# Tenax Therapeutics, Inc.: Form 10-Q for the period ended Jan 31, 2015

- Company: [Tenax Therapeutics, Inc.](/companies/tenx.md) (CIK 34956)
- Form: 10-Q
- Filed: 2015-03-17
- Accepted by EDGAR: Mar 17, 2015, 16:15 ET
- Period: 2015-01-31
- Accession: 0001354488-15-001191
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/34956/000135448815001191/tenx_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/34956/000135448815001191/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2015-01-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2014-11-01 to 2015-01-31 | $0 | us-gaap:Revenues |
| Revenue | 9 months, 2014-05-01 to 2015-01-31 | $0 | us-gaap:Revenues |
| Cost of revenue | 3 months, 2014-11-01 to 2015-01-31 | $0 | us-gaap:CostOfGoodsSold |
| Cost of revenue | 9 months, 2014-05-01 to 2015-01-31 | $0 | us-gaap:CostOfGoodsSold |
| Gross profit | 3 months, 2014-11-01 to 2015-01-31 | $0 | us-gaap:GrossProfit |
| Gross profit | 9 months, 2014-05-01 to 2015-01-31 | $0 | us-gaap:GrossProfit |
| Research and development | 3 months, 2014-11-01 to 2015-01-31 | $1.2m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2014-05-01 to 2015-01-31 | $4.8m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2014-11-01 to 2015-01-31 | $1.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2014-05-01 to 2015-01-31 | $4.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2014-11-01 to 2015-01-31 | −$3.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2014-05-01 to 2015-01-31 | −$9.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2014-11-01 to 2015-01-31 | $968 | us-gaap:InterestExpense |
| Interest expense | 9 months, 2014-05-01 to 2015-01-31 | $47.3k | us-gaap:InterestExpense |
| Net income | 3 months, 2014-11-01 to 2015-01-31 | −$2.9m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2014-05-01 to 2015-01-31 | −$9.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2014-11-01 to 2015-01-31 | −$0.10 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2014-05-01 to 2015-01-31 | −$0.32 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2014-11-01 to 2015-01-31 | −$0.10 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2014-05-01 to 2015-01-31 | −$0.32 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2014-11-01 to 2015-01-31 | 28,119,360 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2014-05-01 to 2015-01-31 | 28,064,589 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2014-05-01 to 2015-01-31 | −$8.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2014-05-01 to 2015-01-31 | $4.2k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2015-01-31 | $9.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2015-01-31 | $17.7m | us-gaap:AssetsCurrent |
| Total assets | at 2015-01-31 | $86.2m | us-gaap:Assets |
| Current liabilities | at 2015-01-31 | $2.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2015-01-31 | $10.8m | us-gaap:Liabilities |
| Shareholders' equity | at 2015-01-31 | $75.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 43,376 characters.

*This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor” created by those sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to them. In some cases you can identify forward-looking statements by words such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” and similar expressions intended to identify forward-looking statements. Examples of these statements include, but are not limited to, statements regarding: the implications of interim or final results of our clinical trials, the progress of our research programs, including clinical testing, the extent to which our issued and pending patents may protect our products and technology, our ability to identify new product candidates, the potential of such product candidates to lead to the development of commercial products, our anticipated timing for initiation or completion of our clinical trials for any of our product candidates, our future operating expenses, our future losses, our future expenditures for research and development, and the sufficiency of our cash resources. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us and described in Part II, Item 1A of this Quarterly Report on Form 10-Q, Part I, Item 1A of our Annual Report on Form 10-K, and our other filings with the Securities and Exchange Commission, or SEC. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from those we expect. Except as required by law, we assume no obligation to update these forward-looking statements, whether as a result of new information, future events or otherwise.*

*The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with the audited consolidated financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended April 30, 2014.*

*All references in this Quarterly Report to “Tenax Therapeutics”, “we”, “our” and “us” means Tenax Therapeutics, Inc.*

### Overview

### Strategy

We are a specialty pharmaceutical company focused on developing and commercializing drugs for critical care patients. Our principal business objective is to acquire, or discover, develop, and commercialize novel therapeutic products for disease indications that represent significant areas of clinical need and commercial opportunity. Our lead product is levosimendan, which was acquired in an asset purchase agreement with Phyxius Pharma, Inc., or Phyxius. Levosimendan is a calcium sensitizer developed for intravenous use in hospitalized patients with acutely decompensated heart failure. The treatment is currently approved in more than 50 countries for this indication. The United States Food and Drug Administration, or FDA, has granted Fast Track status for levosimendan for the reduction of morbidity and mortality in cardiac surgery patients at risk for developing Low Cardiac Output Syndrome or LCOS. In addition, the FDA has agreed to the Phase III protocol design under Special Protocol Assessment (“SPA”), and provided guidance that a single successful trial will be sufficient to support approval of levosimendan in this indication.

We had been developing Oxycyte®, a systemic perfluorocarbon, or PFC, product we believe is a safe and effective oxygen carrier for use in situations of acute ischemia. However, on September 11, 2014, our Board of Directors determined to stop the current Phase II-b trial for the treatment of traumatic brain injury, or TBI, and consider strategic alternatives for the program moving forward. We will review the data generated on the patients enrolled in the trial to date. There are no assurances about the availability, on favorable terms or at all, of strategic alternatives for the continued development of the Oxycyte program.

Our current strategy is to:

- Efficiently conduct clinical development to establish clinical proof of concept with our lead product candidates;
- Efficiently explore new high-potential therapeutic applications, leveraging third-party research collaborations and our results from related areas;
- Continue to expand our intellectual property portfolio; and
- Enter into licensing or product co-development arrangements in certain areas, while out-licensing opportunities in non-core areas.

We believe that this strategy will allow us to develop a portfolio of high quality product development opportunities, expand our clinical development and commercialization capabilities, and enhance our ability to generate value from our proprietary technologies

### Third Quarter 2015 Highlights

The following summarizes certain key financial measures for the nine months ended January 31, 2015:

- Cash and cash equivalents, including the fair value of our available for sale securities, were $50.1 million at January 31, 2015.
- Our loss from operations was $2.9 million for the third quarter of fiscal 2015 compared to $2.4 million for the three months ended January 31, 2014.
- Net cash used in operating activities was $8.1 million and $6.3 million for the nine months ended January 31, 2015 and 2014, respectively.

Consistent with our strategy, as of March 16, 2015, we (i) activated 40 of the planned 50 U.S. sites, and enrolled the first 41 patients in our phase III LCOS clinical trial, (ii) funded the Imperial College London approximately $500,000 to support the accelerated enrollment and completion of the ongoing LeoPARDS Trial (Levosimendan for the Prevention of Acute oRgan Dysfunction in Sepsis) in which we are currently evaluating the potential statistical analysis plan for this trial with Imperial College London, and (iii) on February 4, 2015, received approval from Health Canada to include Canadian Hospitals in the LCOS clinical trial, where we plan to activate up to 11 additional sites.

### Opportunities and Trends

We initiated the Phase III trial for levosimendan and activated the initial sites in the first quarter of fiscal year 2015. Duke University’s Duke Clinical Research Institute or DCRI is conducting the Phase III trial. DCRI is the world’s largest academic clinical research organization, with substantial experience in conducting cardiac surgery trials. The DCRI is serving as the coordinating center and Drs. John H. Alexander and Rajendra Mehta as lead investigators for this trial.

The Phase III trial is being conducted in approximately 60 major cardiac surgery centers in North America. The trial is enrolling patients undergoing coronary artery bypass graphs, CABG and/or mitral valve surgery, and CABG and aortic valve surgery who are at risk for developing LCOS. The trial is a double blind, randomized, placebo controlled study enrolling 760 patients. Enrollment began in the second quarter of fiscal year 2015, and will take approximately 18 months to complete.

In August 2014, we entered into a collaboration with Imperial College London pursuant to which we provided approximately $500,000 in supplemental funding to support the accelerated enrollment and completion of the ongoing LeoPARDS trial. The LeoPARDS trial is 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. As of March 16, 2015, the trial had enrolled 250 out of an estimated 516 patients.

In November 2014 we held a face-to-face meeting with the FDA to discuss the development of levosimendan in septic shock. The purpose of the meeting was to provide us with guidance on how the data might be analyzed to support a regulatory filing.

In February 2015, we announced the appointment of Paula Bokesch, M.D., as chief medical officer. Dr. Bokesch will direct clinical development for the Company’s lead asset, levosimendan, including the current Phase III LEVO-CTS trial to evaluate the use of levosimendan for the reduction of morbidity and mortality in cardiac surgery patients at risk for developing LCOS.

As we focus on the development of our existing products and product candidates, we also continue to position ourselves to execute upon licensing and other partnering opportunities. In order to do so, we will need to continue to maintain our strategic direction, manage and deploy our available cash efficiently and strengthen our collaborative research development and partner relationships.

During fiscal year 2015 we are focused on the following four key initiatives:

- Conducting well-designed studies early in the clinical development process to establish a robust foundation for subsequent development, partnership and expansion into complementary areas;
- Working with collaborators and partners to accelerate product development, reduce our development costs, and broaden our commercialization capabilities;
- Gaining regulatory approval for the continued development and commercialization of our products in the United States; and,
- Developing new intellectual property to enable us to file patent applications that cover new applications of our existing technologies and product candidates.

### Critical Accounting Policies and Significant Judgments and Estimates

There have been no significant changes in critical accounting policies, as compared to the critical accounting policies described in “*Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates”* in our Annual Report on Form 10-K for the fiscal year ended April 30, 2014.

### Financial Overview

### Results of Operations- Comparison of the Three Months Ended January 31, 2015 and 2014

### Revenue

#### Product Revenue and Gross Profit

In the prior year, we generated revenue through the sale of Dermacyte® through distribution agreements, on-line retailers and direct sales to physician and medical spa facilities. We no longer sell the product through on-line retailers and direct sales, and under the terms of the license agreement for the development and commercialization of Dermacyte, we do not anticipate earning any significant royalty revenue from this product for the remainder of the current fiscal year. Product revenue and percentage changes for the three months ended January 31, 2015 and 2014 are as follows:

|  | Three months ended January 31, 2015 | 2014 | Increase/ (Decrease) | % Increase/ (Decrease) |  |
| --- | ---: | ---: | ---: | ---: | --- |
| Product revenue | $- | $590 | $(590) | (100 | ) % |
| Cost of sales | - | 410 | (410) | (100 | ) % |
| Gross profit | $- | $180 | $(180) | (100 | ) % |

#### Government Grant Revenue

We earn revenues, or Grant Revenue, through a cost-reimbursement grant sponsored by the United States Army, or the Grant. 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 contract research organizations, or CROs. Government grant revenue and percentage changes for the three months ended January 31, 2015 and 2014 are as follows:

|  | Three months ended January 31, 2015 | 2014 | Increase/(Decrease) | % Increase/(Decrease) |  |
| --- | ---: | ---: | ---: | ---: | --- |
| Government grant revenue | $- | $41,684 | $(41,684) | (100 | ) % |

The decrease in revenue earned under the Grant is due to our completion of the studies under the Grant in the prior year.

### 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 three months ended January 31, 2015 and 2014, respectively, are as follows:

|  | Three months ended January 31, 2015 | 2014 | Increase/ (Decrease) | % Increase/ (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Legal and professional fees | $1,060,606 | $710,793 | $349,813 | 49% |
| Personnel costs | 565,593 | 922,356 | (356,763) | (39 ) % |
| Other costs | 214,935 | 83,945 | 130,990 | 156% |
| Facilities | 38,468 | 39,055 | (587) | (2 ) % |
| Depreciation and amortization | 27,880 | 27,447 | 433 | 2% |

22

#### Legal and professional fees:

Legal and professional fees include costs incurred for accounting and legal fees, Board of Director compensation, investor relations and communications, and consulting fees. Legal and professional fees increased approximately $350,000 for the three months ended January 31, 2015 compared to the same period in the prior year.

- Costs associated with investor relations and communication increased approximately $376,000 during the current period. This increase was due primarily to the issue of 175,000 warrants with a calculated fair value of approximately $475,000, partially offset by a reduction of approximately $100,000 in fees paid to outsourced corporate communications firms.
- Board of Directors fees increased in the current period by approximately $104,000 due to the addition of a director and restructuring of directors’ fees.
- Consulting costs increased approximately $70,000 in the current period due primarily to fees paid to recruiting firms for placement services and contract labor.
- Legal, accounting and capital market fees decreased in the current period by approximately $200,000 due primarily to costs incurred in the prior year related to the acquisition of the rights to develop levosimendan.

#### Personnel costs:

Personnel costs increased approximately $8,000 for the nine months ended January 31, 2015 compared to the same period in the prior year.

- Stock based compensation and the vested value of issued stock options decreased approximately $205,000 in the current period due primarily to equity-based bonuses paid in the prior year related to the acquisition of the rights to develop levosimendan.
- Salaries and benefits decreased approximately $150,000 in the current period due primarily to bonuses paid in the prior year related to the acquisition of the rights to develop levosimendan.

#### Other costs:

Other costs include costs incurred for banking fees, travel, supplies, insurance and other miscellaneous charges. Other costs increased approximately $130,000 for the three months ended January 31, 2015 compared to the same period in the prior year. The increase in the current period is due primarily to approximately $75,000 in franchise taxes paid, approximately $25,000 in banking fees associated with the management of our marketable securities, an increase of approximately $15,000 for insurance costs and approximately $15,000 for the costs of non-capitalized supplies, office furniture and equipment.

#### Facilities:

Facilities expense includes costs paid for rent and utilities at our corporate headquarters in North Carolina. Facilities expense remained relatively consistent for the three months ended January 31, 2015 and 2014.

#### Depreciation and Amortization:

Depreciation and amortization costs remained relatively consistent for the three months ended January 31, 2015 and 2014.

### 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 three months ended January 31, 2015 and 2014, respectively, are as follows:

|  | Three months ended January 31, 2015 | 2014 | Increase/ (Decrease) | % Increase/ (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Clinical and preclinical development | $1,126,171 | $511,426 | $614,745 | 120% |
| Personnel costs | 76,806 | 156,110 | (79,304) | (51 ) % |
| Consulting | 13,515 | 4,369 | 9,146 | 209% |
| Depreciation | 8,118 | 12,256 | (4,138) | (34 ) % |
| Other costs | 2,225 | 3,100 | (875) | (28 ) % |
| Facilities | 355 | 2,405 | (2,050) | (85 ) % |

#### Clinical and preclinical development:

Clinical and preclinical development costs increased approximately $615,000 for the three months ended January 31, 2015 compared to the same period in the prior year. This increase was primarily due to an increase of approximately $792,000 in costs associated with the Phase III LCOS trial for levosimendan partially offset by a reduction of approximately $177,000 in costs associated with the development of Oxycyte as compared to the same period in the prior year due to the decision to stop development activities and close-out the Phase II-b TBI trial in the previous quarter of the current year.

#### Personnel costs:

Personnel costs decreased approximately $79,000 for the three months ended January 31, 2015 compared to the same period in the prior year primarily due to a reduction in headcount related to the stoppage of the STOP-TBI Phase II-b clinical trial.

#### Consulting fees:

Consulting fees increased approximately $9,000 for the three months ended January 31, 2015 compared to the same period in the prior year due primarily to an increase in fees paid for the continued development and management of the Phase III clinical trial for levosimendan.

#### Depreciation:

Depreciation expense decreased approximately $4,000 for the three months ended January 31, 2015 compared to the same period in the prior year primarily due to the disposal of certain idle laboratory equipment related to the development of Oxycyte.

#### Other costs:

Other costs remained relatively consistent for the three months ended January 31, 2015 and 2014.

#### Facilities:

Facilities costs decreased approximately $2,000 for the three months ended January 31, 2015 compared to the same period in the prior year primarily due to a reduction in pass-through costs related to our sublet lab facility in California.

### Interest expense

Interest expense includes the interest payments due under our convertible debt, amortization of debt issuance costs and accretion of discounts recorded against our convertible notes, and noncash amortization of premiums paid on our marketable securities. Interest expense and percentage changes for the three months ended January 31, 2015 and 2014, respectively, are as follows:

|  | Three months ended January 31, 2015 | 2014 | Increase/ (Decrease) | % Increase/ (Decrease) |  |
| --- | ---: | ---: | ---: | ---: | --- |
| Interest expense | $968 | $69,967 | $(68,999) | (99 | ) % |

24

Interest expense decreased approximately $69,000 during the three months ended January 31, 2015 as compared to the same period in the prior year. The decrease was due to the reduction of approximately $300,000 in the principal balance of our convertible notes as compared to the prior year. The majority of our convertible notes were exchanged during fiscal 2014, and the remainder of these notes was paid upon maturity in June 2014.

### Other income and expense

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 and expense for the three months ended January 31, 2015 and 2014, respectively, is as follows:

|  | Three months ended January 31, 2015 | 2014 | (Increase)/ Decrease |
| --- | ---: | ---: | ---: |
| Other (income) expense, net | $(267,294) | $849,556 | $(1,116,850) |

Other income increased approximately $1.1 million for the three months ended January 31, 2015 compared to the same period in the prior year primarily due to $130,000 in interest earned from our marketable securities and a $987,000 decrease in the fair value of our Series C warrant liability in the current period.

### Results of Operations- Comparison of the Nine months Ended January 31, 2015 and 2014

### Revenue

#### Product Revenue and Gross Profit

In the prior year, we generated revenue through the sale of Dermacyte® through distribution agreements, on-line retailers and direct sales to physician and medical spa facilities. We no longer sell the product through on-line retailers and direct sales, and under the terms of the license agreement for the development and commercialization of Dermacyte, we do not anticipate earning any significant royalty revenue from this product for the remainder of the current fiscal year. Product revenue and percentage changes for the nine months ended January 31, 2015 and 2014 are as follows:

|  | Nine months ended January 31, 2015 | 2014 | Increase/ (Decrease) | % Increase/ (Decrease) |  |
| --- | ---: | ---: | ---: | ---: | --- |
| Product revenue | $- | $60,669 | $(60,669) | (100 | ) % |
| Cost of sales | - | 31,275 | (31,275) | (100 | ) % |
| Gross profit | $- | $29,394 | $(29,394) | (100 | ) % |

#### Government Grant Revenue

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. Government grant revenue and percentage changes for the nine months ended January 31, 2015 and 2014 are as follows.

|  | Nine months ended January 31, 2015 | 2014 | Increase/ (Decrease) | % Increase/ (Decrease) |  |
| --- | ---: | ---: | ---: | ---: | --- |
| Government grant revenue | $- | $233,981 | $(233,981) | (100 | ) % |

The decrease in revenue earned under the Grant is due to our completion of the studies under the Grant in the prior year.

### 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 nine months ended January 31, 2015 and 2014, respectively, are as follows:

|  | Nine months ended January 31, 2015 | 2014 | Increase/ (Decrease) | % Increase/ (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Legal and professional fees | $2,349,304 | $1,872,365 | $476,939 | 25% |
| Personnel costs | 1,884,105 | 1,875,786 | 8,319 | 0% |
| Other costs | 501,891 | 240,497 | 261,394 | 109% |
| Facilities | 121,285 | 114,136 | 7,149 | 6% |
| Depreciation and amortization | 87,098 | 84,636 | 2,462 | 3% |

#### Legal and professional fees:

Legal and professional fees include costs incurred for accounting and legal fees, Board of Director compensation, investor relations and communications, and consulting fees. Legal and professional fees increased approximately $477,000 for the nine months ended January 31, 2015 compared to the same period in the prior year.

- Costs associated with investor relations and communication increased approximately $680,000 in the current period. This increase was due primarily to the issue of 175,000 warrants with a calculated fair value of approximately $475,000 and an increase of approximately $205,000 in fees paid to outsourced corporate communication firms for investor relations services and website development.
- Board of Directors fees increased in the current period by approximately $317,000. This increase was due primarily to approximately $210,000 in recognized expense for the vesting of stock options awarded and an increase of approximately $107,000 in fees paid due to the addition of a director and the restructuring of directors’ fees in the current period.
- Consulting costs increased approximately $43,000 in the current period due primarily to fees paid for recruiting firms for placement services and contract labor in the current period.
- Legal, accounting and capital market fees decreased in the current period by approximately $564,000. This decrease was due primarily to a reduction of approximately $501,000 in accounting and legal fees incurred in the prior year 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 $63,000 in fees paid for the listing of additional shares with Nasdaq and SEC filings made during the same period in the prior year.

#### Personnel costs:

Personnel costs increased approximately $9,000 for the nine months ended January 31, 2015 compared to the same period in the prior year.

- Salaries and benefits increased approximately $382,000 in the current period. This increase was due primarily to headcount additions in the current year, including the Chief Executive Officer and two additional management positions and severance payments related to the stoppage of Oxycyte development programs, partially offset by bonuses paid in the prior year related to the acquisition of the rights to develop levosimendan.
- Stock based compensation and the vested value of issued stock options decreased approximately $375,000 in the current period due primarily to equity-based bonuses paid in the prior year related to the acquisition of the rights to develop levosimendan.

#### Other costs:

Other costs include costs incurred for banking fees, travel, supplies, insurance and other miscellaneous charges. Other costs increased approximately $261,000 for the nine months ended January 31, 2015 compared to the same period in the prior year. The increase in the current period is due primarily to approximately $75,000 in franchise taxes paid, approximately $75,000 in banking fees associated with the management of our marketable securities, an increase of approximately $43,000 for insurance costs, approximately $32,000 in relocation costs incurred in the current period and an increase of approximately $30,000 in travel related costs.

#### Facilities:

Facilities expense includes costs paid for rent and utilities at our corporate headquarters in North Carolina. The approximately $7,000 increase during the nine months ended January 31, 2015 compared to the same period in the prior year was the result of an increase in the pass-through costs for maintenance and utility charges.

#### Depreciation and Amortization:

Depreciation and amortization costs remained relatively consistent for the nine months ended January 31, 2015 and 2014.

### 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 nine months ended January 31, 2015 and 2014, respectively, are as follows:

|  | Nine months ended January 31, 2015 | 2014 | Increase/ (Decrease) | % Increase/ (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Clinical and preclinical development | $4,287,897 | $1,397,583 | $2,890,314 | 207% |
| Personnel costs | 384,981 | 610,793 | (225,812) | (37 ) % |
| Consulting | 28,446 | 140,548 | (112,102) | (80 ) % |
| Depreciation | 25,279 | 31,643 | (6,364) | (20 ) % |
| Other costs | 19,809 | 22,698 | (2,889) | (13 ) % |
| Facilities | 4,144 | 7,859 | (3,715) | (47 ) % |

#### Clinical and preclinical development:

The increase of approximately $2.9 million in clinical and preclinical development costs for the nine months ended January 31, 2015 compared to the same period in the prior year was primarily due to approximately $2.5 million in costs associated with the Phase III LCOS trial for levosimendan and a $500,000 payment to support the Phase II sepsis trial for levosimendan in the U.K., which were not incurred in the same period in the prior year. The costs associated with the Phase II-b TBI trial decreased approximately $166,000, as compared to the nine months ended January 31, 2014 due to the decision to stop development activities and close-out the Phase II-b TBI trial in the second quarter of fiscal 2014.

#### Personnel costs:

Personnel costs decreased approximately $226,000 for the nine months ended January 31, 2015 compared to the same period in the prior year primarily due to a reduction in headcount related to the stoppage of the STOP-TBI Phase II-b clinical trial.

#### Consulting fees:

Consulting fees decreased approximately $112,000 for the nine months ended January 31, 2015 compared to the same period in the prior year primarily due to a reduction in fees incurred to plan and prepare for regulatory submissions, clinical trial expansions and other clinical support activities associated with clinical development of Oxycyte.

#### Depreciation:

Depreciation expense remained relatively consistent for the nine months ended January 31, 2015 and 2014.

#### Other costs:

Other costs remained relatively consistent for the nine months ended January 31, 2015 and 2014.

#### Facilities:

Facilities expense remained relatively consistent for the nine months ended January 31, 2015 and 2014.

### Interest expense

Interest expense includes the interest payments due under our convertible debt, amortization of debt issuance costs and accretion of discounts recorded against our convertible notes, and noncash amortization of premiums paid on our marketable securities. Interest expense and percentage changes for the nine months ended January 31, 2015 and 2014, respectively, are as follows:

|  | Nine months ended January 31, 2015 | 2014 | Increase/ (Decrease) | % Increase/ (Decrease) |  |
| --- | ---: | ---: | ---: | ---: | --- |
| Interest expense | $47,288 | $2,142,627 | $(2,095,339) | (98 | ) % |

During the nine months ended January 31, 2015, interest expense decreased approximately $2.1 million compared to the same period in the prior year. The decrease was due primarily to the reduction in the principal balance of our convertible notes as compared to the prior year. The majority of our convertible notes were exchanged during the nine months ended January 31, 2014, and the remainder of these notes matured in June 2014.

### Other income and expense

Other income and expense for the nine months ended January 31, 2015 and 2014, respectively, is as follows:

|  | Nine months ended January 31, 2015 | 2014 | (Increase)/ Decrease |
| --- | ---: | ---: | ---: |
| Other (income) expense, net | $(646,806) | $849,782 | $(1,496,588) |

Other income increased approximately $1.5 million for the nine months ended January 31, 2015 compared to the same period in the prior year primarily due to a $1.2 million reduction in the fair value of our Series C warrant liability and approximately $270,000 in interest earned from our marketable securities in the current period.

### Liquidity, Capital Resources and Plan of Operation

We have incurred losses since our inception and as of January 31, 2015 we had an accumulated deficit of $146 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 increased expenses related to our development and potential commercialization of levosimendan and other product candidates and, as a result, we will need to generate significant net product sales, royalty and other revenues to achieve profitability.

### Liquidity

Conducting a significant amount of research and development is central to our business model. Product candidates in later-stage clinical development generally have higher development costs than those in earlier stages of development, primarily due to the significantly increased size and duration of clinical trials. We plan to incur substantial research and development expenses for the foreseeable future in order to complete development of our most advanced product candidate, levosimendan, and to continue with the development of other potential product candidates.

The process of conducting preclinical studies and clinical trials necessary to obtain approval from the FDA is costly and time consuming. The probability of success for each product candidate and clinical trial may be affected by a variety of factors, including, among other things, the quality of the product candidate’s early clinical data, investment in the program, competition, manufacturing capabilities and commercial viability. As a result of the uncertainties discussed above, uncertainty associated with clinical trial enrollment and risks inherent in the development process, we are unable to determine the duration and completion costs of current or future clinical stages of our product candidates or when, or to what extent, we will generate revenues from the commercialization and sale of any of our product candidates. Development timelines, probability of success and development costs vary widely. We are currently focused on developing our most advanced product candidate, levosimendan; however, we will need substantial additional capital in the future in order to complete the development and potential commercialization of levosimendan, and to continue with the development of other potential product candidates.

We have financed our operations since September 1990 through the issuance of debt and equity securities and loans from stockholders. We had $17,669,302 and $58,966,033 of total current assets and working capital of $14,802,144 and $56,394,986 as of January 31, 2015 and April 30, 2014, respectively. Based on our working capital and investments in marketable securities of $40,154,853 at January 31, 2015, we believe we have sufficient capital to fund our operations through our fiscal year ending April 30, 2017. Our ability to continue to pursue testing and development of our products beyond our fiscal year 2017 depends 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 the necessary resources.

### Cash Flows

The following table shows a summary of our cash flows for the nine months ended January 31, 2015 and 2014:

|  | Nine months ended January 31, 2015 | 2014 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(8,121,382) | $(6,281,653) |
| Net cash used in investing activities | (40,615,379) | (113,044) |
| Net cash provided by financing activities | 331,685 | 11,950,826 |

*Net cash used in operating activities.* Net cash used in operating activities was approximately $8.1 million for the nine months ended January 31, 2015 compared to net cash used in operating activities of $6.3 million for the nine months ended January 31, 2014. The increase in cash used for operating activities was due primarily to an increase in our costs incurred for the Phase III clinical trial for levosimendan and compensation costs incurred as a result of three additional management positions.

*Net cash used in investing activities.* Net cash used in investing activities was approximately $40.6 million for the nine months ended January 31, 2015 compared to net cash used in investing activities of $113,000 for the nine months ended January 31, 2014. The increase in cash used in investing activities was primarily due the purchase of marketable securities in the current period.

*Net cash provided by financing activities.* Net cash provided by financing activities was approximately $332,000 for the nine months ended January 31, 2015 compared to net cash provided by financing activities of $12.0 million for the nine months ended January 31, 2014. The decrease in net cash provided by financing activities was due primarily to net proceeds of $7 million received from the exercise of warrants and $5.4 million received from the issuance of Series C 8% Convertible Preferred Stock in the prior year, partially offset by net proceeds of $544,000 received from the exercise of warrants in the current period.

### 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.

We believe that our existing cash and cash equivalents, along with our investment in marketable securities, will be sufficient to fund our projected operating requirements through our fiscal year ending April 30, 2017. We will need substantial additional capital in the future in order to complete the development and commercialization of levosimendan and to fund the development and commercialization of 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.

### Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), *Revenue from Contracts with Customers (Topic 606)* to create a single, joint revenue standard that is consistent across all industries and markets for companies that prepare their financial statements in accordance with GAAP. Under ASU 2014-09, an entity is required to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to receive in exchange for those goods or services. This update is effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. We do not expect the adoption of ASU 2014-09 will have a material impact on our consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-12 (“ASU 2014-12”) – *Compensation – Stock Compensation: Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period*, which provides explicit guidance for the accounting treatment for these types of awards. The ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. This update is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. We do not expect the adoption of ASU 2014-12 will have a material impact on our consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15 (“ASU 2014-15”), *Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern*. This ASU requires 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. The provisions of ASU 2014-15 are effective for annual periods beginning after December 15, 2016 and for annual and interim periods thereafter; early adoption is permitted. We do not expect the adoption of ASU 2014-15 to have a material effect on our consolidated financial statements.

### 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.

## Market risk

As filed, 2,770 characters.

### 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.

## Controls and procedures

As filed, 1,771 characters.

### Evaluation of Disclosure Controls and Procedures

As required by paragraph (b) of Rules 13a-15 and 15d-15 promulgated under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation as of the end of the period covered by this report, of the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and 15d-15(e). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of January 31, 2015, the end of the period covered by this report in that they provide reasonable assurance that the information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods required by the SEC and is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

### Changes in Internal Control over Financial Reporting

There were no significant changes in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We routinely review our internal controls over financial reporting and from time to time make changes intended to enhance the effectiveness of our internal control over financial reporting. We will continue to evaluate the effectiveness of our disclosure controls and procedures and internal controls over financial reporting on an ongoing basis and will take action as appropriate.

## Risk factors

As filed, 373 characters.

The risks we face have not materially changed from those disclosed in our Annual Report on Form 10-K for the year ended April 30, 2014, as supplemented by the risks disclosed in our Quarterly Report on Form 10-Q for the period ended July 31, 2014, except that we commenced the human clinical trial for levosimendan on September 18, 2014 when the first patient was enrolled.

Filed Mar 17, 2015.
Source: SEC EDGAR, the filing index for accession 0001354488-15-001191. Last ingested by Listed: Nov 5, 2026, 17:05 ET. No prices; not investment advice.