• Filing Date: 2021-04-16
  • Form Type: 10-K/A
  • Description: Annual report (Amendment)
v3.21.1
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
12 Months Ended
Dec. 31, 2020
Accounting Policies [Abstract]  
Use of Estimates

The preparation of the accompanying consolidated financial statements in conformity with 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.

 

On an ongoing basis, management reviews its estimates to ensure that these estimates appropriately reflect changes in the Company’s business and new information as it becomes available. If historical experience and other factors used by management to make these estimates do not reasonably reflect future activity, the Company’s results of operations and financial position could be materially impacted.

 

Principles of Consolidation

The accompanying consolidated financial statements include the accounts and transactions of Tenax Therapeutics, Inc. and Life Newco, Inc. All material intercompany transactions and balances have been eliminated in consolidation.

 

Cash and Cash Equivalents

The Company considers all highly liquid instruments with a maturity date of three months or less, when acquired, to be cash equivalents.

 

Cash Concentration Risk

The Federal Deposit Insurance Corporation (the “FDIC”) insurance limits are $250,000 per depositor per insured bank. The Company had cash balances of $5,870,477 and $4,533,976 uninsured by the FDIC as of December 31, 2020 and 2019, respectively.

 

Liquidity and Capital Resources

The Company has financed its operations since September 1990 through the issuance of debt and equity securities and loans from stockholders. The Company had total current assets of $6,795,506 and $6,180,829 and working capital of $4,676,543 and $3,648,434 as of December 31, 2020 and 2019, respectively.

 

Cash resources, including the fair value of the Company’s available for sale marketable securities as of December 31, 2020 were approximately $6.7 million, compared to approximately $5.4 million as of December 31, 2019.

 

The Company expects to continue to incur expenses related to development of levosimendan for pulmonary hypertension and other potential indications, as well as identifying and developing other potential product candidates. Based on its resources on December 31, 2020, the Company believes that it has sufficient capital to fund its planned operations through the third quarter of calendar year 2021. However, the Company will need substantial additional financing in order to fund its operations beyond such period and thereafter until it can achieve profitability, if ever. The Company depends on its ability to raise additional funds through various potential sources, such as equity and debt financing, or to license its product candidates to another pharmaceutical company. The Company will continue to fund operations from cash on hand and through sources of capital similar to those previously described. The Company cannot provide assurance that it will be able to secure such additional financing, or if available, that it will be sufficient to meet its needs.

 

To the extent that the Company raises additional funds by issuing shares of its common stock or other securities convertible or exchangeable for shares of common stock, stockholders will experience dilution, which may be significant. In the event the Company raises additional capital through debt financings, the Company may incur significant interest expense and become subject to covenants in the related transaction documentation that may affect the manner in which the Company conducts its business. To the extent that the Company raises additional funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to its technologies or product candidates or grant licenses on terms that may not be favorable to the Company.

 

The continued spread of COVID-19 globally could adversely affect the Company’s clinical trial operations, including its ability to recruit and retain patients, 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 the Company’s ability to initiate and/or complete planned clinical and preclinical studies in the future.

 

Any or all of the foregoing may have a material adverse effect on the Company’s business and financial performance.

 

Deferred Financing Costs

Deferred financing costs represent legal, due diligence and other direct costs incurred to raise capital or obtain debt. Direct costs include only “out-of-pocket” or incremental costs directly related to the effort, such as a finder’s fee and accounting and legal fees. These costs will be capitalized if the efforts are successful or expensed when unsuccessful. Indirect costs are expensed as incurred. Deferred financing costs related to debt are amortized over the life of the debt. Deferred financing costs related to issuing equity are charged to Additional Paid-in Capital.

 

Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risk. Terms of convertible promissory note instruments and other convertible equity instruments are reviewed to determine whether or not they contain embedded derivative instruments that are required under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging (“ASC 815”) to be accounted for separately from the host contract and recorded on the balance sheet at fair value. The fair value of derivative liabilities, if any, is required to be revalued at each reporting date, with corresponding changes in fair value recorded in current period operating results.

 

Freestanding warrants issued by the Company in connection with the issuance or sale of debt and equity instruments are considered to be derivative instruments and are evaluated and accounted for in accordance with the provisions of ASC 815.

 

Preclinical Study and Clinical Accruals

The Company estimates its preclinical study and clinical trial expenses based on the services received pursuant to contracts with several research institutions and contract research organizations (“CROs”) that conduct and manage preclinical and clinical trials on its behalf. The financial terms of the agreements vary from contract to contract and may result in uneven expenses and payment flows. Preclinical study and clinical trial expenses include the following:

 

-

 

fees paid to CROs in connection with clinical trials,

 

-

 

fees paid to research institutions in conjunction with preclinical research studies, and

 

-

 

fees paid to contract manufacturers and service providers in connection with the production and testing of active pharmaceutical ingredients and drug materials for use in preclinical studies and clinical trials.

 

Property and Equipment, Net

Property and equipment are stated at cost, subject to adjustments for impairment, less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the following estimated useful lives:

 

Laboratory equipment

 

3 – 5 years

 

Office equipment

 

5 years

 

Office furniture and fixtures

 

7 years

 

Computer equipment and software

 

3 years

 

Leasehold improvements 

Shorter of useful life or remaining lease term 

 

Maintenance and repairs are charged to expense as incurred, and improvements to leased facilities and equipment are capitalized.

 

Research and Development Costs

Research and development costs include, but are not limited to, (i) expenses incurred under agreements with CROs and investigative sites, which conduct our clinical trials; (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) depreciation and other allocated expenses, which include direct and allocated expenses for equipment, laboratory and other supplies. All research and development expenses are expensed as incurred.

 

Income Taxes

Deferred tax assets and liabilities are recorded for differences between the financial statement and tax bases of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is recorded for the amount of income tax payable or refundable for the period increased or decreased by the change in deferred tax assets and liabilities during the period.

 

Stock-Based Compensation

The Company accounts for stock-based awards to employees in accordance with 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 the Company’s 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.

 

The Company accounts 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.

 

Loss Per Share

Basic loss per share, which excludes antidilutive securities, is computed by dividing net loss by the weighted-average number of common shares outstanding for that particular period. In contrast, diluted loss per share considers the potential dilution that could occur from other equity instruments that would increase the total number of outstanding shares of common stock. Such amounts include shares potentially issuable under outstanding options, restricted stock and warrants.

 

The following outstanding options, restricted stock grants, convertible preferred shares and warrants were excluded from the computation of basic and diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect.

 

    Year ended December 31,  
    2020     2019  
             
Warrants to purchase common stock     21,859,084       10,519,945  
Options to purchase common stock     451,148       244,206  
Convertible preferred shares outstanding     210       38,606  

 

Operating Leases

The Company determines if an arrangement includes a lease at inception. Operating leases are included in operating lease right-of-use assets, other current liabilities, and long-term lease liabilities in the Company’s consolidated balance sheet as of December 31, 2020. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses the incremental borrowing rate based on the information available at the lease commencement date. The operating lease right-of-use assets also include any lease payments made and exclude lease incentives. The Company’s leases may include options to extend or terminate the lease which are included in the lease term when it is reasonably certain that the Company will exercise any such option. Lease expense is recognized on a straight-line basis over the expected lease term. The Company has elected to account for leases with an initial term of 12 months or less similar to previous guidance for operating leases, under which the Company will recognize those lease payments in the consolidated statements of operations and comprehensive loss on a straight-line basis over the lease term.

 

Prior period amounts continue to be reported in accordance with the Company’s historic accounting under previous lease guidance, see “Recent Accounting Pronouncements” below, for more information about the impact of the adoption of the new lease standard.

 

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“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. The Company is currently evaluating this standard, but it does not believe the adoption of the new guidance will have a material impact on its 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. The Company does not believe the adoption of this standard will have a material impact on its consolidated financial statements and related disclosures.

 

In February 2016, the FASB issued an accounting standard intended to improve financial reporting regarding leasing transactions. The standard requires the Company to recognize on its balance sheet the assets and liabilities for the rights and obligations created by all leased assets. The standard also requires it to provide enhanced disclosures designed to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from all leases, operating and capital, with lease terms greater than 12 months. The standard was effective for financial statements beginning after December 15, 2018, and interim periods within those annual periods. Early adoption was permitted.

 

The Company adopted this standard on January 1, 2019, using the required modified-retrospective approach as of the effective date. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows it to carryforward the historical lease classification. The Company made an accounting policy election to account for leases with an initial term of 12 months or less similar to previous guidance for operating leases, under which the Company recognizes those lease payments in the consolidated statements of operations and comprehensive loss on a straight-line basis over the lease term. Results for the year ended December 31, 2019 continue to be reported in accordance with historical accounting under previous lease guidance, ASC Topic 840, Leases.

 

The Company recorded a net reduction of $27,670 to opening accumulated deficit as of January 1, 2019, due to the cumulative impact of adopting the new leasing standard, with the impact relating to a change in the classification of the Company’s office space. The adoption of the lease standard did not have a material impact on the Company’s condensed consolidated balance sheets. The table below summarizes the impact of adopting the new standard on its condensed consolidated balance sheet as of January 1, 2019.

 

    As Previously Reported     New Lease Standard Adjustment     As Adjusted  
Operating lease right-of-use asset   $ -     $ 271,710     $ 271,710  
Operating lease liabilities   $ -     $ 271,710     $ 271,710  
Deferred lease liabilities   $ 27,670     $ (27,670 )   $ -  

 

Fair Value

The Company determines the fair value of its financial assets and liabilities in accordance with the ASC 820, Fair Value Measurements. The Company’s balance sheet includes the following financial instruments: cash and cash equivalents, investments in marketable securities and warrant liabilities. The Company considers the carrying amount of its cash and cash equivalents and short-term notes payable to approximate fair value due to the short-term nature of these instruments.

 

Accounting for fair value measurements involves a single definition of fair value, along with a conceptual framework to measure fair value, with a fair value defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The fair value measurement hierarchy consists of three levels:

 

Level one

 

Quoted market prices in active markets for identical assets or liabilities;

 

Level two

 

Inputs other than level one inputs that are either directly or indirectly observable; and

 

Level three

 

Unobservable inputs developed using estimates and assumptions; which are developed by the reporting entity and reflect those assumptions that a market participant would use.

 

The Company applies valuation techniques that (1) place greater reliance on observable inputs and less reliance on unobservable inputs and (2) are consistent with the market approach, the income approach and/or the cost approach, and include enhanced disclosures of fair value measurements in the Company’s consolidated financial statements.

 

Investments in Marketable Securities

The Company classifies all of its investments as available-for-sale. Unrealized gains and losses on investments are recognized in comprehensive income/(loss), unless an unrealized loss is considered to be other than temporary, in which case the unrealized loss is charged to operations. The Company periodically reviews its investments for other than temporary declines in fair value below cost basis and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company believes the individual unrealized losses represent temporary declines primarily resulting from interest rate changes. Realized gains and losses are reflected in other income (expense) in the Consolidated Statements of Operations and Comprehensive Loss and are determined using the specific identification method with transactions recorded on a settlement date basis.

 

The Company recognized a gain of $28 and $66 for the years ended December 31, 2020 and 2019, respectively.

 

Investments with original maturities at date of purchase beyond three months and which mature at or less than 12 months from the balance sheet date are classified as current. Investments with a maturity beyond 12 months from the balance sheet date are classified as long-term. On December 31, 2020, the Company believes that the costs of its investments are recoverable in all material respects.

 

The following tables summarize the fair value of the Company’s investments by type. The estimated fair value of the Company’s fixed income investments is classified as Level 2 in the fair value hierarchy as defined in GAAP. These fair values are obtained from independent pricing services which utilize Level 2 inputs:

 

    December 31, 2020  
    Amortized Cost     Accrued Interest     Gross Unrealized Gains     Gross Unrealized losses     Estimated Fair Value  
Corporate debt securities   $ 459,210     $ 3,551     $ 128     $ (202 )   $ 462,687  
Total investments   $ 459,210     $ 3,551     $ 128     $ (202 )   $ 462,687  

 

The following table summarizes the scheduled maturity for the Company’s investments on December 31, 2020 and 2019, respectively:

 

    December 31, 2020     December 31, 2019  
Maturing in one year or less   $ 462,687     $ 493,884  
Maturing after one year through three years     -       -  
Total investments   $ 462,687     $ 493,884  

 

The following tables summarize information regarding assets and liabilities measured at fair value on a recurring basis as of December 31, 2020 and December 31, 2019:

 

           Fair Value Measurements at Reporting Date Using  
     Balance as of December 31, 2020      Quoted prices in Active Markets for Identical Securities (Level 1)     Significant Other Observable Inputs (Level 2)      Significant Unobservable Inputs (Level 3)  
Current Assets                        
Cash and cash equivalents   $ 6,250,241     $ 6,250,241     $ -     $ -  
Marketable securities   $ 462,687     $ -     $ 462,687     $ -  

 

           Fair Value Measurements at Reporting Date Using  
     Balance as of December 31, 2019      Quoted prices in Active Markets for Identical Securities (Level 1)     Significant Other Observable Inputs (Level 2)      Significant Unobservable Inputs (Level 3)  
Current Assets                        
Cash and cash equivalents   $ 4,905,993     $ 4,905,993     $ -     $ -  
Marketable securities   $ 493,884     $ -     $ 493,884     $ -  

 

There were no significant transfers between levels during the year ended December 31, 2020.