance of the Series C
Stock, each holder of Series C Stock will be entitled to receive
dividends equal, on an as-if-converted to common stock basis, to
and in the same form as dividends actually paid on shares of common
stock when, as, and if such dividends are paid on shares of common
stock. The Company has never paid dividends on its
common stock and the Company does not intend to do so for the
foreseeable future.
In the event a holder converts his, her or its Series C Stock prior
to the third anniversary of the date of issuance of the Series C
Stock, the Company must also pay to the holder in cash, or at the
Company’s option in common stock valued as described above,
or a combination of cash and shares of common stock, with respect
to the Series C Stock so converted, an amount equal to $240 per
$1,000 of the stated value of the Series C Stock, less the amount
of any dividends paid in cash or in common stock on such Series C
Stock on or before the date of conversion.
|
|
Liquidation
|
Upon any liquidation, dissolution or winding up of the Company
after payment or provision for payment of debts and other
liabilities of the Company, but before any distribution or payment
is made to the holders of any junior securities, the holders of
Series C Stock shall be entitled to be paid out of the assets of
the Company available for distribution to its stockholders an
amount equal to $1,000 per share, after which any remaining assets
of the Company shall be distributed among the holders of the other
class or series of stock in accordance with the Company’s
Certificate of Incorporation.
|
|
Voting rights
|
Shares
of Series C Stock will generally have no voting rights, except as
required by law and except that the consent of holders of a
majority of the outstanding Series C Stock will, among other
things, be required to amend the terms of the Series C
Stock
.
|
During
the year ended April 30, 2014, 5,369 shares of
Series C Stock
were converted into
2,753,327 shares of common stock
and
the
Company issued 831,401 shares of its common stock for
the payment of $1,288,560 as dividends on the Series C
Stock
.
As of December 31, 2016
and December 31, 2015 there were no shares of
Series C
Stock outstanding
.
Series B Stock
On
February 22, 2013, the Company entered into a Securities Purchase
Agreement with an institutional investor providing for the issuance
and sale by the Company of $1.6 million of shares of the
Company’s Series B-1 Stock and $0.5 million of shares of the
Company's Series B-2 Stock which are convertible into a combined
total of 420,000 shares of common stock, subject to adjustment for
subsequent equity sales.
On
February 27, 2013, the Company sold 2,100 units for net proceeds of
approximately $1.9 million. Each unit sold consisted of (i) one
share of the Company’s Series B Stock and (ii) a Warrant
representing the right to purchase 300 shares of common stock at a
price of $1,000 per unit, less issuance costs. The shares of Series
B Stock were immediately convertible upon issuance.
The
table below sets forth a summary of the designation, powers,
preferences and rights of the Series B Stock.
The
Company will not affect any conversion of the Series B Stock, nor
shall a holder convert its shares of Series B Stock, to the extent
that such conversion would cause the holder to have acquired,
through conversion of the Series B Stock or otherwise, beneficial
ownership of a number shares of common stock in excess of 4.99% of
the common stock outstanding immediately preceding the
conversion.
During
the year ended April 30, 2014, 987 shares of Series B Stock were
converted into 644,915 shares of common stock. As of December 31,
2016 and December 31, 2015 there were no shares of Series B Stock
outstanding.
On
February 23, 2015, the Company filed certificates of elimination
(the “Certificates of Elimination”) with the Secretary
of State of Delaware effecting the elimination of the Certificates
of Designations with respect to the Series A Stock, Series B-1
Stock, Series B-2 Stock, Series C Stock, Series D Stock and Series
E Stock. No shares of the Preferred Stock were outstanding at the
time of the filing of the Certificates of Elimination. The
Certificates of Elimination, which were effective upon filing,
canceled the Company’s Series A Stock, Series B-1 Stock,
Series B-2 Stock, Series C Stock, Series D Stock and Series E
Stock. At the time of filing the Certificates of Elimination, no
shares of preferred stock remained outstanding. As of December 31,
2016, 10,000,000 shares of preferred stock are
undesignated.
Common Stock
The
Company’s Certificate of Incorporation authorizes it to issue
400,000,000 shares of $0.0001 par value common stock. As of
December 31, 2016 and December 31, 2015 there were 28,120,021 and
28,119,694 shares of common stock issued and
outstanding.
Warrants
On
November 11, 2014, the Company issued common stock warrants in
connection with the execution of a service agreement for investor
relations and corporate communications. As part of the compensation
under the agreement, the Company issued up to 175,000 warrants at
an exercise price of $4.00 per share and contractual term of 5
years. The warrant is initially exercisable for 25,000 shares of
common stock, and the number of shares of common stock exercisable
under this warrant will be automatically increased by 50,000 upon
the first occurrence of market price goals of $6.00, $8.00 and
$10.00, respectively, during the eighteen month period beginning on
the effective date. In accordance with ASC 815, these warrants are
classified as equity and their estimated fair-value of $478,115 was
recorded as an operating expense in the consolidated statement of
operations and as additional paid in capital during the year ended
April 30, 2015. The estimated fair value is determined using the
Black-Scholes Option Pricing Model which is based on the value of
the underlying common stock at the valuation measurement date, the
remaining contractual term of the warrants, risk-free interest
rates, expected dividends and expected volatility of the price of
the underlying common stock.
Series D Warrants
On August 22, 2013, the Company closed its private placement of an
aggregate of $4.6 million shares of the Company’s Series D
Stock to OXBT Fund. In connection with the purchase of
shares of Series D Stock, OXBT Fund received the Series D Warrant
to purchase 2,358,975 shares of common stock at an exercise price
equal to $2.60 and contractual term of 6 years
. In
accordance with ASC 815, these warrants are classified as equity
and their relative fair-value of $1,531,167 was recognized as a
deemed dividend on the Series D Stock during the year ended April
30, 2014
. The estimated fair value is
determined using the
Black-Scholes Option Pricing Model
which is based on the value of the
underlying common stock at the valuation measurement date, the
remaining contractual term of the warrants, risk-free interest
rates, expected dividends and expected volatility of the price of
the underlying common stock.
The
Series D
Warrant is
exercisable beginning on the date of issuance and expires on August
22, 2019. The exercise price and the number of shares
issuable upon exercise of
Series D
Warrant is subject to appropriate adjustment in
the event of recapitalization events, stock dividends, stock
splits, stock combinations, reclassifications, reorganizations or
similar events affecting the Company’s common stock, and also
upon any distributions of assets, including cash, stock or other
property to the Company’s stockholders. In
addition, if stockholder approval for the transaction is obtained,
the
Series D
Warrant will be
subject to anti-dilution provisions until such time that for 25
trading days during any 30 consecutive trading day period, the
volume weighted average price of the Company’s common stock
exceeds $6.50 and the daily dollar trading volume exceeds $350,000
per trading day.
On January 30, 2014, the Company entered into an agreement with the
OXBT Fund to amend the terms of the outstanding Series D Warrants.
The amendment replaced the price protection anti-dilution provision
of each warrant with a covenant that the Company will not issue
common stock or common stock equivalents at an effective price per
share below the exercise price of such warrant without prior
written consent, subject to certain exceptions
.
The
Series D
Stock and
the
Series D
Warrant were
issued and sold without registration under the Securities Act in
reliance on the exemptions provided by Section 4(a)(2) of the
Securities Act and/or Regulation D promulgated thereunder and in
reliance on similar exemptions under applicable state
laws. Accordingly, OXBT Fund may exercise the Warrant
and sell the
Series D
Stock and
underlying shares only pursuant to an effective registration
statement under the Securities Act covering the resale of those
securities, an exemption under Rule 144 under the Securities Act or
another applicable exemption under the Securities
Act.
During
the year ended April 30, 2015, the Company received proceeds of
$544,000 and issued 209,230 shares of common stock upon the
exercise of the Series D warrants. As of December 31, 2016,
2,149,745 Series D Warrants are outstanding.
Series C Warrants
On July 23, 2013, as part of the offering of Series C Stock, the
Company issued 2,753,348 Series C Warrants at an exercise price of
$2.60 per share and contractual term of 6 years
. In
accordance with ASC 815, these warrants are classified as equity
and their relative fair-value of $1,867,991 was recognized as a
deemed dividend on the Series C Stock during the year ended April
30, 2014
. The estimated fair value is
determined using the
Black-Scholes Option Pricing Model
which is based on the value of the
underlying common stock at the valuation measurement date, the
remaining contractual term of the warrants, risk-free interest
rates, expected dividends and expected volatility of the price of
the underlying common stock.
In connection with the Series C Offering described above, the
Company entered into a Placement Agency Agreement (the
“Placement Agency Agreement”) with Ladenburg Thalmann
& Co. Inc. (the “Placement Agent”) pursuant to
which the Placement Agent agreed to act as the Company’s
exclusive placement agent for the Series C Offering. In accordance
with the Placement Agency Agreement, on July 23, 2013 the Company
issued to the Placement Agent warrants to purchase 53,539 shares of
common stock at an exercise price of $2.4375 per share and a
contractual term of 3 years
. In accordance with ASC 815,
these warrants are classified as equity and their relative
fair-value of $51,231 was recognized as additional paid in capital
during the year ended April 30, 2014
.
The estimated fair value is determined using the
Black-Scholes Option Pricing Model
which is based on the value of the underlying
common stock at the valuation measurement date, the remaining
contractual term of the warrants, risk-free interest rates,
expected dividends and expected volatility of the price of the
underlying common stock.
During
the year ended April 30, 2014, the Company received cash of
approximately $6.5 million and issued 2,512,825 shares of common
stock upon the exercise of outstanding Series C Warrants. As of
December 31, 2016, 240,523 Series C Warrants are
outstanding.
In accordance with ASC 815-40-35-8, the Company reassessed the
classification of the remaining Series C Warrants.
On
November 11, 2013, the Company satisfied certain contractual
obligations pursuant to the Series C offering which caused
certain “down-round” price
protection clauses in the outstanding warrants to become effective
on that date. In accordance with ASC 815-40-35-9, on November 11,
2013,
t
he Company reclassified
these warrants as a current liability and recorded a warrant
liability of $1,082,941 which represents the fair market value of
the warrants at that date. The initial fair value recorded as
warrants within stockholders’ equity of $233,036 was reversed
and the change in fair value was recorded as a component of other
expense.
The estimated fair value is determined using the Monte Carlo Model
which is based on the value of the underlying common stock at the
valuation measurement date, the remaining contractual term of the
warrants, risk-free interest rates, expected dividends, expected
volatility of the price of the underlying common stock as well as
other estimates and assumptions.
As of December 31, 2016, the fair value of the warrant liability
was $226,092. The Company recorded a gain of $298,248 for the
change in fair value as a component of other expense on the
consolidated statement of operations and comprehensive loss for the
year ended December 31, 2016.
For the eight months ended December 31, 2015,
the Company
recognized a gain of $48,105
for the
change in fair value as a component of other expense on the
consolidated statements of operations and comprehensive
loss.
For the fiscal years ended April 30, 2015 and 2014,
the
Company recognized a gain of $382,431 and a loss of
$721,840
, respectively, for the change
in fair value as a component of other expense on the consolidated
statements of operations and comprehensive
loss.
Series B Warrants
In
connection with the issuance of 2,100 shares of Series B Preferred
Stock described above, on February 27, 2013 the Company issued
Class A and Class B warrants to purchase an aggregate of 630,000
shares of common stock. The warrants were issued at an initial
exercise price equal to $10.00 and were immediately exercisable.
The Class A warrants were issued with a six-year term and the Class
B warrants were issued with a two-year term.
During
the year ended April 30, 2014, the Company received proceeds of
$567,000 and issued 630,000 shares of common stock upon the
exercise of the Series B warrants. As of December 31, 2016, there
were no Series B warrants outstanding.
As of
December 31, 2016, the Company has 2,415,675 warrants outstanding.
During the year ended December 31, 2016, no warrants were issued or
exercised.
The
following table summarizes the Company’s warrant activity for
the year ended December 31, 2016, the eight months ended December
31, 2015 and the fiscal years ended April 30, 2015 and
2014
:
|
|
Warrants
|
Weighted
Average
Exercise Price
|
|
Outstanding at April 30, 2013
|
759,410
|
$
11.00
|
|
Issued
|
5,165,862
|
2.60
|
|
Exercised
|
(3,161,145
)
|
2.26
|
|
Forfeited
|
(1,661
)
|
126.00
|
|
Outstanding at April 30, 2014
|
2,762,466
|
$
4.28
|
|
Issued
|
175,000
|
4.00
|
|
Exercised
|
(209,230
)
|
2.60
|
|
Outstanding at April 30, 2015
|
2,728,236
|
$
4.39
|
|
Issued
|
-
|
-
|
|
Exercised
|
-
|
-
|
|
Outstanding at December 31, 2015
|
2,728,236
|
$
4.39
|
|
Issued
|
-
|
-
|
|
Exercised
|
-
|
-
|
|
Forfeited
|
(312,561
)
|
17.93
|
|
Outstanding at December 31, 2016
|
2,415,675
|
$
2.64
|
During the fiscal years ended April 30, 2015 and 2014, the Company
received approximately $544,000 and $7.1 million, issuing 209,230
and 3,161,145 shares of common stock, respectively upon the
exercise of outstanding warrants
.
1999 Amended Stock Plan
In
October 2000, the Company adopted the 1999 Stock Plan, as amended
and restated on June 17, 2008 (the “Plan”). Under
the Plan, with the approval of the Compensation Committee of the
Board of Directors, the Company may grant stock options, restricted
stock, stock appreciation rights and new shares of common stock
upon exercise of stock options. On September 30, 2011, the
Company’s stockholders approved an amendment to the Plan
which increased the amount of shares authorized for issuance under
the Plan to 300,000, up from 40,000 previously
authorized.
Pursuant to the Asset Purchase Agreement described in Note D above,
the Company agreed to propose that its stockholders approve an
amendment to the Company’s 1999 Stock Plan to increase the
amount of stock options authorized for issuance under the 1999
Stock Plan to not less than 4,000,000 shares of common
stock.
On March 13, 2014, the Company’s stockholders
approved an amendment to the Plan which increased the number of
shares of common stock authorized for issuance to a total of
4,000,000 shares, up from 300,000 previously authorized
.
In accordance with terms of the Acquisition, the Company issued an
aggregate of 3,572,880 stock options with a grant date fair value
of $15,818,512, to the Chief Executive Officer, the Chief Financial
Officer, the Executive Vice President, Business and Commercial
Operations and the Executive Vice President, Regulatory Affairs.
These options were issued with a six-year term and subject to
multiple performance-based vesting conditions. During the year
ended April 30, 2014, the Company recorded approximately $7.9
million of compensation expense for the vested options in its
consolidated statements of operations. An additional $7.9 million
of compensation expense related to these grants will be recognized
as performance vesting conditions are achieved.
On
September 15, 2015, the Company’s stockholders approved an
additional amendment to the Plan which increased the number of
shares of common stock authorized for issuance to a total of
5,000,000 shares, up from 4,000,000 previously
authorized.
As of
December 31, 2016 the Company had 268,500 shares of common stock
available for grant under the Plan.
The
following table summarizes the shares available for grant under the
Plan for the year ended December 31, 2016, the eight months ended
December 31, 2015 and the fiscal years ended April 30, 2015 and
2014:
|
|
Shares
Available for
Grant
|
|
Balances, at April 30, 2013
|
282,726
|
|
Additional
shares reserved
|
3,600,000
|
|
Options
granted
|
(3,637,822
)
|
|
Options
cancelled/forfeited
|
1,300
|
|
Restricted
stock granted
|
(135,662
)
|
|
Restricted
stock cancelled/forfeited
|
44,866
|
|
Balances, at April 30, 2014
|
155,408
|
|
Options
granted
|
(50,225
)
|
|
Options
cancelled/forfeited
|
4,785
|
|
Restricted
stock granted
|
(2,624
)
|
|
Restricted
stock cancelled/forfeited
|
15,055
|
|
Balances, at April 30, 2015
|
122,399
|
|
Additional
shares reserved
|
1,187,192
|
|
Options
granted
|
(315,050
)
|
|
Options
cancelled/forfeited
|
650
|
|
Restricted
stock granted
|
(610
)
|
|
Restricted
stock cancelled/forfeited
|
132
|
|
Balances, at December 31, 2015
|
994,713
|
|
Options
granted
|
(726,000
)
|
|
Restricted
stock granted
|
(430
)
|
|
Restricted
stock cancelled/forfeited
|
217
|
|
Balances, at December 31, 2016
|
268,500
|
Plan Stock Options
Stock options granted under the Plan may be either incentive stock
options (“ISOs”), or nonqualified stock options
(“NSOs”). ISOs may be granted only to employees. NSOs
may be granted to employees, consultants and directors. Stock
options under the Plan may be granted with a term of up to ten
years and at prices no less than fair market value for ISOs and no
less than 85% of the fair market value for NSOs. Stock options
granted generally vest over one to three years.
The following table summarizes the outstanding stock options under
the Plan
for the year ended December 31, 2016, the eight
months ended December 31, 2015 and the fiscal years ended April 30,
2015 and 2014:
|
|
Outstanding
Options
|
|
|
|
|
Number of Shares
|
Weighted Average
Exercise Price
|
Aggregate Intrinsic Value
|
|
Balances, at April 30, 2013
|
11,336
|
$
57.00
|
|
|
Options
granted
|
3,637,822
|
$
5.64
|
|
|
Options
cancelled
|
(1,300
)
|
$
43.90
|
|
|
Balances, at April 30, 2014
|
3,647,858
|
$
5.79
|
|
|
Options
granted
|
50,225
|
$
4.82
|
|
|
Options
cancelled
|
(4,785
)
|
$
63.84
|
|
|
Balances, at April 30, 2015
|
3,693,298
|
$
5.70
|
|
|
Options
granted
|
315,050
|
$
3.25
|
|
|
Options
cancelled
|
(650
)
|
$
35.09
|
|
|
Balances at December 31, 2015
|
4,007,698
|
$
5.50
|
|
|
Options
granted
|
726,000
|
$
2.12
|
|
|
Options
cancelled
|
-
|
$
-
|
|
|
Balances at December 31, 2016
|
4,733,698
|
$
4.98
|
$
-
(1)
|
|
(1)
|
Amount
represents the difference between the exercise price and $1.95, the
closing price of Tenax Therapeutics’ stock on December 31,
2016, as reported on the Nasdaq Capital Market, for all
in-the-money options outstanding.
|
The
following table summarizes all options outstanding as of December
31, 2016:
|
|
Options Outstanding at
December 31, 2016
|
Options Exercisable and Vested at
December 31, 2016
|
||
|
Exercise Price
|
Number of
Options
|
Weighted Average Remaining
Contractual Life (Years)
|
Number of
Options
|
Weighted Average
Exercise Price
|
|
$
2.07 to $3.16
|
956,000
|
9.7
|
76,666
|
$
3.16
|
|
$
3.35 to $4.76
|
124,938
|
7.8
|
124,838
|
$
3.31
|
|
$
4.82 to $5.65
|
3,647,880
|
3.3
|
1,861,440
|
$
5.63
|
|
$
14.80 to $138.00
|
4,880
|
4.4
|
4,880
|
$
54.07
|
|
|
4,733,698
|
4.7
|
2,067,824
|
$
5.54
|
The
following table summarizes options outstanding that have vested and
are expected to vest based on options outstanding as of December
31, 2016:
|
(1)
|
Amount
represents the difference between the exercise price and $1.95, the
closing price of Tenax Therapeutics’ stock on December 31,
2016, as reported on the Nasdaq Capital Market, for all
in-the-money options outstanding.
|
The
Company chose the “straight-line” attribution method
for allocating compensation costs of each stock option over the
requisite service period using the Black-Scholes Option Pricing
Model to calculate the grant date fair value.
The
Company used the following assumptions to estimate the fair value
of options granted under its stock option plans for the year ended
December 31, 2016, the eight months ended December 31, 2015 and the
fiscal years ended April 30, 2015 and 2014:
|
|
For the year ended December 31,
|
For the eight months ended December 31,
|
For the year ended April 30
|
|
|
|
2016
|
2015
|
2015
|
2014
|
|
Risk-free
interest rate (weighted average)
|
2.28
%
|
1.99
%
|
2.23
%
|
1.80
%
|
|
Expected
volatility (weighted average)
|
83.38
%
|
85.45
%
|
98.43
%
|
98.20
%
|
|
Expected
term (in years)
|
7
|
7
|
7
|
6
|
|
Expected
dividend yield
|
0.00
%
|
0.00
%
|
0.00
%
|
0.00
%
|
|
Risk-Free
Interest Rate
|
The
risk-free interest rate assumption was based on U.S. Treasury
instruments with a term that is consistent with the expected term
of the Company’s stock options.
|
|
Expected
Volatility
|
The
expected stock price volatility for the Company’s common
stock was determined by examining the historical volatility and
trading history for its common stock over a term consistent with
the expected term of its options.
|
|
Expected
Term
|
The
expected term of stock options represents the weighted average
period the stock options are expected to remain outstanding. It was
calculated based on the historical experience that the Company has
had with its stock option grants.
|
|
Expected
Dividend Yield
|
The
expected dividend yield of 0% is based on the Company’s
history and expectation of dividend payouts. The Company has not
paid and do not anticipate paying any dividends in the near
future.
|
|
Forfeitures
|
As
stock-based compensation expense recognized in the statement of
operations for the year ended December 31, 2016, the eight months
ended December 31, 2015 and the fiscal years ended April 30, 2015
and 2014 is based on awards ultimately expected to vest, it has
been reduced for estimated forfeitures. ASC 718 requires
forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from
those estimates. Forfeitures were estimated based on the
Company’s historical experience.
|
The
weighted-average grant-date fair value of options granted during
the year ended December 31, 2016 was $2.12.
The
weighted-average grant-date fair value of options granted during
the eight months ended December 31, 2015 was $3.25.
The
weighted-average grant-date fair value of options granted during
the years ended April 30, 2015 and 2014 was $4.82 and $5.64,
respectively.
The Company recorded compensation expense for these stock options
grants of $529,708 for the year ended December 31,
2016.
As of
December 31, 2016, there were unrecognized compensation costs of
approximately $963,000 related to non-vested stock option awards
that will be recognized on a straight-line basis over the weighted
average remaining vesting period of 2.1 years. Additionally, there
were unrecognized compensation costs of approximately $8.1 million
related to non-vested stock option awards subject to
performance-based vesting milestones with a weighted average
remaining life of 3.3 years. As of December 31, 2016, none of these
milestones have been achieved.
Inducement Stock Options
The
table below summarizes the employment inducement stock option award
for
25,000
shares of common
stock made to our Chief Medical Officer on February 15, 2015. This
employment inducement stock option was awarded in accordance with
the employment inducement award exemption provided by Nasdaq Rule
5635(c)(4) and was therefore not awarded under the Company’s
stockholder approved equity plan. The option award will vest over a
three year period, with one-third vesting per year, beginning one
year from the grant date. The options have a 10-year term and an
exercise price of $3.22 per share, the February 13, 2015 closing
price of the Company’s common stock.
A
summary of the activity and related information for our stock
options follows:
|
|
Number of
Shares
|
Weighted Average
Exercise Price
|
|
Inducement
Stock Options outstanding at April 30, 2014
|
-
|
$
-
|
|
Options
granted
|
25,000
|
3.22
|
|
Options
exercised
|
-
|
-
|
|
Options
forfeited or expired
|
-
|
-
|
|
Inducement
Stock Options outstanding at April 30, 2015
|
25,000
|
$
3.22
|
|
Options
granted
|
-
|
-
|
|
Options
exercised
|
-
|
-
|
|
Options
forfeited or expired
|
-
|
-
|
|
Inducement
Stock Options outstanding at December 31, 2015
|
25,000
|
$
3.22
|
|
Options
granted
|
-
|
-
|
|
Options
exercised
|
-
|
-
|
|
Options
forfeited or expired
|
(16,666
)
|
3.22
|
|
Inducement
Stock Options outstanding at December 31, 2016
|
8,334
|
$
3.22
|
|
Options
exercisable at December 31, 2016
|
8,334
|
$
3.22
|
Inducement
stock option compensation expense was approximately $20,000 for the
year ended December 31, 2016.
Inducement
stock option compensation expense was approximately $26,000 for the
eight months ended December 31, 2015.
For the
years ended April 30
, 2015
and
2014 Inducement stock option compensation expense totaled $9,830
and $0, respectively.
At
December 31, 2016
, there was
$8,641 of remaining unrecognized compensation expense related to
the inducement stock options. Inducement stock options outstanding
as of
December 31, 2016
had a
weighted average remaining contractual life of two
months.
The
estimated weighted average fair value per inducement option share
granted was
$
64,343 in 2015
using a Black-Scholes option pricing model based on market prices
and the following assumptions at the date of inducement option
grant: weighted average risk-free interest rate of 1.84
%
, dividend yield of
0%
, volatility factor for our common stock
of 93.90
%
and a weighted
average expected life of 7 years for inducement options not
forfeited.
Restricted Stock Grants
The following table summarizes the outstanding restricted stock
under the Plan for the year ended December 31, 2016,
the
eight months ended December 31, 2015 and the fiscal years ended
April 30, 2015 and 2014:
|
|
Outstanding Restricted Stock
|
|
|
|
Number of Shares
|
Weighted Average Grant Date Fair Value
|
|
Balances, at April 30, 2013
|
1,917
|
$
48.40
|
|
Restricted
stock granted
|
135,662
|
$
3.00
|
|
Restricted
stock vested
|
(50,235
)
|
$
2.30
|
|
Restricted
stock cancelled
|
(31,503
)
|
$
1.67
|
|
Restricted
stock forfeited
|
(13,363
)
|
$
4.49
|
|
Balances, at April 30, 2014
|
42,478
|
$
6.39
|
|
Restricted
stock granted
|
2,624
|
$
4.90
|
|
Restricted
stock vested
|
(29,957
)
|
$
5.99
|
|
Restricted
stock cancelled
|
(15,055
)
|
$
6.95
|
|
Balances, at April 30, 2015
|
90
|
$
4.01
|
|
Restricted
stock granted
|
610
|
$
3.37
|
|
Restricted
stock vested
|
(174
)
|
$
3.61
|
|
Restricted
stock cancelled
|
(132
)
|
$
3.57
|
|
Balances, at December 31, 2015
|
394
|
$
3.34
|
|
Restricted
stock granted
|
430
|
$
2.72
|
|
Restricted
stock vested
|
(327
)
|
$
3.11
|
|
Restricted
stock cancelled
|
(283
)
|
$
3.13
|
|
Balances, at December 31, 2016
|
214
|
$
2.72
|
The Company recorded compensation expense for these restricted
stock grants of $1,758 for the year ended December 31,
2016.
The Company recorded compensation expense for these restricted
stock grants of $1,439 for the eight months ended December 31,
2015.
For the fiscal years ended April 30, 2015 and 2014, the Company
recorded compensation expense for these restricted stock grants of
$18,092 and $356,639 respectively.
As of
December 31, 2016, there were unrecognized compensation costs of
approximately $400 related to the non-vested restricted stock
grants that will be recognized on a straight-line basis over the
remaining vesting period.
2016 Stock Incentive Plan
On June
16, 2016, the Company’s stockholders approved the 2016 Stock
Incentive Plan (the “2016 Plan”), which provides for
the issuance of up to 3,000,000 shares of common stock. Under the
2016 Plan, with the approval of the Compensation Committee of the
Board of Directors, the Company may grant stock options, stock
appreciation rights, restricted stock, restricted stock units,
performance shares, performance units, cash-based awards or other
stock-based awards.
As of
December 31, 2016 the Company had not issued any awards under the
2016 Plan and there were 3,000,000 shares of common stock available
for grant under the 2016 Plan.
NOTE H—COMMITMENTS AND CONTINGENCIES
Operating Leases
The
Company leases its office space under an operating lease that
includes fixed annual increases and expires in June 2021. Total
rent expense was $91,208 for the year ended December 31, 2016.
Total rent expense was $75,933 for the eight months ended December
31, 2015.
For the
fiscal years ended April 30, 2015 and 2014, total rent expense was
$111,171 and $107,946, respectively.
The
future minimum payments for the long-term, non-cancelable lease are
as follows:
|
Year ending December 31,
|
|
|
2017
|
$
112,431
|
|
2018
|
115,220
|
|
2019
|
118,117
|
|
2020
|
121,084
|
|
2021
|
61,803
|
|
|
$
528,655
|
Simdax license agreement
As further discussed in Note D above, on November 13, 2013 the
Company acquired the License which granted it an exclusive,
sublicenseable right to develop and commercialize pharmaceutical
products containing Levosimedan in the United States and
Canada. Pursuant to the License, the Company must use
Orion’s “Simdax®” trademark to commercialize
the Product. The License also grants to the Company a
right of first refusal to commercialize new developments of the
Product, including developments as to the formulation,
presentation, means of delivery, route of administration, dosage or
indication.
Orion’s ongoing role under the License includes sublicense
approval, serving as the sole source of manufacture, holding a
first right to enforce intellectual property rights in the
Territory, and certain regulatory participation
rights. Additionally, the Company must grant back to
Orion a broad non-exclusive license to any patents or clinical
trial data related to the Product developed by the Company under
the License. The License has a fifteen (15) year term,
provided, however, that the License will continue after the end of
the fifteen year term in each country in the Territory until the
expiration of Orion’s patent rights in the Product in such
country. Orion had the right to terminate the License if
the Study is not started by July 31, 2014. While the Company did
not commence the trial by that date, on September 9, 2014, Orion
notified the Company in writing that it did not intend to terminate
the License so long as the trial was commenced on or before October
31, 2014. The Company subsequently commenced the human clinical
trial for levosimendan on September 18, 2014 when the first patient
was enrolled.
The License includes the following development milestones for which
the Company shall make non-refundable payments to Orion no later
than twenty-eight (28) days after the occurrence of the applicable
milestone event: (i) $2.0 million upon the grant of FDA approval,
including all registrations, licenses, authorizations and necessary
approvals, to develop and/or commercialize the Product in the
United States; and (ii) $1.0 million upon the grant of regulatory
approval for the Product in Canada. Once commercialized, the
Company is obligated to make certain non-refundable
commercialization milestone payments to Orion, aggregating up to
$13.0 million, contingent upon achievement of certain cumulative
net sales amounts in the Territory. The Company must
also pay Orion tiered royalties based on net sales of the Product
in the Territory made by the Company and its sublicensees. After
the end of the Term, the Company must pay Orion a royalty based on
net sales of the Product in the Territory for as long as Life Newco
sells the Product in the Territory.
As of
December 31, 2016, the Company has not met any of the developmental
milestones and, accordingly, has not recorded any liability for the
contingent payments due to Orion.
Agreement with Virginia Commonwealth University
In May
2008, the Company entered into a license agreement with Virginia
Commonwealth University (“Licensor”, “VCU”)
whereby it obtained a worldwide, exclusive license to valid claims
under three of the Licensor's patent applications that relate to
methods for non-pulmonary delivery of oxygen to tissue and the
products based on those valid claims used or useful for therapeutic
and diagnostic applications in humans and animals. The license
includes the right to sub-license to third parties. The term of the
agreement is the life of the patents covered by the patent
applications unless the Company elects to terminate the agreement
prior to patent expiration. Under the agreement, the Company has an
obligation to diligently pursue product development and pursue, at
its own expense, prosecution of the patent applications covered by
the agreement. As part of the agreement, the Company is required to
pay to VCU nonrefundable payments upon achieving development and
regulatory milestones. As of April 30, 2015, the Company has not
met any of the developmental milestones.
The
agreement with VCU also requires the Company to pay royalties to
VCU at specified rates based on annual net sales derived from the
licensed technology. Pursuant to the agreement, the Company must
make minimum annual royalty payments to VCU totaling $70,000 as
long as the agreement is in force. These payments are fully
creditable against royalty payments due for sales and sublicense
revenue earned during the fiscal year as described above. This fee
is recorded as an other current asset and is amortized over the
fiscal year. Amortization expense was $70,000 for each of the years
ended April 30, 2015 and 2014.
In
September 2014, the Company discontinued the development of its
Oxycyte product candidates. As part of the this change in
business strategy, on May 5, 2015 the Company provided VCU its 90
day notice terminating the license agreement entered into with the
Licensor, whose effective date was May 21, 2008. The license
agreement gave the Company exclusive rights to intellectual
property that was used for the development and commercialization of
Oxycyte and is therefore no longer needed.
Litigation
The
Company is subject to litigation in the normal course of business,
none of which management believes will have a material adverse
effect on the Company’s Consolidated Financial
Statements.
NOTE I—401(k) BENEFIT PLAN
The
Company sponsors a 401(k) Retirement Savings Plan (the
“401(k) Plan”) for all eligible employees. Full-time
employees over the age of 18 are eligible to participate in the
401(k) Plan after 90 days of continuous employment. Participants
may elect to defer earnings into the 401(k) Plan up to the annual
IRS limits and the Company provides a matching contribution up to
5% of the participants’ annual salary in accordance with the
401(k) Plan documents. The 401(k) Plan is managed by a third-party
trustee.
For the
year ended December 31, 2016, the eight months ended December 31,
2015, the fiscal year ended April 30, 2015 and the fiscal year
ended April 30, 2014, the Company recorded $83,589, $57,352,
$82,185 and $47,087 for matching contributions expense,
respectively.
NOTE J—INCOME TAXES
The
Company recorded an income tax benefit of $7,962,100 for the period
ended December 31,2016.
The
Company's provision for income taxes is summarized as
follows:
The
reconciliation of income tax expenses (benefit) at the statutory
federal income tax rate of 34% for the periods ended December 31,
2016 and December 31, 2015 is as follows:
|
|
December 31,
|
|
|
|
2016
|
2015
|
|
U.S.
federal taxes (benefit) at statutory rate
|
$
(17,641,231
)
|
$
(3,423,108
)
|
|
State
income tax benefit, net of federal benefit
|
(2,031,238
)
|
(394,142
)
|
|
Stock
compensation
|
141,807
|
37,264
|
|
Other
nondeductible, including goodwill impairment
|
4,160,717
|
(15,287
)
|
|
Change
in state tax rate
|
241,518
|
-
|
|
Other,
including effect of tax rate brackets
|
(57,490
)
|
(72,808
)
|
|
Change
in valuation allowance
|
7,223,817
|
3,868,081
|
|
|
$
(7,962,100
)
|
$
-
|
The tax
effects of temporary differences and carry forwards that give rise
to significant portions of the deferred tax assets are as
follows:
The
Company has established a valuation allowance against net deferred
tax assets due to the uncertainty that such assets will be
realized. The Company periodically evaluates the recoverability of
the deferred tax assets. At such time that it is determined that it
is more likely than not that deferred tax assets will be
realizable, the valuation allowance will be reduced.
As of
December 31, 2016, the Company had Federal and State net operating
loss carryforwards of approximately $124.0 million and $101.8
million available to offset future federal and state taxable
income, respectively. The federal and state net operating loss
carryforwards begin to expire in 2018 and valuation allowances have
been provided.
Utilization
of the net operating loss carryforwards may be subject to an annual
limitation due to the ownership percentage change limitations
provided by the Internal Revenue Code of 1986 and similar state
provisions. The annual limitations may result in the expiration of
the net operating losses before utilization.
Management
has evaluated all other tax positions that could have a significant
effect on the financial statements and determined the Company had
no uncertain income tax positions at December 31,
2016.
The
Company files U.S. and state income tax returns with varying
statutes of limitations. The tax years 2001 and forward remain open
to examination due to the carryover of unused net operating losses
or tax credits.
NOTE K—TRANSITION PERIOD COMPARATIVE BALANCES
In
2015, the Company’s Board of Directors approved a change in
the Company’s fiscal year to a fiscal year beginning on
January 1 and ending on December 31 of each year, such change
beginning as of January 1, 2016. In accordance with certain rules
promulgated under the Securities Exchange Act of 1934, as amended,
the required transition period of May 1, 2015 to December 31, 2015
is included in these financial statements. For comparative
purposes, the unaudited consolidated statements of operations and
comprehensive loss for the year ended December 31, 2015 and for the
eight months ended December 31, 2014 are as follows:
None.
ITEM
9A—CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our
disclosure controls and procedures, as defined in Rule 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as
amended, or the Exchange Act, are designed to ensure that
information required to be disclosed in reports filed or submitted
under the Exchange Act is recorded, processed, summarized, and
reported within the time periods specified in rules and forms
adopted by the Securities and Exchange Commission, or SEC, and that
such information is accumulated and communicated to management,
including the Chief Executive Officer and the Chief Financial
Officer, to allow timely decisions regarding required
disclosures.
Management,
with the participation of our Chief Executive Officer and our Chief
Financial Officer, has evaluated the effectiveness of our
disclosure controls and procedures as of the end of the period
covered by this Form 10-K. Based on such evaluation, our Chief
Executive Officer and our Chief Financial Officer concluded that,
as of December 31, 2016, our disclosure controls and procedures
were effective at the reasonable assurance level.
Changes in Internal Controls over Financial Reporting
From
time to time, we may review and make changes to our internal
control over financial reporting that are intended to enhance the
effectiveness of our internal control over financial reporting and
which do not have a material effect on our overall internal control
over financial reporting. During the three months ended December
31, 2016, we made no changes to our internal control over financial
reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act, that we believe materially affected, or are
reasonably likely to materially affect, our internal control over
financial reporting.
Management’s Annual Report on Internal Control over Financial
Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over
financial reporting, as defined in rules promulgated under the
Exchange Act, is a process designed by, or under the supervision
of, our Chief Executive Officer and Chief Financial Officer and
affected by our Board of Directors, management and other personnel
to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of Consolidated Financial
Statements for external purposes in accordance with GAAP. Internal
control over financial reporting includes those policies and
procedures that:
-
Pertain to the
maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of our
assets;
-
Provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of Consolidated Financial Statements in accordance with
GAAP, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and our Board of
Directors; and
-
Provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a
material effect on our Consolidated Financial
Statements.
Internal
control over financial reporting cannot provide absolute assurance
of achieving financial reporting objectives because of its inherent
limitations. Internal control over financial reporting is a process
that involves human diligence and compliance and is subject to
lapses in judgment and breakdowns resulting from human failures.
Internal control over financial reporting can also be circumvented
by collusion or improper override. Because of such limitations,
there is a risk that material misstatements may not be prevented or
detected on a timely basis by internal control over financial
reporting. However, these inherent limitations are known features
of the financial reporting process, and it is possible to design
into the process safeguards to reduce, though not eliminate, this
risk.
Our
management assessed the effectiveness of our internal control over
financial reporting as of December 31, 2016. In making its
assessment, management used the criteria established by the
Committee of Sponsoring Organizations of the Treadway Commission,
or COSO in its 2013
Internal
Control — Integrated Framework
. Based on its
assessment, management has concluded that our internal control over
financial reporting was effective as of December 31,
2016.
The
effectiveness of our internal control over financial reporting as
of December 31, 2016 has been audited by Cherry Bekaert LLP, an
independent registered public accounting firm, as stated in their
report in Item 8 of this Annual Report on Form 10-K.
ITEM
9B—OTHER INFORMATION
There
is no information to report under this item for the quarter ended
December 31, 2016.
ITEM
10— DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE
The
information required by this item is incorporated by reference to
our Proxy Statement for our 2017 Annual Meeting of Stockholders,
which will be filed with the SEC within 120 days after the end of
fiscal 2016.
ITEM
11— EXECUTIVE COMPENSATION
The
information required by this item is incorporated by reference to
our Proxy Statement for our 2017 Annual Meeting of Stockholders,
which will be filed with the SEC within 120 days after the end of
fiscal 2016.
ITEM
12— SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
information required by this item is incorporated by reference to
our Proxy Statement for our 2017 Annual Meeting of Stockholders,
which will be filed with the SEC within 120 days after the end of
fiscal 2016.
ITEM
13— CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE
The
information required by this item is incorporated by reference to
our Proxy Statement for our 2017 Annual Meeting of Stockholders,
which will be filed with the SEC within 120 days after the end of
fiscal 2016.
ITEM
14— PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
information required by this item is incorporated by reference to
our Proxy Statement for our 2017 Annual Meeting of Stockholders,
which will be filed with the SEC within 120 days after the end of
fiscal 2016.
ITEM
15—EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A)(1)
The Consolidated Financial Statements and information listed below
are included in this report in Part II, Item 8.
-
Consolidated
Balance Sheets as of December 31, 2016 and December 31,
2015.
-
Consolidated
Statements of Operations and Comprehensive Loss for the year ended
December 31, 2016, the eight months ended December 31, 2015 and
each of the two years ended April 30, 2015 and April 30,
2014.
-
Consolidated
Statements of Stockholders’ Equity for the year ended
December 31, 2016, the eight months ended December 31, 2015 and
each of the two years ended April 30, 2015 and April 30,
2014.
-
Consolidated
Statements of Cash Flows for the year ended December 31, 2016, the
eight months ended December 31, 2015 and each of the two years
ended April 30, 2015 and April 30, 2014.
-
Notes
to the Consolidated Financial Statements.
(A)(2)
No schedules have been included because they are not applicable or
the required information is shown in our Consolidated Financial
Statements or our notes thereto.
(A)(3)
The exhibits required by Item 601 of Regulation S-K are listed in
the Exhibit Index immediately following the signature pages to this
report.
ITEM
16—FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
TENAX THERAPEUTICS,
INC.
|
|
|
|
|
|
|
|
|
Date: March 16,
2017
|
By:
|
/s/
John P.
Kelley
|
|
|
|
|
John P.
Kelley
|
|
|
|
|
Chief
Executive Officer
(Principal
Executive Officer)
|
|
POWER OF ATTORNEY
KNOW
ALL MEN BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints John P. Kelley and Michael
B. Jebsen, and each of them, his true and lawful attorneys-in-fact
and agents with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities, to
sign any and all amendments to this report, and to file the same,
with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to
do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their
substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates
indicated.
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
/s/
John P. Kelley
|
|
Chief Executive Officer and Director |
|
|
|
|
/s/
John P. Kelley
John
P. Kelley
|
|
(Principal
Executive Officer)
|
|
March
16, 2017
|
|
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/s/
Michael B. Jebsen
|
|
Chief Financial Officer |
|
|
|
|
/s/
Michael B. Jebsen
Michael B.
Jebsen
|
|
(Principal
Financial Officer and Principal Accounting Officer)
|
|
March
16, 2017
|
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| /s/ Ronald R. Blanck, DO |
|
Director |
|
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|
|
Ronald
R. Blanck, DO
|
|
|
|
March
16, 2017
|
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|
/s/ Gregory
Pepin
|
|
Director |
|
|
|
|
Gregory
Pepin
|
|
|
|
March
16, 2017
|
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/s/
James Mitchum
|
|
Director |
|
|
|
|
James
Mitchum
|
|
|
|
March
16, 2017
|
|
|
|
|
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|
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|
/s/
Chris A. Rallis
|
|
Director |
|
|
|
|
Chris
A. Rallis
|
|
|
|
March
16, 2017
|
|
|
|
|
|
|
|
|
|
/s/
Anthony DiTonno
|
|
Director |
|
|
|
|
Anthony
DiTonno
|
|
|
|
March
16, 2017
|
|
|
|
|
|
|
|
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|
/s/
Gerald Proehl
|
|
Director |
|
|
|
|
Gerald
Proehl
|
|
|
|
March
16, 2017
|
|
EXHIBIT INDEX
|
Exhibit No.
|
|
Exhibits Required by Item 601 of Regulation S-K
|
|
2.1
|
|
Agreement and Plan
of Merger dated April 28, 2008 (1)
|
|
|
|
|
|
2.2
|
|
Asset
Purchase Agreement by and between Oxygen Biotherapeutics, Inc.,
Life Newco, Inc., Phyxius Pharma, Inc., and the stockholders of
Phyxius Pharma, Inc. dated October 21, 2013 (33)
|
|
|
|
|
|
3.1
|
|
Certificate of
Incorporation (1)
|
|
|
|
|
|
3.2
|
|
Certificate of
Amendment of the Certificate of Incorporation (14)
|
|
|
|
|
|
3.3
|
|
Certificate of
Amendment of the Certificate of Incorporation (30)
|
|
|
|
|
|
3.4
|
|
Certificate of
Amendment of the Certificate of Incorporation (37)
|
|
|
|
|
|
3.5
|
|
Third
Amended and Restated Bylaws (39)
|
|
|
|
|
|
4.1
|
|
Specimen Stock
Certificate (19)
|
|
|
|
|
|
10.1
|
|
Agreement with
Leland C. Clark, Jr., Ph.D. dated November 20, 1992 with
amendments, Assignment of Intellectual Property/ Employment
(2)
|
|
|
|
|
|
10.2
|
|
Agreement between
the Registrant and Keith R. Watson, Ph.D. Assignment of Invention
(2)
|
|
|
|
|
|
10.3
|
|
Children’s
Hospital Research Foundation License Agreement dated February 28,
2001 (2)
|
|
|
|
|
|
10.4
|
|
Exclusive License
Agreement with Virginia Commonwealth University dated May 22, 2008
(9)
|
|
|
|
|
|
10.5
|
|
Amendment no. 1 to
the Exclusive License Agreement with Virginia Commonwealth
University Intellectual Property Foundation (10)
|
|
|
|
|
|
10.6
|
|
Amendment no. 2 to
the Exclusive License Agreement with Virginia Commonwealth
University Intellectual Property Foundation (10)
|
|
|
|
|
|
10.7
|
|
Form
of Option issued to Executive Officers and Directors (2)
+
|
|
|
|
|
|
10.8
|
|
Form
of Option issued to Employees (2) +
|
|
|
|
|
|
10.9
|
|
Form
of Option Agreement with Form of Notice of Grant * +
|
|
|
|
|
|
10.10
|
|
Form
of Inducement Stock Option Award (40) +
|
|
|
|
|
|
10.11
|
|
Restricted Stock
Award Agreement (22) +
|
|
|
|
|
|
10.12
|
|
Form
of Warrant issued to Unsecured Note Holders 2006-2007
(3)
|
|
|
|
|
|
10.13
|
|
Form
of Convertible Note – 2008 (4)
|
|
|
|
|
|
10.14
|
|
Form
of Warrant issued to Convertible Note Holders (4)
|
|
|
|
|
|
10.15
|
|
Form of
Purchase Agreement – US Purchase (without exhibits, which are
included as exhibits 10.16 and 10.17, above) (4)
|
|
|
|
|
|
10.16
|
|
Form of
Purchase Agreement – Non-US Purchase (without exhibits, which
are included as exhibits 10.16 and 10.17, above) (4)
|
|
|
|
|
|
10.17
|
|
Form of
Purchase Agreement – US Note Exchange (without exhibits,
which are included as exhibits 10.16 and 10.17, above)
(4)
|
|
|
|
|
|
10.18
|
|
Form of
Purchase Agreement – Non-US Note Exchange (without exhibits,
which are included as exhibits 10.16 and 10.17, above)
(4
|
|
|
|
|
|
10.19
|
|
Form of
Warrant issued to Financing Consultants (5)
|
|
|
|
|
|
10.20
|
|
1999
Amended Stock Plan (amended 2008) (5) +
|
|
|
|
|
|
10.21
|
|
Amendment No. 1 to
Oxygen Biotherapeutics, Inc. 1999 Amended Stock Plan (38)
+
|
|
|
|
|
|
10.22
|
|
Amendment No. 2 to
Oxygen Biotherapeutics, Inc. 1999 Amended Stock Plan (38)
+
|
|
|
|
|
|
10.23
|
|
2016
Stock Incentive Plan (41) +
|
|
|
|
|
|
10.24
|
|
Employment
Agreement with John Kelley dated November 13, 2013 (34)
+
|
|
|
|
|
|
10.25
|
|
First
Amendment to Employment Agreement with John Kelley dated June 18,
2015 (36) +
|
|
|
|
|
|
10.26
|
|
Amended
and Restated Employment Agreement with Michael B. Jebsen dated May
19, 2011 (20) +
|
|
|
|
|
|
10.27
|
|
Second
Amended and Restated Employment Agreement with Michael Jebsen dated
November 13, 2013 (34) +
|
|
|
|
|
|
10.28
|
|
First
Amendment to Second Amended and Restated Employment Agreement with
Michael Jebsen dated June 18, 2015 (36) +
|
|
|
|
|
|
10.29
|
|
Form of
Indemnification Agreement (20) +
|
|
|
|
|
|
10.30
|
|
Description of
Non-Employee Director Compensation (25) +
|
|
|
|
|
|
10.31
|
|
Description of
Non-Employee Director Compensation, effective June 15, 2015 (39)
+
|
|
|
|
|
|
10.32
|
|
Securities Purchase
Agreement (including exhibits) between Oxygen Biotherapeutics and
Vatea Fund, Segregated Portfolio dated June 8, 2009
(6)
|
|
|
|
|
|
10.33
|
|
Amendment no. 1 to
the Securities Purchase Agreement between Oxygen Biotherapeutics
and Vatea Fund, Segregated Portfolio (11)
|
|
|
|
|
|
10.34
|
|
Amendment no. 2 to
the Securities Purchase Agreement between Oxygen Biotherapeutics
and Vatea Fund, Segregated Portfolio (12)
|
|
|
|
|
|
10.35
|
|
Amendment no. 3 to
the Securities Purchase Agreement between Oxygen Biotherapeutics
and Vatea Fund, Segregated Portfolio (23)
|
|
|
|
|
|
10.36
|
|
Form of
Exchange Agreement dated July 20, 2009 (7)
|
|
|
|
|
|
10.37
|
|
Waiver—Convertible
Note (10)
|
|
|
|
|
|
10.38
|
|
Amendment—Common
Stock Purchase Warrant (10)
|
|
|
|
|
|
10.39
|
|
Form of
Warrant for May 2010 offering (13)
|
|
|
|
|
|
10.40
|
|
Form of
Subscription Agreement for May 2010 offering (13)
|
|
|
|
|
|
10.41
|
|
Warrant
issued to Blaise Group International, Inc. (14)
|
|
|
|
|
|
10.41
|
|
Note
Purchase Agreement between Oxygen Biotherapeutics and JP SPC 1
Vatea, Segregated Portfolio (15)
|
|
|
|
|
|
10.42
|
|
Form of
Promissory Note under Note Purchase Agreement between Oxygen
Biotherapeutics and JP SPC 1 Vatea, Segregated Portfolio
(15)
|
|
|
|
|
|
10.44
|
|
First
Amendment to Note Purchase Agreement between Oxygen Biotherapeutics
and JP SPC 1 Vatea, Segregated Portfolio (17)
|
|
|
|
|
|
10.45
|
|
Lease
Agreement for North Carolina corporate office (18)
|
|
|
|
|
|
10.46
|
|
Standard Industrial
Lease relating to OBI’s California facility (12)
|
|
|
|
|
|
10.47
|
|
Task
Order between the Company and NextPharma, dated November 15, 2011
(23)
|
|
|
|
|
|
10.48
|
|
Form of
Convertible Note for July 2011 offering (included in exhibit
10.48)
|
|
|
|
|
|
10.49
|
|
Form of
Warrant for July 2011 offering (included in exhibit
10.48)
|
|
|
|
|
|
10.50
|
|
Form of
Convertible Note and Warrant Purchase Agreement for July 2011
offering (21)
|
|
|
|
|
|
10.51
|
|
Placement Agency
Agreement, dated December 8, 2011, between Oxygen Biotherapeutics,
Inc. and William Blair & Company, L.L.C., as placement agent
(24)
|
|
|
|
|
|
10.52
|
|
Form of
Warrant for December 2011 offering (24)
|
|
|
|
|
|
10.53
|
|
Form of
Securities Purchase Agreement for December 2011 offering
(24)
|
|
|
|
|
|
10.54
|
|
Form of
Amendment Agreement for December 2011 offering (26)
|
|
|
|
|
|
10.55
|
|
Form of
Lock-up Agreement for December 2011 offering (24)
|
|
|
|
|
|
10.56
|
|
Form of
Amendment Agreement for December 2011 offering (27)
|
|
|
|
|
|
10.57
|
|
Fluoromed Supply
Agreement (28)
|
|
|
|
|
|
10.58
|
|
Form of
Warrant for February 2013 offering (29)
|
|
|
|
|
|
10.59
|
|
Placement Agency
Agreement, dated February 22, 2013, between Oxygen Biotherapeutics,
Inc. and Ladenburg Thalmann & Co. Inc., as placement agent
(29)
|
|
|
|
|
|
10.60
|
|
Form of
Securities Purchase Agreement for February 2013 offering
(29)
|
|
|
|
|
|
10.61
|
|
Form of
Registration Rights Agreement for February 2013 offering
(29)
|
|
|
|
|
|
10.62
|
|
Form of
Warrant Exchange Agreement, dated February 21, 2013, between Oxygen
Biotherapeutics, Inc. and certain institutional investors party to
the Securities Purchase Agreement for December 2011 Offering
(29)
|
|
|
|
|
|
10.63
|
|
License
and Supply Agreement dated February 5, 2013, between Oxygen
Biotherapeutics, Inc. and Valor SA (38)
|
|
|
|
|
|
10.64
|
|
Settlement
Agreement, dated March 14, 2013, among Oxygen Biotherapeutics,
Inc., Tenor Opportunity Master Fund Ltd., Aria Opportunity Fund,
Ltd., and Parsoon Opportunity Fund, Ltd. (38)
|
|
|
|
|
|
10.65
|
|
Form of
Warrant for Series C 8% Convertible Preferred Stock Offering
(31)
|
|
|
|
|
|
10.66
|
|
Placement Agency
Agreement, dated July 21, 2013, between Oxygen Biotherapeutics,
Inc. and Ladenburg Thalmann & Co. Inc., as placement agent
(31)
|
|
|
|
|
|
10.67
|
|
Form of
Securities Purchase Agreement for Series C 8% Convertible Preferred
Stock Offering (31)
|
|
|
|
|
|
10.68
|
|
Lock-Up
Agreement, dated August 16, 2013, between Oxygen Biotherapeutics,
Inc. and JPS SPC 3 obo OXBT Fund, SP (32)
|
|
|
|
|
|
10.59
|
|
Warrant
for Series D 8% Convertible Preferred Stock Offering
(32)
|
|
|
|
|
|
10.70
|
|
Form of
February Warrant Amendment (32)
|
|
|
|
|
|
10.71
|
|
Form of
July Warrant Amendment (32)
|
|
|
|
|
|
10.72
|
|
Form of
Securities Purchase Agreement for Series D 8% Convertible Preferred
Stock Offering (33)
|
|
|
|
|
|
10.73
|
|
License
Agreement dated September 20, 2013 by and between Phyxius Pharma,
Inc. and Orion Corporation (35)
|
|
|
|
|
|
10.74
|
|
Amendment to Common
Stock Purchase Agreement (35)
|
|
|
|
|
|
10.75
|
|
Sales
Agreement dated as of February 23, 2015, between Tenax
Therapeutics, Inc. and Cowen and Company, LLC(40)
|
|
|
|
|
|
10.76
|
|
First
Amendment to Lease Agreement for North Carolina corporate office
(42)
|
|
|
|
|
|
21.1
|
|
Subsidiaries of
Tenax Therapeutics, Inc.(40)
|
|
|
|
|
|
23.1
|
|
Consent
of Independent Registered Accounting Firm*
|
|
|
|
|
|
31.1
|
|
Certification of
Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002*
|
|
|
|
|
|
31.2
|
|
Certification of
Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002*
|
|
|
|
|
|
32.1
|
|
Certification of
Chief Executive Officer Pursuant to 18 U.S.C. Section
1350*
|
|
|
|
|
|
32.2
|
|
Certification of
Chief Financial Officer Pursuant to 18 U.S.C. Section
1350*
|
|
|
|
|
|
101.INS
|
|
XBRL
Instance Document
|
|
|
|
|
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema Document
|
|
|
|
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document
|
|
|
|
|
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase Document
|
|
|
|
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase Document
|
|
|
|
|
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase Document
|
|
(1)
|
These
documents were filed as exhibits to the current report on Form 8-K
filed by Tenax Therapeutics with the SEC on June 30, 2008, and
are incorporated herein by this reference.
|
|
(2)
|
These
documents were filed as exhibits to the annual report on Form 10-K
filed by Tenax Therapeutics with the SEC on August 13, 2004,
and are incorporated herein by this reference.
|
|
(3)
|
These
documents were filed as exhibits to the current report on Form 8-K
filed by Tenax Therapeutics with the SEC on September 6, 2006,
and are incorporated herein by this reference.
|
|
(4)
|
These
documents were filed as exhibits to the quarterly report on Form
10-Q filed by Tenax Therapeutics with the SEC on March 21, 2008,
and are incorporated herein by this reference.
|
|
(5)
|
These
documents were filed as exhibits to the annual report on Form 10-K
filed by Tenax Therapeutics with the SEC on August 13, 2008,
and are incorporated herein by this reference.
|
|
(6)
|
This
document was filed as an exhibit to the current report on Form 8-K
filed by Tenax Therapeutics with the SEC on June 8, 2009, and
is incorporated herein by this reference.
|
|
(7)
|
This
document was filed as an exhibit to the current report on Form 8-K
filed by Tenax Therapeutics with the SEC on July 21, 2009, and
is incorporated herein by this reference.
|
|
(9)
|
This
document was filed as an exhibit to the quarterly report on Form
10-Q filed by Tenax Therapeutics with the SEC on September 22,
2008, and is incorporated herein by this reference.
|
|
(10)
|
These
documents were filed as exhibits to the quarterly report on Form
10-Q filed by Tenax Therapeutics with the SEC on March 19, 2010,
and are incorporated herein by this reference.
|
|
(11)
|
This
document was filed as an exhibit to the current report on Form 8-K
filed by Tenax Therapeutics with the SEC on September 2, 2009,
and is incorporated herein by this reference.
|
|
(12)
|
These
documents were filed as exhibits to the current report on Form 8-K
filed by Tenax Therapeutics with the SEC on April 28, 2010, and are
incorporated herein by this reference.
|
|
(13)
|
These
documents were filed as exhibits to the current report on Form 8-K
filed by Tenax Therapeutics with the SEC on May 4, 2010, and are
incorporated herein by this reference.
|
|
(14)
|
These
documents were filed as exhibits to the current report on Form 8-K
filed by Tenax Therapeutics with the SEC on November 13, 2009, and
are incorporated herein by reference.
|
|
(15)
|
These
documents were filed as exhibits to the current report on Form 8-K
filed by Tenax Therapeutics with the SEC on October 13, 2010, and
are incorporated herein by this reference.
|
|
(16)
|
These
documents were filed as exhibits to the quarterly report on Form
10-Q filed by Tenax Therapeutics with the SEC on December 9, 2010,
and are incorporated herein by this reference.
|
|
(17)
|
This
document was filed as an exhibit to the current report on Form 8-K
filed by Tenax Therapeutics with the SEC on December 30, 2010, and
is incorporated herein by this reference.
|
|
(18)
|
These
documents were filed as exhibits to the quarterly report on Form
10-Q filed by Tenax Therapeutics with the SEC on March 21, 2011,
and are incorporated herein by this reference.
|
|
(19)
|
These
documents were filed as exhibits to the annual report on Form 10-K
filed by Tenax Therapeutics with the SEC on July 23, 2010, and are
incorporated herein by this reference.
|
|
(20)
|
This
document was filed as an exhibit to the annual report on Form 10-K
filed by Tenax Therapeutics with the SEC on July 15, 2011, and is
incorporated herein by this reference.
|
|
(21)
|
This document was filed as an exhibit to the current report on Form
8-K/A filed by
Tenax Therapeutics
with the SEC on July 1, 2011, and is incorporated
herein by this reference.
|
|
(22)
|
This
document was filed as an exhibit to the quarterly report on Form
10-Q filed by Tenax Therapeutics with the SEC on December 15, 2011,
and is incorporated herein by this reference.
|
|
(23)
|
These
documents were filed as exhibits to the current report on Form 8-K
filed by Tenax Therapeutics with the SEC on November 16, 2011, and
are incorporated herein by this reference.
|
|
(24)
|
These
documents were filed as exhibits to the current report on Form 8-K
filed by Tenax Therapeutics with the SEC on December 9, 2011, and
are incorporated herein by this reference.
|
|
(25)
|
This
document was filed as an exhibit to the quarterly report on Form
10-Q filed by Tenax Therapeutics with the SEC on March 15, 2012,
and is incorporated herein by this reference.
|
|
(26)
|
This
document was filed as an exhibit to the current report on Form 8-K
filed by Tenax Therapeutics with the SEC on June 15, 2012, and is
incorporated herein by this reference.
|
|
(27)
|
This
document was filed as an exhibit to the current report on Form 8-K
filed by Tenax Therapeutics with the SEC on June 15, 2012, and is
incorporated herein by reference.
|
|
(28)
|
These
documents were filed as exhibits to the annual report on Form 10-K
filed by Tenax Therapeutics with the SEC on July 25, 2012, and are
incorporated herein by this reference.
|
|
(29)
|
These
documents were filed as exhibits to the current report on Form 8-K
filed by Tenax Therapeutics with the SEC on February 25, 2013, and
are incorporated herein by this reference.
|
|
(30)
|
This document was filed as an exhibit to the current report on Form
8-K filed by
Tenax Therapeutics
with the SEC on May 15, 2013, and is incorporated
herein by this reference.
|
|
(31)
|
These
documents were filed as exhibits to the current report on Form 8-K
filed by Tenax Therapeutics with the SEC on July 25, 2013, and are
incorporated herein by reference.
|
|
(32)
|
These
documents were filed as exhibits to the current report on Form 8-K
filed by Tenax Therapeutics with the SEC on August 26, 2013, and
are incorporated herein by reference.
|
|
(33)
|
This
document was filed as an exhibit to the current report on Form 8-K
filed by Tenax Therapeutics with the SEC on October 25, 2013, and
is incorporated herein by reference.
|
|
(34)
|
These
documents were filed as exhibits to the current report on Form 8-K
filed by Tenax Therapeutics with the SEC on November 19, 2013, and
are incorporated herein by reference
|
|
(35)
|
These
documents were filed as exhibits to the quarterly report on Form
10-Q filed by Tenax Therapeutics with the SEC on March 17, 2014,
and are incorporated herein by this reference.
|
|
(36)
|
These
documents were filed as exhibits to the current report on Form 8-K
filed by Tenax Therapeutics with the SEC on June 19, 2015, and are
incorporated herein by reference.
|
|
(37)
|
This
document was filed as an exhibit to the quarterly report on Form
10-Q filed by Tenax Therapeutics with the SEC on December 15, 2014,
and is incorporated herein by this reference.
|
|
(38)
|
These
documents were filed as exhibits to the annual report on Form 10-K
filed by Tenax Therapeutics with the SEC on July 29, 2014, and are
incorporated herein by this reference.
|
|
(39)
|
These
documents were filed as exhibits to the quarterly report on Form
10-Q filed by Tenax Therapeutics with the SEC on September 9, 2015,
and are incorporated herein by this reference.
|
|
(40)
|
These
documents were filed as exhibits to the annual report on Form 10-K
filed by Tenax Therapeutics with the SEC on July 14, 2015, and are
incorporated herein by this reference.
|
|
(41)
|
This
document was filed as an exhibit to the quarterly report on Form
10-Q filed by Tenax Therapeutics with the SEC on August 9, 2016,
and is incorporated herein by this reference.
|
|
(42)
|
This
document was filed as an exhibit to the transition report on Form
10-KT filed by Tenax Therapeutics with the SEC on March 14, 2016,
and is incorporated herein by this reference.
|
|
*
|
Filed
herewith.
|
|
+
|
Management
contract or compensatory plan or arrangement.
|
90
