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OXBT > SEC Filings for OXBT > Form 10-Q on 18-Mar-2013All Recent SEC Filings

Show all filings for OXYGEN BIOTHERAPEUTICS, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for OXYGEN BIOTHERAPEUTICS, INC.


18-Mar-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 IA 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 financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with the audited financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended April 30, 2012.

All references in this Quarterly Report to "Oxygen Biotherapeutics", "we", "our" and "us" means Oxygen Biotherapeutics, Inc.


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Overview

Strategy

We are a development stage biomedical company focused on developing oxygen-carrying intravenous and topical products. Our principal business objective is to discover, develop, and commercialize novel therapeutic products for disease indications that represent significant areas of clinical need and commercial opportunity.

Our current strategy is to:

? Efficiently conduct clinical development to establish clinical proof of concept with our lead product candidates;

? Advance the development of the perfluorocarbon, or PFC, therapeutic modality and supporting capabilities;

? 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 2013 Highlights

The following summarizes certain key financial measures for the three months ended January 31, 2013:

? Cash and cash equivalents were $829,000 at January 31, 2013.

? Net product sales from DermacyteŽ were $2,900 for the third quarter of 2013 compared to $4,700 for the three months ended January 31, 2012.

? Revenue earned under our research grant was $221,100 for the third quarter of 2013 compared to $146,000 for the three months ended January 31, 2012.

? Our loss from operations was $1.6 million for the third quarter of 2013 compared to $1.9 million for the three months ended January 31, 2012.

? Net cash used in operating activities was $0.7 million for the third quarter of 2013 compared to $2.3 million for the three months ended January 31, 2012.

Consistent with our strategy, during the three months ended January 31, 2013, we
(i) completed the first phase of our preclinical studies designed to determine the effects of Oxycyte using an intercranial hemorrhage model, (ii) enrolled the first patient in the in vitro platelet function studies using TBI subjects,
(iii) completed three of the four in-life portions of the preclinical studies to evaluate the impact of Oxycyte on the immune system and (iv) obtained approval from the ethics committee in Israel to initiate the second cohort of our Phase II-B TBI clinical trials, which are expected to resume enrollment during the fourth fiscal quarter.


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Opportunities and Trends

We continue to execute on our strategic plan, which calls for resuming our STOP-TBI (Safety and Tolerability of Oxycyte in Patients with Severe non-Penetrating Traumatic Brain Injury) Phase II-B clinical trials; supporting our collaborations to gather proof-of-concept data for additional therapeutic areas with unmet medical needs; and continuing our business development efforts to expand our product portfolio. We also continue to progress OxycyteŽ through the regulatory approval process by conducting a comprehensive group of preclinical studies to confirm the safety profile of our product. These studies are particularly focused on platelet activity and immunocompetence. We believe these actions position us well to drive future growth and create stockholder value.

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 2013 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 Oxycyte in the United States; and

? developing new intellectual property will 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

Critical accounting policies and estimates are those policies and estimates that are most important and material to the preparation of our financial statements, and which require management's most subjective and complex judgment due to the need to select policies from among alternatives available, and to make estimates about matters that are inherently uncertain.

As further discussed in Note 7, Commitments and Contingencies, of our Notes to Financial Statements of this quarterly report on Form 10-Q, during the three months ended January 31, 2013, management recorded a significant change to its estimate of the accrued liability relating to our litigation with Tenor, as compared to the critical accounting policies and estimates described in "Part II, 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, 2012.

Financial Overview

Results of Operations- Comparison of the Three Months Ended January 31, 2013 and 2012

Revenue

Product Revenue and Gross Profit


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We generate revenue through the sale of DermacyteŽ through on-line retailers and physician and medical spa facilities. Product revenue and percentage changes for the three months ended January 31, 2013 and 2012, respectively, are as follows:

                                                                                        Increase/        % Increase/
                                               Three months ended January 31,           (Decrease)       (Decrease)
                                                2013                    2012
Product revenue                            $         2,871         $         4,673     $     (1,802 )             (39 ) %
Cost of sales                                        1,534                   2,512             (978 )             (39 ) %
Gross profit                               $         1,337         $         2,161     $       (824 )             (38 ) %

The decrease in product revenue for the three months ended January 31, 2013 was primarily due to the elimination of our internal sales force and the suspension of our direct marketing and advertising programs in the current year.

Government Grant Revenue

We earn revenues through a cost-reimbursement grant sponsored by the United States Army, or 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 contract research organizations, or CROs.

Increase/ % Increase/ Three months ended January 31, (Decrease) (Decrease) 2013 2012 Government grant revenue $ 221,051 $ 146,101 $ 74,950 51 %

For the three months ended January 31, 2013, we recorded an increase of approximately $75,000 in revenue under the grant program as compared to the same period in the prior year. This increase is due to the progress of the underlying studies and the achievement of contractual milestones under the grant.

Marketing and Sales Expenses

Marketing and sales expenses consist primarily of personnel-related costs, including salaries, commissions, and the costs of marketing programs aimed at increasing revenue, such as advertising, trade shows, public relations and other market development programs. Marketing and sales expenses and percentage changes for the three months ended January 31, 2013 and 2012, respectively, are as follows:

Increase/ % Increase/ Three months ended January 31, (Decrease) (Decrease) 2013 2012 Marketing and sales expense $ 14,121 $ 826 $ 13,295 1610 %


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The increase in marketing and sales expenses for the three months ended January 31, 2013 was driven primarily by the cost associated with website maintenance and direct marketing.

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, 2013 and 2012, respectively, are as follows:

                                                                                      Increase/        % Increase/
                                              Three months ended January 31,          (Decrease)       (Decrease)
                                                2013                  2012
Legal and professional fees                $       916,623       $       850,267     $     66,356                 8 %
Personnel costs                                    371,027               343,252           27,775                 8 %
Other costs                                         75,409               127,266          (51,857 )             (41 ) %
Facilities                                          36,496                63,128          (26,632 )             (42 ) %
Depreciation and amortization                       27,824                37,364           (9,540 )             (26 ) %

Personnel costs:

Personnel costs increased approximately $28,000 for the three months ended January 31, 2013 compared to the same period in the prior year. The increase was due primarily to an increase in the recognized costs associated with outstanding stock options and the vesting of restricted stock grants.

Legal and professional fees:

Legal and professional fees include the costs of external audit and tax preparation fees, external legal counsel, banking fees, investor relations and NASDAQ Stock Market, LLC, or NASDAQ, listing fees, payments to our board of directors and recruiting and other consulting fees incurred. Legal and professional fees increased approximately $66,000 for the three months ended January 31, 2013 compared to the same period in the prior year. This increase was primarily due to increases in legal fees, investor relations costs and NASDAQ listing fees partially offset by decreases in consulting costs and fees paid to our board of directors.

- Legal expenses increased approximately $100,000 due primarily to the $600,000 accrual for settlement of the Tenor matter discussed at Note 7 to the financial statements above, partially offset by the costs incurred for the initial closing of the Series A Preferred Stock offering in the prior year.

- Investor relations and NASDAQ listing costs increased approximately $36,000 due primarily to the costs incurred to attend and present at conferences in the current period and the costs related to our continued listing on the NASDAQ.

- Consulting costs decreased approximately $57,000 due to a reduction in the costs associated with Board of Director and executive recruiting fees incurred in the prior year.

- Fees paid to the board of directors decreased approximately $13,000 due primarily to the recognition of stock based compensation compared to the same period in the prior year.

Facilities:

Facilities include costs paid for rent and utilities at our corporate headquarters in North Carolina, the allocation of lease costs not otherwise included in Research and Development expenses, and the costs incurred for third party Information Technology, or IT, support services. The $27,000 reduction in facilities costs during the three months ended January 31, 2013 as compared to the same period in the prior year was primarily the result of the elimination of the allocated lease costs related to the closure of our California facility.


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Depreciation and Amortization:

The $10,000 decrease in depreciation and amortization costs for the three months ended January 31, 2013 compared to the same period in the prior year was primarily due to the disposal of fixed assets related to the closure of the California facility.

Other costs:

Other costs include costs incurred for travel, supplies, insurance and other miscellaneous charges. The $52,000 reduction in other costs was due primarily to a $20,000 reduction in travel costs and an overall decrease in administrative and office expenses as a result of headcount reductions compared to the same period in the prior year.

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, 2013 and 2012, respectively, are as follows:

                                                                                      Increase/        % Increase/
                                              Three months ended January 31,          (Decrease)       (Decrease)
                                                2013                  2012
Clinical and preclinical development       $       204,091       $       209,609     $     (5,518 )              (3 ) %
Personnel costs                                    143,333               213,240          (69,907 )             (33 ) %
Consulting                                           5,790                87,750          (81,960 )             (93 ) %
Depreciation                                         9,939                15,104           (5,165 )             (34 ) %
Other costs                                          3,697                37,293          (33,596 )             (90 ) %
Facilities                                           2,597                36,939          (34,342 )             (93 ) %

Clinical and preclinical development:

Clinical and preclinical development costs include the costs associated with our pre-clinical safety studies and current Good Manufacturing Practices, or cGMP, development for Oxycyte, costs incurred to resume our Phase II-b clinical trials, and development costs for Dermacyte. During the three months ended January 31, 2013, as compared to the same period in the prior year, we incurred an increase of approximately $185,000 in pre-clinical study costs due to CRO fees recognized for the completion of milestones under the Grant-funded preclinical program to assess the safety of Oxycyte for the treatment of patients with TBI; partially offset by a decrease of approximately $183,000 in costs incurred related to the development of cGMP supply and manufacturing capabilities and validated release methods for Oxycyte.

Personnel costs:

Personnel costs decreased approximately $70,000 for the three months ended January 31, 2013 compared to the same period in the prior year, primarily due to headcount reductions related to the closure of our California lab facility and the resignation of our Chief Medical Officer in the prior year.


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Consulting fees:

Consulting fees decreased approximately $82,000 for the three months ended January 31, 2013 compared to the same period in the prior year, primarily due to charges under the consulting and separation agreement for our former President and Chief Operating Officer that were not incurred in the current period.

Depreciation:

Depreciation expense decreased approximately $5,000 for the three months ended January 31, 2013 compared to the same period in the prior year due to the disposal of fixed assets related to the closure of our California facility.

Other costs:

Other costs decreased approximately $34,000 for the three months ended January 31, 2013 as compared to the same period in the prior year, due primarily to a decrease in cost of lab supplies as a result of closing our California facility.

Facilities:

Facilities expense decreased approximately $34,000 for the three months ended
January 31, 2013 as compared to the same period in the prior year, primarily due
to the closing our California facility.

Restructuring expense

                                                                                Increase/        % Increase/
                                           Three months ended January 31,       (Decrease)        (Decrease)
                                              2013                2012
Restructuring expense                      $     2,941         $         -     $      2,941                  - %

During the three months ended January 31, 2013, the Company did not incur any additional significant restructuring costs related to the closure of our California facility.

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. Interest expense also includes dividends and fair-value adjustments to the carrying value of our Series A Convertible Preferred Stock. Interest expense and percentage changes for the three months ended January 31, 2013 and 2012, respectively, are as follows:

Increase/ % Increase/ Three months ended January 31, (Decrease) (Decrease) 2013 2012 Interest expense $ 821,777 $ 5,341,988 $ (4,520,211 ) (85 )%


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Long-term notes payable:

Interest expense for our long-term notes payable was $0 and approximately $2.4 million for the three months ended January 31, 2013 and 2012, respectively. These notes were repaid in full in November 2011.

Convertible notes payable:

Interest expense on our outstanding convertible notes was approximately $628,000 for the three months ended January 31, 2013 and 2012, respectively. The recorded interest for the three months ended January 31, 2013 was comprised of approximately $188,000 for quarterly interest payments, $408,000 for amortization of debt discounts and $32,000 for amortization of debt issue costs.

Series A Convertible Preferred Stock:

Interest expense on our outstanding Series A Convertible Preferred Stock was approximately $193,000 and $2.3 million for the three months ended January 31, 2013 and 2012, respectively. The recorded interest for the three months ended January 31, 2013 was comprised of approximately $98,000 for the excess of the fair-value of the shares issued upon conversion over the fair value of the Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock matured on January 31, 2013 and all of the outstanding shares were redeemed by conversion into common stock at maturity.

Preferred Stock Dividends:

Interest expense recorded for the payment of dividends on the Series A Convertible Preferred Stock Preferred Stock was approximately $95,000 and $42,000 for the three months ended January 31, 2013 and 2012, respectively.

Other income and expense

Other income and expense includes non-operating income and expense items not otherwise recorded in our statement of operations. These items include, but are not limited to, revenue earned under sublease agreements for our California facility, recognized gains and losses on foreign currency translations, interest income earned and fixed asset disposals. Other expense for the three months ended January 31, 2013 and 2012, respectively, is as follows:

                                                                                             Increase/
                                                      Three months ended January 31,        (Decrease)
                                                         2013                 2012
Other (income) expense, net                          $        (323 )       $    82,850     $     (83,173 )

During the three months ended January 31, 2013 compared to the prior year, we recorded income from sublease agreements and interest of approximately $300 and $10,000, respectively.

For the three months ended January 31, 2012, we recorded other non-operating expenses of approximately $93,000 for the write off of receivables from Glucometrics, Inc., the company that previously held license rights for the use of our patents related to glucose monitoring technology, which was determined to be uncollectible during the third quarter of fiscal 2012.


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Results of Operations- Comparison of the Nine Months Ended January 31, 2013 and 2012

Revenue

Product Revenue and Gross Profit

We generate revenue through the sale of DermacyteŽ through on-line retailers and
physician and medical spa facilities. Product revenue and percentage changes for
the nine months ended January 31, 2013 and 2012, respectively, are as follows:

                                                             Increase/        % Increase/
                       Nine months ended January 31,         (Decrease)       (Decrease)
                         2013                 2012
  Product revenue   $       28,899       $       91,565     $    (62,666 )             (68 ) %
  Cost of sales             16,578               47,616          (31,038 )             (65 ) %
  Gross profit      $       12,321       $       43,949     $    (31,628 )             (72 ) %

The decrease in product revenue for the nine months ended January 31, 2013 was primarily due to the elimination of our internal sales force and the suspension of our direct marketing and advertising programs in the current year and the termination of existing distribution agreements in the prior year. During the nine months ended January 31, 2012, we recorded $26,000 in revenue from sales to our distributer that did not occur in the current year. During the current year, we employed only one internal salesperson compared to six during the same period in the prior year.

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.

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