• Filing Date: 2021-04-16
  • Form Type: 10-K/A
  • Description: Annual report (Amendment)
v3.21.1
E. STOCKHOLDERS' EQUITY
12 Months Ended
Dec. 31, 2020
Equity [Abstract]  
STOCKHOLDERS' EQUITY

Preferred Stock

 

Under the Company’s Certificate of Incorporation, the Board of Directors is authorized, without further stockholder action, to provide for the issuance of up to 10,000,000 shares of preferred stock, par value $0.0001 per share, in one or more series, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations and restrictions thereof.

 

Series A Stock

 

On December 11, 2018, the Company closed its underwritten offering of 5,181,346 units for net proceeds of approximately $9 million. Each unit consists of (a) one share of the Company’s Series A convertible preferred stock, par value $0.0001 per share (the “Series A Stock”), (b) a two-year warrant to purchase one share of common stock at an exercise price of $1.93 (the “Series 1 Warrants”), and (c) a five-year warrant to purchase one share of common stock at an exercise price of $1.93 (the “Series 2 Warrants”). In accordance with ASC 480, the estimated fair value of $1,800,016 for the beneficial conversion feature was recognized as a deemed dividend on the Series A Stock during the year ended December 31, 2019.

 

The table below sets forth a summary of the designation, powers, preferences and rights of the Series A Stock.

 

 Conversion

 

Subject to the ownership limitations described below, the Series A Stock is convertible at any time at the option of the holder into shares of the Company’s common stock at a conversion ratio determined by dividing the stated value of the Series A Stock by a conversion price of $1.93 per share. The conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions.

 

The Company will not effect any conversion of the Series A Stock, nor shall a holder convert its shares of Series A Stock, to the extent that such conversion would cause the holder to have acquired, through conversion of the Series A Stock or otherwise, beneficial ownership of a number of shares of common stock in excess of 4.99% (or, at the election of the holder prior to the issuance of any shares of Series A Stock, 9.99%) of the common stock outstanding after giving effect to such exercise.

 

Dividends

 

 

In the event the Company pays dividends on its shares of common stock, the holders of the Series A Stock will be entitled to receive dividends on shares of Series A Stock equal, on an as-if-converted basis, to and in the same form as paid on the common stock. No other dividends will be paid on the shares of Series A Stock.

 

Liquidation

 

Upon any liquidation, dissolution or winding up of the Company after payment or provision for payment of debts and other liabilities of the Company, the holders of Series A Stock shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount equal to the amount that a holder of common stock would receive if the Series A Stock were fully converted to common stock, which amounts will be paid pari passu with all holders of common stock.

 

Voting rights

 

Shares of Series A Stock will generally have no voting rights, except as required by law and except that the consent of holders of a majority of the then outstanding Series A Stock will be required to amend the terms of the Series A Stock or to take other action that adversely affects the rights of the holders of Series A Stock. 

 

During the years ended December 31, 2020 and 2019, 38,396 and 2,815,987 shares of Series A Stock were converted into 38,396 and 2,815,987 shares of common stock, respectively.

 

As of December 31, 2020, there were 210 shares of Series A Stock outstanding.

 

Common Stock

 

The Company’s Certificate of Incorporation authorizes it to issue 400,000,000 shares of $0.0001 par value common stock. As of December 31, 2020, and December 31, 2019, there were 12,619,369 and 6,741,860 shares of common stock issued and outstanding, respectively.

 

On March 13, 2020, the Company completed a registered direct offering to a single healthcare-focused institutional investor (the “Investor”) for the issuance and sale of 750,000 shares of its common stock at a purchase price of $1.1651 per share and pre-funded warrants to purchase up to 1,610,313 shares of its common stock, at a purchase price of $1.1650 per pre-funded warrant (which represents the per share offering price for the common stock less $0.0001, the exercise price of each pre-funded warrant), for gross proceeds of approximately $2.75 million, priced at-the-market under Nasdaq rules. Additionally, in a concurrent private placement, the Company issued to the Investor unregistered warrants to purchase up to 2,360,313 shares of its 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. The net proceeds from the offerings, after deducting placement agent fees and other direct offering expenses were approximately $2.125 million. The fair value allocated to the common stock, pre-funded warrants and warrants was $0.5 million, $1.1 million and $1.1 million, respectively.

 

On July 8, 2020, the Company completed a registered direct offering with the Investor for the issuance and sale of 2,523,611 shares of its common stock at a purchase price of $1.0278 per share and pre-funded warrants to purchase up to 652,313 shares of its common stock, at a purchase price of $1.0277 per pre-funded warrant (which represents the per share offering price for the common stock less $0.0001, the exercise price of each pre-funded warrant). The Company issued in a concurrent private placement unregistered 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, and unregistered common stock warrants to purchase up to 7,783,616 shares of common stock for aggregate gross proceeds of approximately $8.0 million, priced at-the-market under Nasdaq rules. The unregistered warrants have an exercise price of $0.903 per share and exercise period commencing immediately upon the issuance date and a term of five and one-half years. The net proceeds from the offerings, after deducting placement agent fees and other direct offering expenses were approximately $6.5 million. The fair value allocated to the common stock, pre-funded warrants and warrants was $1.5 million, $3.0 million and $3.5 million, respectively.

 

During the year ended December 31, 2020, the Company issued 1,610,313 shares of common stock upon the exercise of pre-funded warrants. As of December 31, 2020, there were 5,260,005 pre-funded warrants outstanding.

 

Warrants

 

March 2020 Warrants

 

As part of the March 2020 registered direct offering, the Company issued unregistered warrants to purchase 2,360,313 shares of its common stock at an exercise price of $1.04 per share and contractual term of five and one-half years. The unregistered warrants were offered in a private placement under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Regulation D promulgated thereunder and, along with the shares of common stock underlying the warrants, have not been registered under the Securities Act, or applicable state securities laws. In accordance with ASC 480, these warrants are classified as equity and their relative fair value of approximately $1.1 million was recognized as additional paid in capital. The estimated fair value is determined using the Black-Scholes Option Pricing Model which is based on the value of the underlying common stock at the valuation measurement date, the remaining contractual term of the warrants, risk-free interest rates, expected dividends and expected volatility of the price of the underlying common stock.

 

As of December 31, 2020, there were 2,360,313 March 2020 Warrants outstanding.

 

July 2020 Warrants

 

As part of the July 2020 offering, the Company issued unregistered warrants to purchase 7,783,616 shares of its common stock at an exercise price of $0.903 per share and contractual term of five and one-half years. The unregistered warrants were offered in a private placement under Section 4(a)(2) of the Securities Act, and Regulation D promulgated thereunder and, along with the shares of common stock underlying the warrants, have not been registered under the Securities Act, or applicable state securities laws. In accordance with ASC 480, these warrants are classified as equity and their relative fair value of approximately $3.5 million was recognized as additional paid in capital. The estimated fair value is determined using the Black-Scholes Option Pricing Model which is based on the value of the underlying common stock at the valuation measurement date, the remaining contractual term of the warrants, risk-free interest rates, expected dividends and expected volatility of the price of the underlying common stock.

 

As of December 31, 2020, there were 7,783,616 July 2020 Warrants outstanding.

 

Series 1 Warrants

 

As part of the offering of Series A Stock, the Company issued 5,181,346 Series 1 Warrants at an exercise price of $1.93 per share and contractual term of two years. In accordance with ASC 480, these warrants are classified as equity and their relative fair-value of $2,621,809 was recognized as a deemed dividend on the Series A Stock during the year ended December 31, 2019. The estimated fair value is determined using the Black-Scholes Option Pricing Model which is based on the value of the underlying common stock at the valuation measurement date, the remaining contractual term of the warrants, risk-free interest rates, expected dividends and expected volatility of the price of the underlying common stock.

 

During the year ended December 31, 2019, the Company received $96,500 and issued 50,000 shares upon the exercise of outstanding Series 1 Warrants.

 

During the year ended December 31, 2020, the Company received $1,500,000 and issued 777,202 shares upon the exercise of outstanding Series 1 Warrants.

 

As of December 31, 2020, all of the remaining 4,354,144 Series 1 Warrants expired unexercised.

 

Series 2 Warrants

 

As part of the offering of Series A Stock, the Company issued 5,181,346 Series 2 Warrants at an exercise price of $1.93 per share and contractual term of five years. In accordance with ASC 480, these warrants are classified as equity and their relative fair-value of $2,908,778 was recognized as a deemed dividend on the Series A Stock during the year ended December 31, 2019. The estimated fair value is determined using the Black-Scholes Option Pricing Model which is based on the value of the underlying common stock at the valuation measurement date, the remaining contractual term of the warrants, risk-free interest rates, expected dividends and expected volatility of the price of the underlying common stock.

 

During the year ended December 31, 2020, the Company received $193,000 and issued 100,000 shares upon the exercise of outstanding Series 2 Warrants.

 

As of December 31, 2020, 5,081,346 Series 2 Warrants remain outstanding.

 

Warrants Issued for Services

 

In connection with the March 2020 offering described above, the Company issued designees of the placement agent warrants to purchase 177,023 shares of common stock at an exercise price of $1.4564 and a contractual term of five years. In accordance with ASC 815, these warrants are classified as equity and its estimated fair value of $66,201 was recognized as additional paid in capital. Additionally, the Company issued to its previous underwriter a warrant to purchase 94,413 shares of common stock at an exercise price of $1.4564 per share and contractual term of five years. In accordance with ASC 815, this warrant is classified as equity and its estimated fair value of $35,308 was recognized as additional paid in capital. The estimated fair value is determined using the Black-Scholes Option Pricing Model which is based on the value of the underlying common stock at the valuation measurement date, the remaining contractual term of the warrant, risk-free interest rates, expected dividends and expected volatility of the price of the underlying common stock.

 

In connection with the July 2020 offering described above, the Company issued designees of the placement agent warrants to purchase 583,771 shares of common stock at an exercise price of $1.2848 and a contractual term of five years. In accordance with ASC 815, these warrants are classified as equity and its estimated fair value of $399,445 was recognized as additional paid in capital. Additionally, the Company issued to its previous underwriter a warrant to purchase 311,345 shares of common stock at an exercise price of $1.2848 per share and contractual term of five years. In accordance with ASC 815, this warrant is classified as equity and its estimated fair value of $213,038 was recognized as additional paid in capital. The estimated fair value is determined using the Black-Scholes Option Pricing Model which is based on the value of the underlying common stock at the valuation measurement date, the remaining contractual term of the warrant, risk-free interest rates, expected dividends and expected volatility of the price of the underlying common stock.

 

Series D Warrant

 

On August 22, 2013, the Company closed its private placement of an aggregate of $4.6 million shares of the Company’s Series D Stock to OXBT Fund.  In connection with the purchase of shares of Series D Stock, OXBT Fund received the Series D Warrant to purchase 117,949 shares of common stock at an exercise price equal to $52.00 and contractual term of six years. In accordance with ASC 815, these warrants are classified as equity and their relative fair-value of $1,531,167 was recognized as a deemed dividend on the Series D Stock during the prior fiscal year ended April 30, 2014. The estimated fair value is determined using the Black-Scholes Option Pricing Model which is based on the value of the underlying common stock at the valuation measurement date, the remaining contractual term of the warrants, risk-free interest rates, expected dividends and expected volatility of the price of the underlying common stock.  

 

The Series D Warrant was exercisable beginning on the date of issuance and expired on August 22, 2019.  The exercise price and the number of shares issuable upon exercise of Series D Warrant was subject to appropriate adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting the Company’s common stock, and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders.  In addition, if stockholder approval for the transaction was obtained, the Series D Warrant would be subject to anti-dilution provisions until such time that for 25 trading days during any 30 consecutive trading day period, the volume weighted average price of the Company’s common stock exceeded $130.00 and the daily dollar trading volume exceeds $350,000 per trading day.

 

The Series D Warrant was issued and sold without registration under the Securities Act in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws.  Accordingly, OXBT Fund could exercise the Series D Warrant and sell the Series D Stock and underlying shares only pursuant to an effective registration statement under the Securities Act covering the resale of those securities, an exemption under Rule 144 under the Securities Act or another applicable exemption under the Securities Act.

 

During the year ended December 31, 2019, all of the 107,488 previously outstanding Series D Warrants expired unexercised.

 

Series C Warrants

 

On July 23, 2013, as part of the offering of Series C Stock, the Company issued 137,668 Series C Warrants at an exercise price of $52.00 per share and contractual term of six years. In accordance with ASC 815, these warrants are classified as equity and their relative fair-value of $1,867,991 was recognized as a deemed dividend on the Series C Stock during the prior fiscal year ended April 30, 2014. The estimated fair value is determined using the Black-Scholes Option Pricing Model which is based on the value of the underlying common stock at the valuation measurement date, the remaining contractual term of the warrants, risk-free interest rates, expected dividends and expected volatility of the price of the underlying common stock.

 

During the year ended December 31, 2019, all of the 12,035 previously outstanding Series C Warrants expired unexercised.

  

The following table summarizes the Company’s warrant activity for the years ended December 31, 2020 and December 31, 2019:

 

    Warrants     Weighted Average Exercise Price  
Outstanding at December 31, 2018     10,690,718     $ 2.45  
Exercised     (50,000 )     1.93  
Expired     (120,773 )     47.30  
Outstanding at December 31, 2019     10,519,945     $ 1.94  
Issued     11,310,480       0.98  
Exercised     (877,202 )     1.93  
Expired     (4,354,144 )     1.93  
Outstanding at December 31, 2020     16,599,079     $ 1.29  

 

Stock Options

 

The following table summarizes all options outstanding as of December 31, 2020:

 

        Options Outstanding at December 31, 2020     Options Exercisable and Vested at December 31, 2020  
  Exercise Price     Number of Options     Weighted Average Remaining Contractual Life (Years)     Number of Options     Weighted Average Exercise Price  
  $ 0.66 to $6.23       396,500       8.2       30,500     $ 5.75  
  $ 10.60 to $41.40       32,500       6.1       32,500     $ 29.26  
  $ 54.40 to $96.40       20,751       4.5       20,751     $ 70.13  
  $ 113.00 to $1,188.00       1,397       3.0       1,397     $ 178.14  
             451,148        7.9        85,148      33.24  

 

The following table summarizes options outstanding that have vested and are expected to vest based on options outstanding as of December 31, 2020:

 

    Number of Option Shares     Weighted Average Exercise Price     Aggregate Intrinsic Value (1)     Weighted Average Remaining Contractual Life (Years)  
Vested     85,148     $ 33.24     $ 350       6.1  
Vested and expected to vest     410,888     $ 8.09     $ 207,747       7.8  

 

(1)

 

Amount represents the difference between the exercise price and $1.86, the closing price of Tenax Therapeutics’ stock on December 31, 2020, as reported on the Nasdaq Capital Market, for all in-the-money options outstanding.

 

2016 Stock Incentive Plan

 

In June 2016, the Company adopted the 2016 Stock Incentive Plan (the “2016 Plan”).  Under the 2016 Plan, with the approval of the Compensation Committee of the Board of Directors, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, cash-based awards or other stock-based awards. On June 16, 2016, the Company’s stockholders approved the 2016 Plan and authorized for issuance under the 2016 Plan a total of 150,000 shares of common stock. On June 13, 2019, the Company’s stockholders approved an amendment to the 2016 Plan which increased the number of shares of common stock authorized for issuance under the 2016 Plan to a total of 750,000 shares, up from 150,000 previously authorized.

 

The following table summarizes the shares available for grant under the Plan for the years ended December 31, 2020 and 2019:

 

    Shares Available for Grant  
Balances, at December 31, 2018     100,000  
Additional shares reserved     600,000  
Options granted     (2,500 )
Balances, at December 31, 2019     697,500  
Options granted     (341,000 )
Balances, at December 31, 2020     356,500  

 

2016 Plan Stock Options

 

Stock options granted under the 2016 Plan may be either incentive stock options (“ISOs”), or nonqualified stock options (“NSOs”). ISOs may be granted only to employees. NSOs may be granted to employees, consultants and directors. Stock options under the 2016 Plan may be granted with a term of up to ten years and at prices no less than fair market value at the time of grant. Stock options granted generally vest over three to four years.

 

The following table summarizes the outstanding stock options under the 2016 Plan for the years ended December 31, 2020 and 2019:

 

    Outstanding Options        
    Number of Shares     Weighted Average Exercise Price     Aggregate Intrinsic Value  
Balances at December 31, 2018     50,000     $ 6.10        
Options granted     2,500     $ 1.72          
Balances at December 31, 2019     52,500     $ 5.89          
Options granted     341,000     $ 1.18          
Balances at December 31, 2020     393,500     $ 1.81     $ 233,380 (1)

 

(1)

 

Amount represents the difference between the exercise price and $1.86, the closing price of Tenax Therapeutics’ stock on December 31, 2020, as reported on the Nasdaq Capital Market, for all in-the-money options outstanding.

 

The Company chose the “straight-line” attribution method for allocating compensation costs of each stock option over the requisite service period using the Black-Scholes Option Pricing Model to calculate the grant date fair value.

 

The Company used the following assumptions to estimate the fair value of options granted under the 2016 Plan for the years ended December 31, 2020 and 2019:

 

    For the year ended December 31,  
    2020     2019  
Risk-free interest rate (weighted average)     1.02%       2.39%  
Expected volatility (weighted average)     97.63%       106.74%  
Expected term (in years)     7       7  
Expected dividend yield     0.00%       0.00%  

 

Risk-Free Interest Rate

 

The risk-free interest rate assumption was based on U.S. Treasury instruments with a term that is consistent with the expected term of the Company’s stock options.

 

Expected Volatility

 

The expected stock price volatility for the Company’s common stock was determined by examining the historical volatility and trading history for its common stock over a term consistent with the expected term of its options.

 

Expected Term

 

The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding. It was calculated based on the Company’s historical experience with its stock option grants.

 

Expected Dividend Yield

 

The expected dividend yield of 0% is based on the Company’s history and expectation of dividend payouts. The Company has not paid and does not anticipate paying any dividends in the near future.

 

Forfeitures

 

As stock-based compensation expense recognized in the statement of operations for the years ended December 31, 2020 and 2019 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on the Company’s historical experience. 

 

The weighted-average grant-date fair value of options granted during the years ended December 31, 2020 and 2019 was $0.95 and $1.47, respectively.

 

The Company recorded compensation expense for these stock options grants of $218,148 and $92,919 for the years ended December 31, 2020 and 2019, respectively.

 

As of December 31, 2020, there were unrecognized compensation costs of approximately $152,000 related to non-vested stock option awards under the 2016 Plan that will be recognized on a straight-line basis over the weighted average remaining vesting period of 1.13 years.

 

1999 Amended Stock Plan

 

In October 2000, the Company adopted the 1999 Stock Plan, as amended and restated on June 17, 2008 (the “1999 Plan”). Under the 1999 Plan, with the approval of the Compensation Committee of the Board of Directors, the Company could grant stock options, restricted stock, stock appreciation rights and new shares of common stock upon exercise of stock options. On March 13, 2014, the Company’s stockholders approved an amendment to the 1999 Plan which increased the number of shares of common stock authorized for issuance under the 1999 Plan to a total of 200,000 shares, up from 15,000 previously authorized. On September 15, 2015, the Company’s stockholders approved an additional amendment to the 1999 Plan which increased the number of shares of common stock authorized for issuance under the 1999 Plan to a total of 250,000 shares, up from 200,000 previously authorized. The 1999 Plan expired on June 17, 2018 and no new grants may be made under that plan after that date. However, unexpired awards granted under the 1999 Plan remain outstanding and subject to the terms of the 1999 Plan.

 

1999 Plan Stock Options

 

Stock options granted under the 1999 Plan may be ISOs or NSOs. ISOs could be granted only to employees. NSOs could be granted to employees, consultants and directors. Stock options under the 1999 Plan could be granted with a term of up to ten years and at prices no less than fair market value for ISOs and no less than 85% of the fair market value for NSOs. Stock options granted generally vest over one to three years.

 

The following table summarizes the outstanding stock options under the 1999 Plan for the years ended December 31, 2020 and 2019:

 

    Outstanding Options        
    Number of Shares     Weighted Average Exercise Price     Aggregate Intrinsic Value  
Balances at December 31, 2018     191,735     $ 93.72          
Options cancelled     (29 )   $ 2,203.00          
Balances at December 31, 2019     191,706     $ 93.40          
Options cancelled     (134,058 )   $ 113.64          
Balances at December 31, 2020     57,648     $ 46.34     $ - (1)

 

(1)

 

Amount represents the difference between the exercise price and $1.86, the closing price of Tenax Therapeutics’ stock on December 31, 2020, as reported on the Nasdaq Capital Market, for all in-the-money options outstanding.

 

The Company chose the “straight-line” attribution method for allocating compensation costs of each stock option over the requisite service period using the Black-Scholes Option Pricing Model to calculate the grant date fair value.

 

The Company used the following assumptions to estimate the fair value of options granted under the 1999 Plan for the year ended December 31, 2019:

 

Risk-Free Interest Rate

 

The risk-free interest rate assumption was based on U.S. Treasury instruments with a term that is consistent with the expected term of the Company’s stock options.

 

Expected Volatility

 

The expected stock price volatility for the Company’s common stock was determined by examining the historical volatility and trading history for its common stock over a term consistent with the expected term of its options.

 

Expected Term

 

The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding. It was calculated based on the historical experience that the Company has had with its stock option grants.

 

Expected Dividend Yield

 

The expected dividend yield of 0% is based on the Company’s history and expectation of dividend payouts. The Company has not paid and do not anticipate paying any dividends in the near future.

 

Forfeitures

 

As stock-based compensation expense recognized in the statement of operations for the years ended December 31, 2020 and 2019 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on the Company’s historical experience.

 

The Company recorded compensation expense for these stock options grants of $34,498 and $78,297 for the years ended December 31, 2020 and 2019, respectively.

 

As of December 31, 2020, there were unrecognized compensation costs of approximately $1,500 related to non-vested stock option awards that will be recognized on a straight-line basis over the weighted average remaining vesting period of 0.25 years.

 

Restricted Stock Grants

 

The following table summarizes the outstanding restricted stock under the 1999 Plan for the year ended December 31, 2019:

 

    Outstanding Restricted Stock Grants  
    Number of Shares     Weighted Average Grant Date Fair Value  
Balances, at December 31, 2018     19,914     $ 6.29  
Restricted stock vested     (12,195 )   $ 6.28  
Restricted stock cancelled     (7,719 )   $ 6.27  
Balances at December 31, 2019     -     $ -  

 

The Company recorded no compensation expense for these restricted stock grants for the year ended December 31, 2020 and 2019.

 

As of December 31, 2020, there were no unrecognized compensation costs related to the non-vested restricted stock grants.