tenx_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED September 30, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission File Number 001-34600

TENAX THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

Delaware		26-2593535
(State of incorporation)		(I.R.S. Employer Identification No.)

ONE Copley Parkway, Suite 490, Morrisville, North Carolina 27560

(Address of principal executive offices)

(919) 855-2100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	TENX	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer	☐	Accelerated filer	☐
Non-Accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 12, 2021, the registrant had outstanding 25,206,914 shares of Common Stock.

TABLE OF CONTENTS

		PAGE
PART I. FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements	3
	Condensed Consolidated Balance Sheets as of September 30, 2021 (Unaudited) and December 31, 2020	3
	Condensed Consolidated Statements of Comprehensive Loss (Unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020	4
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2021 and 2020	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 6.	Exhibits	32

SIGNATURES		33

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PART I - FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

TENAX THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2021			December 31, 2020
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	8,354,075		$	6,250,241
Marketable securities		-			462,687
Prepaid expenses		229,152			82,578
Total current assets		8,583,227			6,795,506
Right of use asset		313,443			58,778
Property and equipment, net		6,489			5,972
Other assets		8,435			8,435
Total assets	$	8,911,594		$	6,868,691

LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities
Accounts payable	$	776,247		$	757,856
Accrued liabilities		685,114			1,240,616
Note payable		-			120,491
Total current liabilities		1,461,361			2,118,963
Long term liabilities
Lease liability		211,590			-
Note payable		-			124,166
Total long term liabilities		211,590			124,166
Total liabilities		1,672,951			2,243,129


Commitments and contingencies; see Note 8
Stockholders' equity
Preferred stock, undesignated, authorized 9,999,790 shares; See Note 9
Series A Preferred stock, par value $.0001, issued 5,181,346 shares; outstanding 210, respectively		-			-
Common stock, par value $.0001 per share; authorized 400,000,000 shares; issued and outstanding 25,201,312 and 12,619,369 respectively		2,520			1,262
Additional paid-in capital		282,519,752			250,644,197
Accumulated other comprehensive gain (loss)		2			(70	)
Accumulated deficit		(275,283,631	)		(246,019,827	)
Total stockholders equity		7,238,643			4,625,562
Total liabilities and stockholders' equity	$	8,911,594		$	6,868,691

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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TENAX THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

	Three months ended September 30,						Nine months ended September 30,
	2021			2020			2021			2020
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Operating expenses
General and administrative	$	2,639,920		$	1,172,725		$	5,284,658		$	3,364,890
Research and development		1,162,370			1,052,398			24,231,794			3,669,761
Total operating expenses		3,802,290			2,225,123			29,516,452			7,034,651

Net operating loss		3,802,290			2,225,123			29,516,452			7,034,651

Interest expense		-			610			949			1,016
Other income, net		(3,642	)		(5,298	)		(253,597	)		(14,038	)
Net loss	$	3,798,648		$	2,220,435		$	29,263,804		$	7,021,629

Unrealized (gain) loss on marketable securities		(276	)		1,171			(72	)		(445	)
Total comprehensive loss	$	3,798,372		$	2,221,606		$	29,263,732		$	7,021,184

Net loss per share, basic and diluted	$	(0.15	)	$	(0.18	)	$	(1.54	)	$	(0.73	)
Weighted average number of common shares outstanding, basic and diluted		25,201,312			12,427,355			19,017,311			9,590,741

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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TENAX THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

	Preferred Stock						Common Stock				Additional			Accumulated other						Total
	Number of Shares			Amount			Number of Shares		Amount		paid-in capital			comprehensive gain (loss)			Accumulated deficit			stockholders' equity

Balance at December 31, 2019		38,606		$	4			6,741,860	$	674	$	239,939,797		$	458		$	(236,168,436	)	$	3,772,497
Common stock and pre-funded warrants sold, net of offering costs								750,000		75		2,129,930									2,130,005
Compensation on options issued										-		72,376									72,376
Common stock issued for services rendered								77,987		8		99,992									100,000
Common stock issued for convertible preferred stock		(38,396	)		(4	)		38,396		4		-									-
Exercise of pre-funded warrants								400,000		40		-									40
Unrealized loss on marketable securities															(1,622	)					(1,622	)
Net loss																		(2,654,644	)		(2,654,644	)
Balance at March 31, 2020		210		$	-			8,008,243	$	801	$	242,242,095		$	(1,164	)	$	(238,823,080	)	$	3,418,652
Compensation on options issued										-		63,166									63,166
Exercise of pre-funded warrants								1,210,313		121		-									121
Exercise of warrants								877,202		88		1,690,455									1,690,543
Unrealized gain on marketable securities															3,238						3,238
Net loss																		(2,146,550	)		(2,146,550	)
Balance at June 30, 2020		210		$	-			10,095,758	$	1,010	$	243,995,716		$	2,074		$	(240,969,630	)	$	3,029,170
Common stock and pre-funded warrants sold, net of offering costs								2,523,611		252		6,532,727									6,532,979
Compensation on options issued												63,161									63,161
Unrealized loss on marketable securities															(1,171	)					(1,171	)
Net loss																		(2,220,435	)		(2,220,435	)
Balance at September 30, 2020		210		$	-			12,619,369	$	1,262	$	250,591,604		$	903		$	(243,190,065	)	$	7,403,704

Balance at December 31, 2020		210		$	-			12,619,369	$	1,262	$	250,644,197		$	(70	)	$	(246,019,827	)	$	4,625,562
Common stock and preferred stock issued for asset acquisition		10,232			1			1,892,905		189		21,582,141									21,582,331
Compensation on options issued												91,609									91,609
Exercise of warrants								457,038		46		544,605									544,651
Unrealized loss on marketable securities															(332	)					(332	)
Net loss																		(23,748,140	)		(23,748,140	)
Balance at March 31, 2021		10,442		$	1			14,969,312	$	1,497	$	272,862,552		$	402	)	$	(269,767,967	)	$	3,095,681
Common stock issued for convertible preferred stock		(10,232	)		(1	)		10,232,000		1,023		(1,022	)								-
Compensation on options issued												92,339									92,339
Unrealized gain on marketable securities															128						128
Net loss																		(1,717,016	)		(1,717,016	)
Balance at June 30, 2021		210		$	-			25,201,312	$	2,520	$	272,953,869		$	(274	)	$	(271,484,983	)	$	1,471,132
Pre-funded warrants sold, net of offering costs												9,192,624									9,192,624
Compensation on options issued												373,259									373,259
Unrealized gain on marketable securities															276						276
Net loss																		(3,798,648	)		(3,798,648	)
Balance at September 30, 2021		210		$	-			25,201,312	$	2,520	$	282,519,752		$	2		$	(275,283,631	)	$	7,238,643

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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TENAX THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months ended September 30,
	2021			2020
	(Unaudited)			(Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$	(29,263,804	)	$	(7,021,629	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		3,037			3,098
Interest on debt instrument		949			1,016
Amortization of right of use asset		79,115			82,163
Gain on debt settlement and extinguishment		(247,233	)		-
Issuance of common stock and preferred stock for asset acquisition		21,582,331			-
Issuance and vesting of compensatory stock options and warrants		557,207			198,703
Issuance of common stock for services rendered		-			75,000
Amortization of premium on marketable securities		9,427			5,078
Changes in operating assets and liabilities
Accounts receivable, prepaid expenses and other assets		(146,574	)		616,676
Accounts payable and accrued liabilities		(644,311	)		(1,185,136	)
Long term portion of lease liability		(17,892	)		(60,379	)
Net cash used in operating activities		(8,087,748	)		(7,285,410	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of marketable securities		(345,540	)		(458,438	)
Sale of marketable securities		803,401			475,041
Purchase of property and equipment		(3,554	)		-
Net cash provided by investing activities		454,307			16,603

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock and pre-funded warrants, net of issuance costs		9,192,624			8,662,985
Proceeds from the exercise of warrants		544,651			1,690,704
Proceeds from the issuance of notes payable		-			244,657
Net cash provided by financing activities		9,737,275			10,598,346

Net change in cash and cash equivalents		2,103,834			3,329,539
Cash and cash equivalents, beginning of period		6,250,241			4,905,993
Cash and cash equivalents, end of period	$	8,354,075		$	8,235,532

Non-cash investing activity
Addition to right of use asset obtained from new operating lease liability	$	333,779		$	-

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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TENAX THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. DESCRIPTION OF BUSINESS

Tenax Therapeutics, Inc. (the “Company”) was originally formed as a New Jersey corporation in 1967 under the name Rudmer, David & Associates, Inc., and subsequently changed its name to Synthetic Blood International, Inc. On June 17, 2008, the stockholders of Synthetic Blood International approved the Agreement and Plan of Merger dated April 28, 2008, between Synthetic Blood International and Oxygen Biotherapeutics, Inc., a Delaware corporation. Synthetic Blood International formed Oxygen Biotherapeutics on April 17, 2008 to participate in the merger for the purpose of changing the state of domicile of Synthetic Blood International from New Jersey to Delaware. Certificates of Merger were filed with the states of New Jersey and Delaware and the merger was effective June 30, 2008. Under the Plan of Merger, Oxygen Biotherapeutics was the surviving corporation and each share of Synthetic Blood International common stock outstanding on June 30, 2008 was converted into one share of Oxygen Biotherapeutics common stock. On September 19, 2014, the Company changed its name to Tenax Therapeutics, Inc.

On October 18, 2013, the Company, through its wholly owned subsidiary, Life Newco, Inc., a Delaware corporation, acquired certain assets of Phyxius Pharma, Inc., a Delaware corporation (“Phyxius”) pursuant to an Asset Purchase Agreement dated October 21, 2013 (the “Asset Purchase Agreement”), by and among the Company, Life Newco, Phyxius and the stockholders of Phyxius. Among these assets was a license with Orion Corporation, a global healthcare company incorporated under the laws of Finland (“Orion”) for the exclusive, sublicenseable right to develop and commercialize pharmaceutical products containing levosimendan, 2.5 mg/ml concentrate for solution for infusion / 5ml vial in the United States and Canada. On October 9, 2020, the Company entered into an Amendment (the “Amendment”) to the license (as amended, the “License”), to include two new oral products containing levosimendan, in capsule and solid dosage form, and a subcutaneously administered product containing levosimendan. The Amendment also amends the tiered royalty payments based on net sales of the Product in the Territory (each as defined below) made by the Company and its sublicensees. Pursuant to the Amendment, the term of the License has been extended until 10 years after the launch of the Product in the Territory, provided that the License will continue after the end of the term in each country in the Territory until the expiration of Orion’s patent rights in the Product in such country. In the event that no regulatory approval for the Product has been granted in the United States on or before September 20, 2028, however, either party will have the right to terminate the License with immediate effect. The Company intends to conduct an upcoming Phase 3 study in pulmonary hypertension patients utilizing one of these oral formulations. See “Note 8 – Commitments and Contingencies” below for a further discussion of the License.

On January 15, 2021, the Company, Life Newco II, Inc., a Delaware corporation and a wholly owned, subsidiary of the Company (“Life Newco II”), PHPrecisionMed Inc., a Delaware corporation (“PHPM”) and Dr. Stuart Rich, solely in his capacity as holders’ representative ( the “Representative”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which the Company acquired all of the equity of PHPM, a company developing pharmaceutical products containing imatinib for the treatment of pulmonary arterial hypertension (“PAH”) in the United States and the rest of the world. Under the terms of the Merger Agreement, Life Newco II merged with and into PHPM, with PHPM surviving as a wholly owned subsidiary of the Company (the “Merger”). See “Note 7 – Merger” below for a further discussion of the Merger.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include all adjustments (consisting of normal and recurring adjustments) necessary for a fair presentation of these financial statements. The condensed consolidated balance sheet on December 31, 2020 has been derived from the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the period ended December 31, 2020, as amended. Certain footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) rules and regulations. Operating results for the three and nine-month period ended September 30, 2021 are not necessarily indicative of results for the full year or any other future periods. As such, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as amended.

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Going Concern

Management believes the accompanying condensed consolidated financial statements have been prepared in conformity with GAAP, which contemplate continuation of the Company as a going concern. The Company has an accumulated deficit of $275 million on September 30, 2021 and $246 million on December 31, 2020 and used cash in operations of $8.1 million and $7.3 million during the nine months ended September 30, 2021 and 2020, respectively.

In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying September 30, 2021 balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its financing requirements on a continuing basis, maintain present financing, and generate cash from future operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern for at least one year from the date that these financial statements are issued. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

Use of Estimates

In preparing the unaudited condensed consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the dates of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates and the operating results for the interim periods presented are not necessarily indicative of the results expected for the full year.

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 condensed consolidated financial statements include the accounts and transactions of the Company, Life Newco and PHPM. All material intercompany transactions and balances have been eliminated in consolidation.

Liquidity and Management’s Plan

On September 30, 2021, the Company had cash and cash equivalents of approximately $8.4 million. The Company used $8.1 million of cash for operating activities during the nine months ended September 30, 2021 and had stockholders’ equity of $7.2 million, versus $4.6 million on December 31, 2020.

As further discussed in “Note 9—Stockholders’ Equity” below, on July 6, 2021, the Company sold 4,773,269 units (“Units”) in a private placement at a purchase price of $2.095 per Unit. Each Unit consists of one unregistered pre-funded warrant to purchase one share of Company common stock, par value $0.0001 per share (“Common Stock”) and one unregistered warrant to purchase one share of Common Stock for gross proceeds of approximately $10.0 million. The Company requires substantial additional funds to complete its planned clinical trials and to pursue regulatory approvals. Management is actively seeking additional sources of equity and/or debt financing; however, there is no assurance that any additional funding will be available.

The Company expects to continue to incur expenses related to development of imatinib for PAH, levosimendan for pulmonary hypertension, and any other potential product candidates. Based on its resources on September 30, 2021, the Company believes that it has sufficient capital to fund its planned operations through the second quarter of calendar year 2022. 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 licensing arrangements. The Company will continue to fund operations from cash on hand and through sources of capital similar to those previously described. The Company cannot assure that it will be able to secure such additional financing on reasonable terms, 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 restrictive covenants. 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.

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

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COVID-19 Impact and Related Risks

The continued spread of COVID-19 globally could adversely affect the Company’s ability to retain 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 of these investigators and site staff may be unable to comply with clinical trial protocols if quarantines or travel restrictions impede movement or interrupt healthcare services, or if they 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.

The full extent to which the evolving COVID-19 pandemic and the various responses to it might impact the Company’s business, operations and financial results continue to remain uncertain and will depend on numerous evolving factors that are not subject to accurate prediction and that are beyond the Company’s control. We will continue to evaluate the nature and extent of these potential impacts to our business and condensed consolidated financial statements.

Net Loss per Share

Basic net 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 net 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, convertible preferred shares and warrants.

The following outstanding options, 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.

	Nine months ended September 30,
	2021		2020

Warrants to purchase common stock		20,928,767		20,953,223
Pre-funded warrants to purchase common stock		10,033,274		5,260,005
Options to purchase common stock		1,330,366		451,186
Convertible preferred shares outstanding		210		210

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 condensed consolidated balance sheets. 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.

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued accounting standard ASU-2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, 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’s adoption of this standard did not have a material impact on its condensed consolidated financial statements.

In June 2016, the FASB issued accounting standard ASU-2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, 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 condensed consolidated financial statements and related disclosures.

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NOTE 3. FAIR VALUE

The Company determines the fair value of its financial assets and liabilities in accordance with the Accounting Standards Codification (“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 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 condensed 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 in the condensed consolidated statements of comprehensive loss and are determined using the specific identification method with transactions recorded on a settlement date basis. 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. As of September 30, 2021, the Company held no investments in marketable securities.

The following tables summarize information regarding assets and liabilities measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020:

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			Fair Value Measurements at Reporting Date Using
	Balance as of September 30, 2021		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	$	8,354,075	$	8,354,075	$	-	$	-
Marketable securities	$	-	$	-	$	-	$	-

			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	$	-

There were no significant transfers between levels in the nine months ended September 30, 2021.

NOTE 4. BALANCE SHEET COMPONENTS

Property and equipment, net

Property and equipment consist of the following as of September 30, 2021 and December 31, 2020:

	September 30, 2021			December 31, 2020
Office furniture and fixtures	$	43,033		$	43,033
Computer equipment and software		21,259			23,307
		64,292			66,340
Less: Accumulated depreciation		(57,803	)		(60,368	)
	$	6,489		$	5,972

Depreciation expense was approximately $1,000 for each of the three-month periods ended September 30, 2021 and 2020.

Depreciation expense was approximately $3,000 for each of the nine-month periods ended September 30, 2021 and 2020.

Accrued liabilities

Accrued liabilities consist of the following as of September 30, 2021 and December 31, 2020:

	September 30, 2021		December 31, 2020
Employee related	$	462,444	$	860,629
Operating costs		118,372		319,608
Lease liability		104,298		60,379
	$	685,114	$	1,240,616

NOTE 5. LEASE

In January 2011, the Company entered into a lease with Concourse Associates, LLC for its headquarters in Morrisville, North Carolina (the “Lease”). The Lease was amended in August 2015 to extend the term for the 5,954 square foot rental. The current term began on March 1, 2016 and continued for 64 months to June 30, 2021. Rent payments began on July 1, 2016, following the conclusion of a four-month rent abatement period. The Company has two five-year options to extend the Lease and a one-time option to terminate the Lease thirty-six months after the commencement of the initial term if no additional space became available. On April 2, 2021, the Company negotiated a 3-year extension to the existing lease term, commencing July 1, 2021 (the “Commencement Date”). Beginning on the Commencement Date, the annual base rent was increased to $125,034 and will increase 2.5% annually for lease years 2 and 3.

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The Company performed an evaluation of its other contracts with customers and suppliers in accordance with ASC 842, Leases, and determined that, except for the Lease described above, none of the Company’s contracts contain a lease.

The balance sheet classification of our lease liabilities was as follows:

	September 30, 2021		December 31, 2020
Current portion included in accrued liabilities	$	104,298	$	60,379
Long term lease liability		211,590		-
	$	315,888	$	60,379

As of September 30, 2021, the maturities of our operating lease liabilities were as follows:

Year ending December 31,
2021	$	31,259
2022		126,612
2023		129,797
2024		65,702
Total lease payments	$	353,370
Less: Imputed interest		(37,482	)
Operating lease liability	$	315,888

Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company used the incremental borrowing rate based on the information available at its Lease’s Commencement Date. As of September 30, 2021, the remaining Lease term is thirty-three months and the discount rate used to determine the operating lease liability was 8.0%. For the nine months ending September 30, 2021, the Company paid $100,058 in total lease expenses, including $6,997 for common area maintenance charges.

NOTE 6. NOTE PAYABLE

Payroll Protection Program Loan

On April 30, 2020, the Company received a loan pursuant to the Paycheck Protection Program (the “PPP Loan”) under the Coronavirus Aid, Relief, and Economic Security Act, as administered by the U.S. Small Business Administration (“SBA”). The PPP Loan in the principal amount of $244,657 was disbursed by First Horizon Bank (the “Lender”) pursuant to a promissory note issued by us.

On May 28, 2021, the Company received notice from the SBA that the SBA had remitted $244,657 in principal and $2,576 in interest to the Lender in full forgiveness of the Company’s PPP Loan pursuant to the Company’s application to the SBA for forgiveness of the PPP Loan. The total amount was recorded as other income in our condensed consolidated statement of comprehensive loss.

NOTE 7. MERGER

On January 15, 2021, the Company, Life Newco II, PHPM, and Dr. Rich, as Representative, entered into the Merger Agreement, pursuant to which, the Company acquired all of the equity of PHPM. Under the terms of the Merger Agreement, Life Newco II merged with and into PHPM, with PHPM surviving as a wholly owned subsidiary of the Company.

As consideration for the Merger, the stockholders of PHPM received (i) 1,892,905 shares of Common Stock, and (ii) 10,232 shares of the Company’s Series B convertible preferred stock (“Preferred Stock” or “Series B Stock”), which were convertible into up to an aggregate of 10,232,000 shares of Common Stock (“Preferred Stock”) (collectively, the “Merger Consideration”). To satisfy the Company’s post-closing rights to closing adjustments and indemnification by PHPM and the former stockholders of PHPM pursuant to the Merger Agreement, 1,212,492 shares of Common Stock issuable upon conversion of the Preferred Stock, which represented approximately 10% of the Merger Consideration, are subject to holdback restrictions for 24 months following closing of the transaction (the “Holdback Shares”).

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Pursuant to the Merger Agreement, the Company’s Board of Directors (the “Board”), at its Annual Meeting of Shareholders held on June 10, 2021, recommended to the Company’s shareholders, and the shareholders approved, the conversion of the Preferred Stock pursuant to the Certificate of Designation. As a result, each share of Preferred Stock automatically converted into (i) 881.5 shares of Common Stock, and (ii) the right to receive up to 118.5 Holdback Shares, to be delivered 24 months after the date of issuance of the Preferred Stock, subject to reduction for indemnification claims.

Pursuant to the terms of the Merger Agreement, on February 25, 2021, the Board appointed three directors designated by the Representative to serve on the Board, Dr. Rich, the co-founder and Chief Executive Officer and a stockholder of PHPM, and Drs. Michael Davidson and Declan Doogan. In connection with the closing of the Merger, Dr. Rich also was appointed Chief Medical Officer of the Company.

The Company evaluated this acquisition in accordance with ASC 805, Business Combinations, to determine whether the assets and operations of PHPM met the definition of a business. Included in the in-process research and development project is the historical know-how, formula protocols, designs, and procedures expected to be needed to complete the related phase of testing. The Company concluded that the in-process research and development project is an identifiable intangible asset that would be accounted for as a single asset in a business combination. The Company also qualitatively concluded that there is no fair value associated with the clinical research organization contract and the clinical manufacturing organization contract because the services are being provided at market rates and could be provided by multiple vendors in the marketplace. Therefore, all of the consideration in the transaction was allocated to the in-process research and development project. As such, the Company concluded that substantially all of the fair value of the gross assets acquired was concentrated in the single in-process research and development asset and the set was not a business.

The Company is planning to use the acquired asset to further its clinical development in an upcoming phase 3 clinical trial for the treatment of patients with PAH. Although the acquired asset may have utility in other patient populations, future development decisions for the acquired asset will be contingent upon the results of the contemplated phase 3 program for PAH. As such, the acquired asset does not have an alternative future use at the acquisition date. In accordance with ASC 730, Research and Development, the Company concluded the entire Purchase Price for the asset acquisition was an expense on the acquisition date.

The consideration transferred, assets acquired and liabilities assumed were recognized as follows:

Fair value of shares of Common Stock issued	$	3,369,371
Fair Value of Series B Convertible Preferred Stock issued at closing		18,212,960
Total fair value of consideration transferred	$	21,582,331

Tangible assets acquired	$	-
Accounts payable assumed		(150,000	)
Total identifiable net assets		(150,000	)
IPR&D expense recognized		21,732,331
Total fair value of consideration	$	21,582,331

NOTE 8. COMMITMENTS AND CONTINGENCIES

Simdax License Agreement

On November 13, 2013, the Company acquired, through its wholly owned subsidiary, Life Newco, that certain License Agreement, dated September 20, 2013, as amended on October 9, 2020, by and between Phyxius and Orion (the “License”), and that certain Side Letter, dated October 15, 2013 by and between Phyxius and Orion. The License grants the Company an exclusive, sublicenseable right to develop and commercialize pharmaceutical products containing levosimendan in the United States and Canada (the “Territory”) and, pursuant to the October 9, 2020 amendment, also includes two oral products containing levosimendan, in capsule and solid dosage form, and a subcutaneously administered product containing levosimendan subject to specified limitations in the License (together, the “Product”). Pursuant to the License, the Company must use Orion’s “Simdax®” trademark to commercialize the Product. The License also grants the Company a right of first refusal to commercialize new developments of the Product, including developments as to the formulation, presentation, means of delivery, route of administration, dosage or indication (i.e., line extension products). Orion’s ongoing role under the License includes sublicense approval, serving as the sole source of manufacture, holding a first right to enforce intellectual property rights in the Territory, and certain regulatory participation rights. Additionally, the Company must grant back to Orion a broad non-exclusive license to any patents or clinical trial data related to the Product developed by the Company under the License. The term of the License extends until 10 years after the launch of the Product in the Territory, provided that the License will continue after the end of the term in each country in the Territory until the expiration of Orion’s patent rights in the Product in such country. In the event that no regulatory approval for the Product has been granted in the United States on or before September 20, 2028, however, either party will have the right to terminate the License with immediate effect.

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Pursuant to the terms of the License, on November 13, 2013, the Company paid to Orion a non-refundable up-front payment in the amount of $1.0 million. The License also includes the following development milestones for which the Company must make non-refundable payments to Orion no later than 28 days after the occurrence of the applicable milestone event: (1) $2.0 million upon the grant of United States Food and Drug Administration approval, including all registrations, licenses, authorizations and necessary approvals, to develop and/or commercialize the Product in the United States; and (2) $1.0 million upon the grant of regulatory approval for the Product in Canada. Once commercialized, the Company is obligated to make certain non-refundable commercialization milestone payments to Orion, aggregating to up to $13.0 million, contingent upon achievement of certain cumulative net sales amounts in the Territory. The Company also must pay Orion tiered royalties based on net sales of the Product in the Territory made by the Company and its sublicensees. After the end of the License term, the Company must pay Orion a royalty based on net sales of the Product in the Territory for as long as the Company sells the Product in the Territory.

As of September 30, 2021, the Company has not met any of the developmental milestones under the License and, accordingly, has not recorded any liability for the contingent payments due to Orion.

NOTE 9. STOCKHOLDERS’ EQUITY

Preferred Stock

Under the Company’s Certificate of Incorporation, the Board 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 B Stock

As further discussed in “Note 7—Merger” above, on January 15, 2021 the Company issued 10,232 shares of its Series B Stock, which were convertible into an aggregate of 10,232,000 shares of Common Stock, to the stockholders of PHPM as partial consideration for the Merger with PHPM pursuant to the Merger Agreement.

The rights, preferences and privileges of the Series B Stock are set forth in the Certificate of Designation. Following receipt of the approval of the stockholders of the Company on June 10, 2021 for the Conversion , each share of Series B Stock automatically converted into (i) 881.5 shares of Common Stock and (ii) the right to receive up to 118.5 Holdback Shares, to be delivered 24 months after the date of issuance of the Preferred Stock, subject to reduction for indemnification claims.

As of September 30, 2021, there were no shares of Series B Stock outstanding.

Series A Stock

On December 11, 2018, the Company closed its underwritten offering of 5,181,346 units for net proceeds of approximately $9.0 million (the “2018 Offering”). Each unit consisted of (i) one share of the Company’s Series A convertible preferred stock, par value $0.0001 per share (the “Series A Stock”), (ii) a two-year warrant to purchase one share of Common Stock at an exercise price of $1.93, and (iii) a five-year warrant to purchase one share of Common Stock at an exercise price of $1.93. In accordance with ASC 480, Distinguishing Liabilities from Equity, 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, 2020.

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 affect 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 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.

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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.

As of September 30, 2021, there were 210 shares of Series A Stock outstanding.

Common Stock and Pre-Funded Warrants

The Company’s Certificate of Incorporation authorizes it to issue 400,000,000 shares of $0.0001 par value Common Stock. As of September 30, 2021, and December 31, 2020, there were 25,201,312 and 12,619,369 shares of Common Stock issued and outstanding, respectively. As of September 30, 2021, there were 10,033,274 pre-funded warrants outstanding.

July 2021 Private Placement (the “July 2021 Offering”)

On July 6, 2021, the Company entered into a securities purchase agreement with an institutional investor (“Investor”) pursuant to which the Company agreed to sell and issue to the Investor 4,773,269 Units in a private placement at a purchase price of $2.095 per unit. Each Unit consisted of (i) one unregistered pre-funded warrant to purchase one share of Common Stock and (ii) one unregistered warrant to purchase one share of Common Stock (together with the pre-funded warrants, the “2021 Warrants”). In the aggregate, 9,546,538 shares of the Company’s Common Stock are underlying the 2021 Warrants. The net proceeds from the private placement, after deducting placement agent fees and other direct offering expenses, were approximately $9.2 million. The fair value allocated to the pre-funded warrants and warrants was $5.5 million and $4.5 million, respectively.

Also, on July 6, 2021 and in connection with the July 2021 Offering, the Company entered into a registration rights agreement (the “July 2021 Registration Rights Agreement”) with the Investor, pursuant to which the Company agreed to register for resale the shares of Common Stock issuable upon exercise of the 2021 Warrants within 120 days following the effective date of the July 2021 Registration Rights Agreement. Pursuant to the July 2021 Registration Rights Agreement, on August 20, 2021, the Company filed a resale registration statement on Form S-3, which went effective on September 1, 2021.

July 2020 Registered Direct Offering and Private Placement (the “July 2020 Offering”)

On July 6, 2020, the Company completed a registered direct offering with an 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.

Also, on July 6, 2020 and in connection with the concurrent private placement, the Company entered into a registration rights agreement (the “July 2020 Registration Rights Agreement”) with the Investor, pursuant to which the Company agreed to register for resale the shares of Common Stock issuable upon exercise of the unregistered pre-funded warrants and the unregistered warrants within 120 days following the date of the Registration Rights Agreement. Pursuant to the Registration Rights Agreement, on August 20, 2020, the Company filed a resale registration statement on Form S-3, which went effective on September 30, 2020.

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March 2020 Registered Direct Offering and Private Placement (the “March 2020 Offering”)

On March 13, 2020, the Company completed a registered direct offering to an 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 2,360,313shares 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 $2.1 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.

Warrants

During the nine months ended September 30, 2021, the Company received approximately $545,000 and issued 282,202 shares of Common Stock upon the exercise of previously outstanding warrants issued in connection with the Company’s December 2018 Offering.

During the nine months ended September 30, 2021, the Company issued 519,374 shares of Common Stock upon the cashless exercise of previously outstanding placement agent warrants issued in connection with the Company’s July 2020 and March 2020 Offerings.

As of September 30, 2021, the Company has 20,928,767 warrants outstanding. The following table summarizes the Company’s warrant activity for the nine months ended September 30, 2021:

	Warrants			Weighted Average Exercise Price
Outstanding at December 31, 2020		16,599,079		$	1.29
Issued		5,131,264			2.00
Exercised		(801,576	)		1.54
Outstanding at September 30, 2021		20,928,767		$	1.45

July 2021 Warrants

As described above, as a part of the July 2021 Offering, the Company issued unregistered warrants to purchase 4,773,269 shares of its Common Stock at an exercise price of $1.97 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. In accordance with ASC 480, these warrants are classified as equity and their relative fair value of approximately $4.5 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.

July 2020 Warrants

As described above, as a 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. 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.

March 2020 Warrants

As part of the March 2020 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, and Regulation D promulgated thereunder. 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.

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Warrants Issued for Services

In connection with the July 2021 Offering described above, the Company issued designees of the placement agent warrants to purchase 357,995 shares of Common Stock at an exercise price of $2.46 and a contractual term of five years. In accordance with ASC 815, Derivatives and Hedging, these warrants are classified as equity and its estimated fair value of $558,472 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 $1.2848and 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.

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.

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 Board’s Compensation Committee, 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.

On June 10, 2021, 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 1.5 million shares, up from 750,000 previously authorized.

The following table summarizes the shares available for grant under the 2016 Plan for the nine months ended September 30, 2021:

	Shares Available for Grant
Balances, at December 31, 2020		356,500
Additional shares reserved		750,000
Options granted		(378,750	)
Options cancelled/forfeited		91,000
Balances, at September 30, 2021		818,750

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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 nine months ended September 30, 2021:

	Outstanding Options
	Number of Shares			Weighted Average Exercise Price
Balances at December 31, 2020		393,500		$	1.81
Options granted		378,750		$	1.88
Options cancelled/forfeited		(91,000	)	$	1.59
Balances at September 30, 2021		681,250		$	1.88

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 recorded compensation expense for these stock option grants of $139,983 and $52,659 for the three months ended September 30, 2021 and 2020, and $322,641 and $165,492 for the nine months ended September 30, 2021 and 2020, respectively.

As of September 30, 2021, there were unrecognized compensation costs of approximately $244,865 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 1.07 years.

The Company used the following assumptions to estimate the fair value of options granted under the 2016 Plan for the nine months ended September 30, 2021:

	For the nine months ended September 30,
	2021			2020
Risk-free interest rate (weighted average)		0.72	%		1.02	%
Expected volatility (weighted average)		101.60	%		97.63	%
Expected term (in years)		6.7			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 is 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

Stock compensation expense recognized in the statements of operations for the nine months ended September 30, 2021 is based on awards ultimately expected to vest, and 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.

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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 Board’s Compensation Committee, 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 either ISOs or NSOs. ISOs can be granted only to employees. NSOs can 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 under the 1999 Plan generally vest over one to six years.

The following table summarizes the outstanding stock options under the 1999 Plan for the nine months ended September 30, 2021:

	Outstanding Options
	Number of Shares			Weighted Average Exercise Price
Balances at December 31, 2020		57,648		$	46.34
Options cancelled		(8,532	)	$	54.19
Balances at September 30, 2021		49,116		$	44.98

The Company recorded compensation expense for these stock option grants of $0 and $10,502 for the three months ended September 30, 2021 and 2020, and $1,290 and $33,211 for the nine months ended September 30, 2021 and 2020, respectively.

As of September 30, 2021, there were no unrecognized compensation costs related to non-vested stock option awards under the 1999 Plan.

In connection with the retirement of the Company’s former Chief Executive Officer (“CEO”), effective July 13, 2021 (the “Modification Date”), the Company modified the terms of the former CEO’s outstanding stock awards to: (1) accelerate the 152,500 unvested shares underlying his outstanding stock awards immediately as of the Modification Date and (2) extend the period during which his outstanding stock awards for an aggregate of 218,706 shares may be exercised through the earlier of the stock award’s original termination date or the five-year anniversary of the Modification Date.

The Company determined that the extension of the period during which the vested shares may be exercised was a Type 1 modification pursuant to ASC 718, Compensation-Stock Compensation. However, acceleration of vesting and extension of the exercise period for the remaining Stock Awards was a Type 3 modification pursuant to ASC 718 because absent the modification terms, those Stock Awards would have been forfeited as of the former CEO’s retirement date.

On the Modification Date, the Company recognized approximately $187,000 of compensation expense, which is included in General and administrative expense for the three and nine months ended September 30, 2021, with respect to these modifications.

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Inducement Stock Options

The Company granted two employment inducement stock option awards, one for 100,000 shares of Common Stock and the other for 250,000 shares of Common Stock, to its new CEO on July 6, 2021.

The employment inducement stock option for 100,000 shares of Common Stock was awarded in accordance with the employment inducement award exemption provided by NASDAQ Rule 5635(c)(4) and was therefore not awarded under the Company’s stockholder approved equity plan. The option award will vest as follows: 50% upon initiation of a Phase 3 trial for levosimendan by June 30, 2022; and 50% upon initiation of a Phase 3 trial for imatinib by June 30, 2022. The options have a 10-year term and an exercise price of $1.97 per share, the July 6, 2021 closing price of our Common Stock. As of September 30, 2021, none of the vesting milestones have been achieved. The estimated fair value of this inducement stock option award was $178,291 using a Black-Scholes option pricing model based on market prices and the following assumptions at the date of inducement option grant: risk-free interest rate of 1.37%, dividend yield of 0%, volatility factor for our Common Stock of 103.50% and an expected life of 10 years.

The employment inducement stock option award for 250,000 shares of Common Stock also was awarded in accordance with the employment inducement award exemption provided by NASDAQ Rule 5635(c)(4) and was therefore not awarded under the Company’s stockholder approved equity plan. The option award will vest as follows: 25% on the one-year anniversary of the CEO’s employment start date and an additional 25% on each of the following three anniversaries of the CEO’s employment start date, subject to continued employment. The options have a 10-year term and an exercise price of $1.97 per share, the July 6, 2021 closing price of our Common Stock.

The estimated fair value of this inducement stock option award was $403,180 using a Black-Scholes option pricing model based on market prices and the following assumptions at the date of inducement option grant: risk-free interest rate of 1.13%, dividend yield of 0%, volatility factor for our Common Stock of 99.36% and an expected life of 7 years.

The Company granted an employment inducement stock option award for 250,000 shares of Common Stock to our chief medical officer on January 15, 2021. This employment inducement stock option was awarded in accordance with the employment inducement award exem

SEC Form 10-Q filed by Tenax Therapeutics, Inc.