TENAX THERAPEUTICS, INC. 10-K

ITEM 7—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 – “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. Overview 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. On November 13, 2013, we acquired a license granting Life Newco, our wholly-owned subsidiary, an exclusive, sublicensable right to develop and commercialize pharmaceutical products containing levosimendan, 2.5 mg/ml concentrate for solution for infusion / 5ml vial in the United States and Canada. On October 9, 2020 and January 25, 2022, we entered into amendments to the license to include two product dose forms containing levosimendan, in capsule and solid dosage form, and a subcutaneously administered product containing levosimendan, subject to specified limitations. On January 15, 2021, we acquired 100% of the equity of PHPrecisionMed Inc., a Delaware corporation, or PHPM, with PHPM surviving as our wholly-owned subsidiary. As a result of the merger, we plan to develop and commercialize pharmaceutical products containing imatinib for the treatment of pulmonary arterial hypertension, or PAH. 34 Table of Contents Strategy Our principal business objective is to identify, develop, and commercialize late-stage pharmaceutical therapeutic products for serious cardiovascular and pulmonary diseases with high unmet medical need. The key elements of our business strategy are outlined below. · Efficiently conduct clinical development to establish clinical proof of principle in new indications, refine formulation, and commence Phase 3 testing of our current product candidates. Levosimendan and imatinib have been approved and prescribed globally for more than 20 years, but we believe their mechanisms of action have not been fully exploited, despite promising evidence they may significantly improve the lives of patients with pulmonary hypertension. We are conducting clinical development with the intent to establish proof of beneficial activity in cardiopulmonary diseases in which these therapeutics would be expected to have benefit for patients with diseases for which either no pharmaceutical therapies are approved at all, or in the case of PAH, where numerous expensive therapies generally offer a modest reduction of symptoms. Our focus is primarily on designing and executing formulation improvements, protecting these innovations with patents and other forms of exclusivity, and employing innovative clinical trial science to establish a robust foundation for subsequent development, product approval, and commercialization. · Efficiently explore new high-potential therapeutic applications, in particular where expedited regulatory pathways are available, leveraging third-party research collaborations and our results from related areas . Levosimendan has shown promise in multiple disease areas in its two decades of use following its approval. In order to achieve our objectives of developing these medicines for new groups of patients, we have established collaborative research relationships with investigators from leading research and clinical institutions, and our strategic partners. 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, and the confidentiality of all our company information, 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, alone or in combination with existing therapies, as well as other product candidates. · Enter into licensing or product co-development arrangements. 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, maintain our low development and business operations costs, and broaden our commercialization capabilities globally. As we focus on the development of our existing product candidates, we also continue to position ourselves to execute upon licensing and other partnering opportunities. 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. Historically, we have financed our operations principally through equity and debt offerings, including private placements and loans from our stockholders. Based on our current operating plan, there is substantial doubt about our ability to continue as going concern. Our ability to continue as a going concern depends on our ability to raise additional capital, through the sale of equity or debt securities and through collaboration and licensing agreements, to support our future operations. If we are unable to secure additional capital, we may be required to curtail our research and development initiatives and take additional measures to reduce costs. 35 Table of Contents COVID-19 The continued spread of COVID-19, including variant strains, globally, may affect our operations, including the potential interruption of our clinical trial activities and our supply chain. The continued spread of COVID-19 may result in a period of continued or recurring business disruption in these and other areas impacting our business, including the establishment of contractual relationships with investigators enrolling subjects in our clinical trials, the continuity of care provided by these institutions to the patients we seek to enroll and their ability to support industry-funded research as a means of caring for their patients, supply of these sites with study materials, and the enrolment of subjects and their adherence with study requirements. In addition, there could be a potential effect of COVID-19 to the business at FDA or other health authorities, which could result in delays of reviews and approvals, including with respect to our product candidates. Financial Overview General and Administrative Expenses General and administrative expenses were $7.6 million for the year ended December 31, 2021, compared to $5.3 million for the same period in 2020. 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, and other professional and consulting services. General and administrative expenses and percentage changes for the years ended December 31, 2021 and 2020, respectively, are as follows: For the year ended December 31, Increase/ (Decrease) % Increase/ (Decrease) 2021 2020 Personnel costs $ 4,952,334 $ 3,478,186 $ 1,474,148 42 % Legal and professional fees 1,770,483 1,043,139 727,344 70 % Other costs 698,473 630,959 67,514 11 % Facilities 159,557 154,922 4,635 3 % Personnel costs increased approximately $1.5 million for the year ended December 31, 2021, compared to the same period in the prior year. The increase was primarily due to approximately $1.2 million in severance costs associated with the departure from the Company of the former CEO and other employees, as well as approximately $266,000 in noncash compensation expense resulting from the modification of the former CEO’s outstanding stock options and the grant of an additional stock option on his separation date. Legal and professional fees increased approximately $727,000 for the year ended December 31, 2021, compared to the same period in the prior year. Professional fees consist of the costs incurred for accounting fees, capital market expenses, consulting fees and investor relations services, as well as fees paid to the members of our Board of Directors. Legal fees increased approximately $566,000 for the year ended December 31, 2021, as compared to the same period in the prior year. The increase was primarily due to the reimbursement of approximately $358,000 in legal fees associated with arbitration proceedings in the prior year, as well as an increase in fees paid associated with the PHPM acquisition and costs associated with the CEO transition that were not incurred during the same period in the prior year. Professional fees increased approximately $161,000 for the year ended December 31, 2021, compared to the same period in the prior year. The increase was primarily attributable to increased accounting, director, consulting and capital market fees offset by a decrease in investor relations costs. Other costs increased approximately $68,000 for the year ended December 31, 2021, compared to the same period in the prior year. Other costs include expenses incurred for franchise and other taxes, travel, supplies, insurance, depreciation and other miscellaneous charges. The increase was primarily attributable to increased costs for insurance offset by decreases in franchise and other taxes. Facilities costs include costs paid for rent and utilities at our corporate headquarters in North Carolina. Facilities costs remained relatively unchanged for the years ended December 31, 2021 and 2020. 36 Table of Contents Research and Development Expenses Research and development expenses were $25.1 million for the year ended December 31, 2021 as compared to $4.6 million for the same period in the prior year. 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 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, 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, 2021 and 2020, respectively, are as follows: For the year ended December 31, Increase/ (Decrease) % Increase/ (Decrease) 2021 2020 Clinical and preclinical development $ 2,653,571 $ 4,281,884 $ (1,628,313 ) (38 )% Personnel costs 689,183 250,228 438,955 175 % Other costs 21,804,640 28,612 21,776,028 76108 % Clinical and preclinical development costs decreased approximately $1.6 million for the year ended December 31, 2021 as compared to the same period in the prior year. Clinical and preclinical development costs consist of expenses associated with our Phase 2 HELP Study for levosimendan, which was completed during fiscal year 2020, costs associated with our intravenous to oral levosimendan transition study and development costs associated with the formulation for imatinib. The decrease is primarily attributable to a decrease of approximately $2.0 million in expenditures for CRO costs, a reduction of approximately $1.1 million in enrolled patient and direct site costs and a decrease of approximately $86,000 in fees paid for clinical research associates and other direct costs to manage the Phase 2 HELP Study in the current period as compared to the same period in the prior year. These cost reductions were partially offset by an increase of approximately $1.5 million in costs associated with formulation development of imatinib in the current period that were not incurred in the same period in the prior year. Personnel costs increased approximately $439,000 for the year ended December 31, 2021, as compared to the same period in the prior year, primarily attributable to the addition of our Chief Medical Officer in the current period. Other costs increased approximately $21.8 million for the year ended December 31, 2021, as compared to the same period in the prior year, primarily attributable to the recognition of in-process research and development acquired as part of the merger with PHPM in the current period. There were no such expenses incurred in the same period in the prior year. Other Income and Expense Other income and expense include non-operating income and expense items not otherwise recorded in our consolidated statement of comprehensive loss. These items include, but are not limited to, changes in the fair value of financial assets and derivative liabilities, interest income earned and fixed asset disposals. Other income increased approximately $237,000 for the year ended December 31, 2021, compared to the same period in the prior year. This increase is due primarily to the forgiveness of our PPP Loan in the current period. Liquidity, Capital Resources and Plan of Operation We have incurred losses since our inception and, as of December 31, 2021, we had an accumulated deficit of approximately $278 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 and imatinib for pulmonary hypertension 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. 37 Table of Contents 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 two product candidates, levosimendan and imatinib; however, we will need substantial additional capital in the future in order to complete the development and potential commercialization of levosimendan and imatinib, and to continue with the development of other potential product candidates. 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 $5,689,000 and $6,795,506 and working capital of $4,125,022 and $4,676,543 as of December 31, 2021 and December 31, 2020, 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 currently developing a new formulation for imatinib and conducting a clinical trial to transition from an intravenous to oral formulation of levosimendan in North America for the treatment of pulmonary hypertension. Our ability to continue to pursue development of our products beyond the second quarter of calendar year 2022 will 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. The continued spread of COVID-19, including variant strains, globally could adversely affect our ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 if an outbreak occurs in their geography. Further, some patients may be unable to comply with clinical trial protocols if quarantines or travel restrictions impede patient movement or interrupt healthcare services, or if the patients become infected with COVID-19 themselves, which would delay our ability to complete our clinical trials or release clinical trial results. See “ Item 1A – Risk Factors ” above for additional discussion. Financings On July 6, 2021, we sold 4,773,269 units in a private placement at a purchase price of $2.095 per unit for net proceeds of approximately $10 million. Each unit consisted of one unregistered pre-funded warrant to purchase one share of our common stock and one unregistered warrant to purchase one share of common stock. On July 6, 2020, we sold 2,523,611 shares of our common stock at a purchase price of $1.0278 per share and pre-funded warrants to purchase up to 652,313 shares of common stock, at a purchase price of $1.0277 per pre-funded warrant, in a registered direct offering. Additionally, in a concurrent private placement, sold pre-funded warrants to purchase up to 4,607,692 shares of common stock, at the same purchase price as the registered pre-funded warrants, as well as unregistered warrants to purchase up to an aggregate of 7,783,616 shares of common stock. The unregistered warrants have an exercise price of $0.903 per share, were immediately exercisable upon issuance, and expire five and one-half years from the date of issuance. We also issued to the placement agent five-year warrants to purchase 583,771 shares of common stock with an exercise price of $1.2848. The aggregate net proceeds for offerings were approximately $6.5 million after deducting placement agent discounts and commissions and offering expenses. We are using the net proceeds to further our clinical trials of levosimendan, for research and development and general corporate purposes, including working capital and potential acquisitions. On March 11, 2020, we sold 750,000 shares of our common stock at a purchase price of $1.1651 per share and pre-funded warrants to purchase up to 1,610,313 shares of common stock, at a purchase price of $1.1650 per pre-funded warrant, in a registered direct offering. Additionally, in a concurrent private placement, we sold unregistered warrants to purchase up to 2,360,313 shares of common stock. The unregistered warrants have an exercise price of $1.04 per share and exercise period commencing immediately upon the issuance date and a term of five and one-half years. We also issued to the placement agent five-year warrants to purchase 177,023 shares of common stock with an exercise price of $1.4564. The net proceeds from the March 2020 offering, after deducting placement agent fees and other direct offering expenses, were approximately $2.125 million. 38 Table of Contents Paycheck Protection Program Loan On April 30, 2020, we received a loan in the principal amount of $244,657 pursuant to the Paycheck Protection Program (the “PPP Loan”) under the Coronavirus Aid, Relief, and Economic Security Act, as administered by the U.S. Small Business Administration (“SBA”). On May 28, 2021, we received notice from the SBA that the SBA had remitted $244,657 in principal and $2,576 in interest to the lender in full forgiveness of our PPP Loan pursuant to our application to the SBA for forgiveness of the PPP Loan. The total amount was recorded as other income in our consolidated statement of comprehensive loss for the year ended December 31, 2021. Cash Flows The following table shows a summary of our cash flows for the periods indicated: For the year ended December 31, 2021 2020 Net cash used in operating activities $ (10,856,203 ) $ (9,272,856 ) Net cash provided by investing activities 452,609 20,109 Net cash provided by financing activities 9,737,275 10,596,995 Net cash used in operating activities. Net cash used in operating activities was approximately $10.9 million for the year ended December 31, 2021 compared to approximately $9.3 million for the year ended December 31, 2020. The increase in cash used for operating activities was primarily due to an increase in our annual insurance premiums, employee severance and accrued bonuses paid in the current period as compared to the prior year. Net cash provided by investing activities . Net cash provided by investing activities was approximately $453,000 for the year ended December 31, 2021, compared to approximately $20,000 in the year ended December 31, 2020. The increase in cash provided by investing activities was primarily due to the sale of marketable securities in the current period. Net cash provided by financing activities . Net cash provided by financing activities was approximately $9.7 million, for the year ended December 31, 2021, primarily attributable to net proceeds from the sale of stock units in our July 2021 private placement of $9.2 million and the exercise of stock warrants of $0.5 million. Net cash provided by financing activities in the prior year totaled $10.6 million, primarily attributable to aggregate net proceeds from the sale of common stock, warrants and pre-funded warrants in our July 2020 registered direct offering and concurrent private placement of $6.5 million, aggregate net proceeds from the sale of common stock and pre-funded warrants in our March 2020 registered direct offering and concurrent private placement of $2.1 million, $0.2 million in proceeds from the PPP Loan under the Cares Act and $1.7 million of proceeds from the exercise of stock warrants. Operating Capital and Capital Expenditure Requirements Our future capital requirements will depend on many factors that include, but are not limited to the following: 39 Table of Contents · 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 the global coronavirus pandemic; · 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 collaboration, licensing, consulting or other arrangements that we may enter into; · 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 on December 31, 2021, we believe we have sufficient capital on hand to continue to fund operations through the second quarter of calendar year 2022. We will need substantial additional capital beyond the second quarter of calendar year 2022 and in the future in order to complete the regulatory approval and commercialization of imatinib and levosimendan as well as to fund the development and commercialization of other 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. As a result of our historical operating losses and expected future negative cash flows from operations, we have concluded that there is substantial doubt about our ability to continue as a going concern. Similarly, the report of our independent registered public accounting firm on our December 31, 2021 consolidated financial statements include an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern. Substantial doubt about our ability to continue as a going concern may materially and adversely affect the price per share of our common stock and make it more difficult to obtain financing. If adequate funds are not available, we may also be required to eliminate one or more of our clinical trials, delaying approval of levosimendan 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 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. We may also consider strategic alternatives, including a sale of our company, merger, other business combination or recapitalization. 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. 40 Table of Contents 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. 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. Recent Accounting Pronouncements In December 2019, the Financial Accounting Standards Board, or FASB, issued an accounting standard intended to simplify accounting for income taxes. It removes certain exceptions to the general principles in Topic 740, Income Taxes, and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 and early adoption is permitted. We adopted this standard on January 1, 2021. Our adoption of the new guidance did not have a material impact on our consolidated financial statements. In June 2016, the FASB issued an 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 standard requires 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, 2023, with early adoption permitted. 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 do not believe the adoption of this standard will have a material impact on our consolidated financial statements and related disclosures. 41 Table of Contents ITEM 7A—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Smaller reporting companies are not required to provide the information required by this item. ITEM 8—FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the financial statements included at the end of this report beginning on page F-1. ITEM 9—CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.