| 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. |
