SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 SeptemberJune 30, 20212022
OR
☐ 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: 001-39126
CNS Pharmaceuticals, Inc.
(Name of registrant as specified in its charter)
| Nevada | 82-2318545 |
| (State or other jurisdiction of Incorporation or Organization) | (I.R.S. Employer identification No.) |
2100 West Loop South, Suite 900 Houston, Texas | 77027 |
| (Address of principal executive offices | (Zip Code) |
800-946-9185
(Registrant’s telephone number, including area code)
N/A
(Former name or former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
| Common Stock | CNSP | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) 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 (§232.405 of this chapter) 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 in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of NovemberAugust 12, 2021,2022, was .
TABLE OF CONTENTS
| 2 |
PART I - FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
CNS Pharmaceuticals, Inc.
Balance Sheets
(Unaudited)
| June 30, 2022 | December 31, 2021 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 8,958,880 | $ | 5,004,517 | ||||
| Prepaid expenses | 2,438,530 | 2,472,933 | ||||||
| Total current assets | 11,397,410 | 7,477,450 | ||||||
| Noncurrent Assets: | ||||||||
| Prepaid expenses, net of current portion | 704,794 | 929,688 | ||||||
| Property and equipment, net | 10,970 | 16,109 | ||||||
| Deferred offering costs | 334,138 | 334,138 | ||||||
| Total noncurrent assets | 1,049,902 | 1,279,935 | ||||||
| Total Assets | $ | 12,447,312 | $ | 8,757,385 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 490,886 | $ | 1,522,823 | ||||
| Accrued expenses | 276,573 | 224,949 | ||||||
| Notes payable | 156,397 | 387,794 | ||||||
| Total current liabilities | 923,856 | 2,135,566 | ||||||
| Total Liabilities | 923,856 | 2,135,566 | ||||||
| Commitments and contingencies | – | – | ||||||
| Stockholders' Equity: | ||||||||
| Preferred stock, $ par value, shares authorized and shares issued and outstanding | 0 | 0 | ||||||
| Common stock, $par value, shares authorized and and shares issued and outstanding, respectively | 40,032 | 27,927 | ||||||
| Additional paid-in capital | 52,816,636 | 41,576,813 | ||||||
| Accumulated deficit | (41,333,212 | ) | (34,982,921 | ) | ||||
| Total Stockholders' Equity | 11,523,456 | 6,621,819 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 12,447,312 | $ | 8,757,385 | ||||
| September 30, 2021 | December 31, 2020 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 8,326,223 | $ | 14,039,493 | ||||
| Prepaid expenses | 2,829,607 | 1,456,350 | ||||||
| Total current assets | 11,155,830 | 15,495,843 | ||||||
| Noncurrent Assets: | ||||||||
| Property and equipment, net | 17,526 | 23,431 | ||||||
| Deferred offering costs | 334,138 | 334,138 | ||||||
| Total noncurrent assets | 351,664 | 357,569 | ||||||
| Total Assets | $ | 11,507,494 | $ | 15,853,412 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 1,461,574 | $ | 946,330 | ||||
| Accrued expenses | 901,222 | 519,804 | ||||||
| Notes payable | 44,632 | 439,294 | ||||||
| Total current liabilities | 2,407,428 | 1,905,428 | ||||||
| Total Liabilities | 2,407,428 | 1,905,428 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders' Equity: | ||||||||
| Preferred stock, $ par value, shares authorized and shares issued and outstanding | 0 | 0 | ||||||
| Common stock, $ par value, shares authorized and and shares issued and outstanding, respectively | 27,460 | 23,856 | ||||||
| Additional paid-in capital | 41,260,374 | 34,870,471 | ||||||
| Accumulated deficit | (32,187,768 | ) | (20,946,343 | ) | ||||
| Total Stockholders' Equity | 9,100,066 | 13,947,984 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 11,507,494 | $ | 15,853,412 | ||||
See accompanying notes to the unaudited financial statements.
| 3 |
CNS Pharmaceuticals, Inc.
Statements of Operations
(Unaudited)
Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||
| General and administrative | $ | 1,235,385 | $ | 968,790 | $ | 3,784,509 | $ | 3,305,330 | $ | 1,343,002 | $ | 1,146,341 | $ | 2,603,411 | $ | 2,549,124 | ||||||||||||||||
| Research and development | 2,578,016 | 1,042,274 | 7,449,869 | 3,147,636 | 2,221,339 | 2,664,979 | 3,742,703 | 4,871,853 | ||||||||||||||||||||||||
| Total operating expenses | 3,813,401 | 2,011,064 | 11,234,378 | 6,452,966 | 3,564,341 | 3,811,320 | 6,346,114 | 7,420,977 | ||||||||||||||||||||||||
| Loss from operations | (3,813,401 | ) | (2,011,064 | ) | (11,234,378 | ) | (6,452,966 | ) | (3,564,341 | ) | (3,811,320 | ) | (6,346,114 | ) | (7,420,977 | ) | ||||||||||||||||
| Other expenses: | ||||||||||||||||||||||||||||||||
| Interest expense | (947 | ) | 0 | (7,047 | ) | 0 | (1,611 | ) | (2,353 | ) | (4,177 | ) | (6,100 | ) | ||||||||||||||||||
| Total other expenses | (947 | ) | 0 | (7,047 | ) | 0 | (1,611 | ) | (2,353 | ) | (4,177 | ) | (6,100 | ) | ||||||||||||||||||
| Net loss | $ | (3,814,348 | ) | $ | (2,011,064 | ) | $ | (11,241,425 | ) | $ | (6,452,966 | ) | $ | (3,565,952 | ) | $ | (3,813,673 | ) | $ | (6,350,291 | ) | $ | (7,427,077 | ) | ||||||||
| Loss per share - basic and diluted | $ | (0.14 | ) | $ | (0.12 | ) | $ | (0.43 | ) | $ | (0.39 | ) | ||||||||||||||||||||
| Weighted average shares outstanding - basic and diluted | 27,443,771 | 16,483,529 | 25,858,221 | 16,461,332 | ||||||||||||||||||||||||||||
| Loss per share - basic | $ | (0.09 | ) | $ | (0.15 | ) | $ | (0.16 | ) | $ | (0.30 | ) | ||||||||||||||||||||
| Loss per share - diluted | $ | (0.09 | ) | $ | (0.15 | ) | $ | (0.16 | ) | $ | (0.30 | ) | ||||||||||||||||||||
| Weighted average shares outstanding - basic | 40,032,481 | 25,432,717 | 39,427,218 | 25,056,975 | ||||||||||||||||||||||||||||
| Weighted average shares outstanding - diluted | 40,032,481 | 25,432,717 | 39,427,218 | 25,056,975 | ||||||||||||||||||||||||||||
See accompanying notes to the unaudited financial statements.
| 4 |
CNS Pharmaceuticals, Inc.
Statements of Stockholders' Equity
For the three and ninesix months ended SeptemberJune 30, 20212022 and 20202021
(Unaudited)
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Stockholders' | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance December 31, 2021 | 27,927,217 | $ | 27,927 | $ | 41,576,813 | $ | (34,982,921 | ) | $ | 6,621,819 | ||||||||||
| Common stock issued for cash, net | 9,489,474 | 9,489 | 10,616,297 | – | 10,625,786 | |||||||||||||||
| Exercise of warrants | 2,615,790 | 2,616 | – | – | 2,616 | |||||||||||||||
| Stock-based compensation | – | – | 336,685 | – | 336,685 | |||||||||||||||
| Net loss | – | – | – | (2,784,339 | ) | (2,784,339 | ) | |||||||||||||
| Balance March 31, 2022 | 40,032,481 | 40,032 | 52,529,795 | (37,767,260 | ) | 14,802,567 | ||||||||||||||
| Stock-based compensation | – | – | 286,841 | – | 286,841 | |||||||||||||||
| Net loss | – | – | – | (3,565,952 | ) | (3,565,952 | ) | |||||||||||||
| Balance June 30, 2022 | 40,032,481 | $ | 40,032 | $ | 52,816,636 | $ | (41,333,212 | ) | $ | 11,523,456 | ||||||||||
| Balance December 31, 2020 | 23,856,151 | $ | 23,856 | $ | 34,870,471 | $ | (20,946,343 | ) | $ | 13,947,984 | ||||||||||
| Common stock issued for cash, net | 43,083 | 43 | 144,800 | – | 144,843 | |||||||||||||||
| Exercise of warrants | 1,447,325 | 1,447 | 331,303 | – | 332,750 | |||||||||||||||
| Stock-based compensation | 6,250 | 6 | 430,673 | – | 430,679 | |||||||||||||||
| Net loss | – | – | – | (3,613,404 | ) | (3,613,404 | ) | |||||||||||||
| Balance March 31, 2021 | 25,352,809 | 25,352 | 35,777,247 | (24,559,747 | ) | 11,242,852 | ||||||||||||||
| Common stock issued for cash and subscription receivable, net | 2,020,426 | 2,020 | 4,506,958 | – | 4,508,978 | |||||||||||||||
| Stock-based compensation | 6,250 | 7 | 469,603 | – | 469,610 | |||||||||||||||
| Net loss | – | – | – | (3,813,673 | ) | (3,813,673 | ) | |||||||||||||
| Balance June 30, 2021 | 27,379,485 | $ | 27,379 | $ | 40,753,808 | $ | (28,373,420 | ) | $ | 12,407,767 | ||||||||||
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Stockholders' | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance December 31, 2020 | 23,856,151 | $ | 23,856 | $ | 34,870,471 | $ | (20,946,343 | ) | $ | 13,947,984 | ||||||||||
| Common stock issued for cash, net | 43,083 | 43 | 144,800 | – | 144,843 | |||||||||||||||
| Exercise of warrants | 1,447,325 | 1,447 | 331,303 | – | 332,750 | |||||||||||||||
| Stock-based compensation | 6,250 | 6 | 430,673 | – | 430,679 | |||||||||||||||
| Net loss | – | – | – | (3,613,404 | ) | (3,613,404 | ) | |||||||||||||
| Balance March 31, 2021 | 25,352,809 | 25,352 | 35,777,247 | (24,559,747 | ) | 11,242,852 | ||||||||||||||
| Common stock issued for cash and subscription receivable, net | 2,020,426 | 2,020 | 4,506,958 | – | 4,508,978 | |||||||||||||||
| Stock-based compensation | 6,250 | 7 | 469,603 | – | 469,610 | |||||||||||||||
| Net loss | – | – | – | (3,813,673 | ) | (3,813,673 | ) | |||||||||||||
| Balance June 30, 2021 | 27,379,485 | 27,379 | 40,753,808 | (28,373,420 | ) | 12,407,767 | ||||||||||||||
| Stock-based compensation | 81,250 | 81 | 506,566 | – | 506,647 | |||||||||||||||
| Net loss | – | – | – | (3,814,348 | ) | (3,814,348 | ) | |||||||||||||
| Balance September 30, 2021 | 27,460,735 | $ | 27,460 | $ | 41,260,374 | $ | (32,187,768 | ) | $ | 9,100,066 | ||||||||||
| Balance December 31, 2019 | 16,450,234 | $ | 16,450 | $ | 19,073,098 | $ | (11,488,472 | ) | $ | 7,601,076 | ||||||||||
| Stock-based compensation | – | – | 242,209 | – | 242,209 | |||||||||||||||
| Net loss | – | – | – | (1,968,131 | ) | (1,968,131 | ) | |||||||||||||
| Balance March 31, 2020 | 16,450,234 | 16,450 | 19,315,307 | (13,456,603 | ) | 5,875,154 | ||||||||||||||
| Stock-based compensation | – | – | 323,224 | – | 323,224 | |||||||||||||||
| Net loss | – | – | – | (2,473,771 | ) | (2,473,771 | ) | |||||||||||||
| Balance June 30, 2020 | 16,450,234 | 16,450 | 19,638,531 | (15,930,374 | ) | 3,724,607 | ||||||||||||||
| Common stock issued for deferred offering costs | 201,991 | 202 | 395,700 | – | 395,902 | |||||||||||||||
| Stock-based compensation | – | – | 365,010 | – | 365,010 | |||||||||||||||
| Net loss | – | – | – | (2,011,064 | ) | (2,011,064 | ) | |||||||||||||
| Balance September 30, 2020 | 16,652,225 | $ | 16,652 | $ | 20,399,241 | $ | (17,941,438 | ) | $ | 2,474,455 |
See accompanying notes to the unaudited financial statements.
| 5 |
CNS Pharmaceuticals, Inc.
Statements of Cash Flows
(Unaudited)
| Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | (6,350,291 | ) | $ | (7,427,077 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | 623,526 | 900,289 | ||||||
| Depreciation | 6,581 | 6,208 | ||||||
| Loss on disposal of fixed assets | 1,467 | 0 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Related party receivable | 0 | (132,648 | ) | |||||
| Prepaid expenses | 259,297 | (1,839,800 | ) | |||||
| Accounts payable | (1,031,937 | ) | (53,838 | ) | ||||
| Accrued expenses | 51,624 | 240,874 | ||||||
| Net cash used in operating activities | (6,439,733 | ) | (8,305,992 | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of property and equipment | (2,909 | ) | (3,672 | ) | ||||
| Net cash used in investing activities | (2,909 | ) | (3,672 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Payments on notes payable | (231,397 | ) | (261,711 | ) | ||||
| Proceeds from exercise of warrants | 2,616 | 332,750 | ||||||
| Proceeds from sale of common stock | 10,625,786 | 1,084,704 | ||||||
| Net cash provided by financing activities | 10,397,005 | 1,155,743 | ||||||
| Net change in cash and cash equivalents | 3,954,363 | (7,153,921 | ) | |||||
| Cash and cash equivalents, at beginning of period | 5,004,517 | 14,039,493 | ||||||
| Cash and cash equivalents, at end of period | $ | 8,958,880 | $ | 6,885,572 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | 4,813 | $ | 7,207 | ||||
| Cash paid for income taxes | $ | 0 | $ | 0 | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Cashless exercise of warrants | $ | 0 | $ | 1,296 | ||||
| Common stock issued for subscription receivable | $ | 0 | $ | 3,569,117 | ||||
| Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | (11,241,425 | ) | $ | (6,452,966 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | 1,406,936 | 930,443 | ||||||
| Depreciation | 9,577 | 7,952 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | (1,373,257 | ) | (556,457 | ) | ||||
| Accounts payable | 515,244 | 6,515 | ||||||
| Accounts payable and accrued expenses - related party | 0 | (45,833 | ) | |||||
| Accrued expenses | 381,418 | 239,101 | ||||||
| Net cash used in operating activities | (10,301,507 | ) | (5,871,245 | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of property and equipment | (3,672 | ) | (17,945 | ) | ||||
| Net cash used in investing activities | (3,672 | ) | (17,945 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Payment of deferred offering cost | 0 | (45,000 | ) | |||||
| Payments on notes payable | (394,662 | ) | 0 | |||||
| Proceeds from exercise of warrants | 332,750 | 0 | ||||||
| Proceeds from sale of common stock, net | 4,653,821 | 0 | ||||||
| Net cash provided by (used in) financing activities | 4,591,909 | (45,000 | ) | |||||
| Net change in cash and cash equivalents | (5,713,270 | ) | (5,934,190 | ) | ||||
| Cash and cash equivalents, at beginning of period | 14,039,493 | 7,241,288 | ||||||
| Cash and cash equivalents, at end of period | $ | 8,326,223 | $ | 1,307,098 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | 7,207 | $ | 0 | ||||
| Cash paid for income taxes | $ | 0 | $ | 0 | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Cashless exercise of warrants | $ | 1,296 | $ | 0 | ||||
| Common stock issued for deferred offering costs | $ | 0 | $ | 395,902 | ||||
See accompanying notes to the unaudited financial statements.
| 6 |
CNS Pharmaceuticals, Inc.
Notes to the Financial Statements
(Unaudited)
Note 1 –Nature of Business
CNS Pharmaceuticals, Inc. (“we”, “our”, the “Company”) is a clinical pharmaceutical company organized as a Nevada corporation on July 27, 2017 to focus on the development of anti-cancer drug candidates.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation - The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United Stated of America (“U.S. GAAP”) for interim unaudited financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The unaudited financial statements include all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary in order to make the condensed financial statements not misleading. Operating results for the ninethree and six months ended SeptemberJune 30, 20212022 are not necessarily indicative of the final results that may be expected for the year ending December 31, 2021.2022. For more complete financial information, these unaudited financial statements should be read in conjunction with the audited financial statements for the period ended December 31, 20202021 included in our Form 10-K filed with the SEC on February 12, 2021March 3, 2022 (“Form 10-K”). Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.
Liquidity and Going Concern - These financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the ability of the Company to obtain equity financings to continue operations. The Company has a history of and expects to continue to report negative cash flows from operations and a net loss. Management believes that the cash on hand is sufficient to fund its planned operations into but not beyond the near term. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company may seek additional funding through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements, other collaborations, strategic alliances and licensing arrangements and delay planned cash outlays or a combination thereof. Management cannot be certain that such events or a combination thereof can be achieved.
Cash and Cash Equivalents - The Company considers all highly liquid accounts with original maturities of three months or less at the date of acquisition to be cash equivalents. Periodically, the Company may carry cash balances at financial institutions in excess of the federally insured limit of $250,000. The amount in excess of the FDIC insurance as of SeptemberJune 30, 20212022 was $8,076,2238,708,880. The Company has not experienced losses on these accounts and management believes, based upon the quality of the financial institutions, that the credit risk with regard to these deposits is not significant.
Restricted Stock Units (“RSUs”)- Our RSUs vest over four years from the date of grant. The fair value of RSUs is the market price of our common stock at the date of grant.
Performance Units (“PUs”)- The PUs vest based on our performance against predefined share price targets and the achievement of Positive Interim, Clinical Data as defined by the Board.
| 7 |
Note 3 – Note Payable
On November 8, 2021, the Company entered into a short-term note payable for an aggregate of $425,990, bearing interest at 3.3% per year to finance certain insurance policies. Principal and interest payments related to the note will be repaid over a 11-month period with the final payment due on September 30, 2022. As of June 30, 2022 and December 31, 2021, the Company’s note payable balance was $156,397 and $387,794, respectively.
Note 4 – Equity
Common Stock
InThe Company engaged H.C. Wainwright & Co., LLC (“Wainwright”), to act as placement agent related to the Securities Purchase Agreement described below. The Company agreed to pay Wainwright an aggregate fee equal to 7.0% of the gross proceeds received by the Company from the sale of the securities in the transaction. The Company also issued to Wainwright or its designees warrants to purchase up to 5.0% of the aggregate number of shares of Common Stock sold in the transactions (the “Placement Agent Warrants”), or Placement Agent Warrants. The Placement Agent Warrants have substantially the same terms as the Common Warrants, except that the Placement Agent Warrants have an exercise price equal to 125% of the offering price, or $1.1875 per share. The Company also paid Wainwright $50,000 for non-accountable expenses and $10,000 for legal fees and expenses.
On January 2021,5, 2022, the Company entered into a twelve-month agreementSecurities Purchase Agreement (the “Purchase Agreement”) with an investor relations firm that includesseveral institutional investors for the issuancesale by the Company of (i) restricted shares of common stock. Upon signing the agreement, shares vested immediately, and the remaining shares will vest quarterly over the remainder(the “Shares”) of the agreement. The Company may terminate the agreement at any time during the twelve-month period with a fifteen-day notice. During the nine months ended September 30, 2021, the Company issuedCompany’s common stock, (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to an aggregate of common shares and recognized $ of stock-based compensation related to the agreement and will issue the remaining shares over the service period.
During the nine months ended September 30, 2021, the Company issued shares of common stock and recognized $140,250 of expense for investor relations services for a four month period ending September 2021.
On February 12, 2021, the Company entered into a Capital on Demand™ Sales Agreement (the “Agreement”) with JonesTrading Institutional Services LLC and Brookline Capital Markets, a division of Arcadia Securities, LLC (collectively, the “Agent”). Pursuant(iii) warrants to the terms of the Agreement, the Company may sell from timepurchase up to time, through the Agent, shares of the Company’s common stock with an aggregate sales price of up to $20.0 million.
During the nine months ended September 30, 2021, the Company sold shares of common stock (the “Common Warrants” and, collectively with the Pre-Funded Warrants, the “Warrants”), in a private placement offering. The combined purchase price of one share of common stock (or one Pre-Funded Warrant) and the accompanying Common Warrant is $0.95.
Subject to certain ownership limitations, the Agent forWarrants are exercisable upon issuance. Each Pre-Funded Warrant is exercisable into one share of common stock at a price per share of $0.001 (as adjusted from time to time in accordance with the terms thereof). Each Common Warrant is exercisable into one share of common stock at a price per share of $0.82 (as adjusted from time to time in accordance with the terms thereof) and will expire on the fifth anniversary of the date of issuance. The gross proceeds from the Purchase Agreement were $11,497,385 resulting in net proceeds, after payment of commissions and expenses, received by the Company of $4,653,82110,625,786.
Stock Options
In 2017, the Board of Directors of the Company approved the CNS Pharmaceuticals, Inc. 2017 Stock Plan (the “2017 Plan”). The 2017 Plan allows for the Board of Directors to grant various forms of incentive awards for up to shares of common stock. No key employee may receive more than 500,000 shares of common stock (or options to purchase more than 500,000 shares of common stock) in a single year.
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In 2020, the Board of Directors of the Company approved the CNS Pharmaceuticals, Inc. 2020 Stock Plan (the “2020 Plan”). The 2020 Plan allows for the Board of Directors to grant various forms of incentive awards for up to shares of common stock. No key employee may receive more than 750,000 shares of common stock (or options to purchase more than 750,000 shares of common stock) in a single year.
During the ninesix months ended SeptemberJune 30, 2021, the Board of Directors approved grants of options to officers, employees, board of directors2022 and a consultant. The exercise price of the options ranges from $to $and the options expire ten-years following issuance. The total fair value of these option grants at issuance was $1,969,712. Of the 739,000 options issued, options vest on the first anniversary date of issuance, 75,000 options have a vesting term of 25% vest upon issuance, 50% vest upon Board approving a business development acquisition and 25% vest over a three year period in equal installments on each of the succeeding three anniversary dates. The remaining options issued vest in four equal annual installments beginning on the first anniversary following issuance.
During the nine months ended September 30, 2021, and 2020, the Company recognized $ and $ of stock-based compensation, respectively, related to outstanding stock options. At SeptemberJune 30, 2021,2022, the Company had $ of unrecognized expenses related to outstanding options.
The following table summarizes the stock option activity for the ninesix months ended SeptemberJune 30, 2021:2022:
| Schedule of Stock Option Activity | ||||||||||||||||
Options | Weighted-Average Exercise Price Per Share | Options | Weighted-Average Exercise Price Per Share | |||||||||||||
| Outstanding, December 31, 2020 | 2,200,736 | $ | 2.00 | |||||||||||||
| Outstanding, December 31, 2021 | 2,864,736 | $ | 2.25 | |||||||||||||
| Granted | 739,000 | 2.99 | 0 | 0 | ||||||||||||
| Exercised | 0 | – | 0 | 0 | ||||||||||||
| Forfeited | 0 | – | 0 | 0 | ||||||||||||
| Expired | 0 | – | 0 | 0 | ||||||||||||
| Outstanding, September 30, 2021 | 2,939,736 | $ | 2.25 | |||||||||||||
| Exercisable, September 30, 2021 | 1,450,986 | $ | 1.72 | |||||||||||||
| Outstanding, June 30, 2022 | 2,864,736 | $ | 2.25 | |||||||||||||
| Exercisable, June 30, 2022 | 1,924,861 | $ | 1.94 | |||||||||||||
As of SeptemberJune 30, 2021,2022, the outstanding stock options have a weighted average remaining term of years and the aggregate intrinsic value of options vested and outstanding were $and $respectively.. As of SeptemberJune 30, 2021,2022, there are were no awards remaining to be issued under the 2017 Plan and awards remaining to be issued under the 2020 Plan.
Stock Warrants
During the ninesix months ended SeptemberJune 30, 2021,2022, the Company received $332,7502,616 in cash proceeds from the exercise of warrants previously issued at an exercise price of $2.200.001. In addition, the Company received notices to exercise 1,580,140 warrants on a cashless basis resulting in issuance of shares of common stock.
The following table summarizes the stock warrant activity for the ninesix months ended SeptemberJune 30, 2021:2022:
| Schedule of warrants activity | ||||||||||||||||
Warrants | Weighted-Average Exercise Price Per Share |
Warrants | Weighted-Average Exercise Price Per Share | |||||||||||||
| Outstanding, December 31, 2020 | 6,861,630 | $ | 3.24 | |||||||||||||
| Outstanding, December 31, 2021 | 4,214,977 | $ | 4.76 | |||||||||||||
| Granted | 0 | – | 15,326,317 | 0.69 | ||||||||||||
| Exercised | (1,731,390 | ) | 0.88 | (2,615,790 | ) | 0.001 | ||||||||||
| Forfeited | 0 | – | 0 | 0 | ||||||||||||
| Expired | 0 | – | 0 | 0 | ||||||||||||
| Outstanding, September 30, 2021 | 5,130,240 | $ | 4.04 | |||||||||||||
| Exercisable, September 30, 2021 | 5,130,240 | $ | 4.04 | |||||||||||||
| Outstanding, June 30, 2022 | 16,925,504 | $ | 1.81 | |||||||||||||
| Exercisable, June 30, 2022 | 16,925,504 | $ | 1.81 | |||||||||||||
As of SeptemberJune 30, 20212022, the outstanding and exercisable warrants have a weighted average remaining term of years and have an aggregate intrinsic value of $.value.
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Restricted Stock Units
On April 28, 2022, the Compensation Committee approved cash bonuses totaling $213,000 to the officers of the Company. In addition, the officers and employees were awarded a total of Restricted Stock Units that partially vest over years. The Company valued the RSUs based on the stock price at grant which total $.
During the six months ended June 30, 2022, the Company recognized $ of stock-based compensation, related to outstanding stock RSUs. At June 30, 2022, the Company had $ of unrecognized expenses related to outstanding RSUs.
The following table summarizes the RSUs activity for the six months ended June 30, 2022:
| Schedule of restricted stock units activity | |||||||
RSUs | Weighted-Average Grant Date Fair Value | ||||||
| Non-vested, December 31, 2021 | 0 | $ | 0 | ||||
| Granted | 285,625 | 0.33 | |||||
| Vested | 0 | 0 | |||||
| Forfeited | 0 | 0 | |||||
| Non-vested, June 30, 2022 | �� | 285,625 | $ | 0.33 | |||
Performance Units
On April 28, 2022, the Compensation Committee approved, the officers and employees were awarded a total of PUs. For awards granted in 2022, they vest as follows: (i) 285,625 of the PU grant will vest if within 24 months from issuance the average the closing price of the Company’s common stock over a ten trading day period exceeds $2.00 (subject to pro rata adjustment for stock splits or similar events), (ii) 285,625 of the PU grant will vest if within 36 months from issuance the average the closing price of the Company’s common stock over a ten trading day period exceeds $4.00 (subject to pro rata adjustment for stock splits or similar events) and (iii) 285,625 of the PU grant will vest if within 24 months from issuance the Company achieves “Positive Interim, Clinical Data” as defined by the Board of Directors. To the extent that the market and/or “Positive Interim Clinical Data” conditions are not met, the applicable portions of the PUs will not vest and will be cancelled. The fair value at grant date of these performance units was $. Compensation expense is recognized ratably during the period the PUs are expected to vest or when “Positive Interim Clinical Data” is achieved.
The fair value of each performance unit with market conditions (vesting terms (i) and (ii)) is estimated at the date of grant using a Monte Carlo simulation with the following assumptions: underlying stock price $, hurdle prices ranging from $2.00 -$4.00, expected terms ranging from - years, cost of equity % and risk-free rate of %.
During the six months ended June 30, 2022, the Company recognized $7,309 for vesting term (i), $4,596 for vesting term (ii) and $0 for vesting term (iii), related to outstanding stock PUs. At June 30, 2022, the Company had $ of unrecognized expenses related to PUs.
The following table summarizes the PUs activity for the six months ended June 30, 2022:
| Schedule of performance units activity | |||||||
PUs | Weighted-Average Grant Date Fair Value | ||||||
| Non-vested, December 31, 2021 | 0 | $ | 0 | ||||
| Granted | 856,875 | 0.20 | |||||
| Vested | 0 | 0 | |||||
| Forfeited | 0 | 0 | |||||
| Non-vested, June 30, 2022 | 856,875 | $ | 0.20 | ||||
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Note 45 – Commitments and Contingencies
Executive Employment Agreements
On September 1, 2017, the Company entered into an employment agreement with Mr. John Climaco pursuant to which Mr. Climaco agreed to serve as Chief Executive Officer and Director of the Company commencing on such date for an initial term of three years. On September 1, 2020, the Company entered into an amendment to the employment agreement with Mr. Climaco. The amendment extends the term of employment under the Employment Agreement, which was originally for a three-year period, for additional twelve-month periods, unless and until either the Company or Mr. Climaco provides written notice to the other party not less than sixty days before such anniversary date that such party is electing not to extend the term. If the Company provides notice of its election not to extend the term, Mr. Climaco may terminate his employment at any time prior to the expiration of the term by giving written notice to the Company at least thirty days prior to the effective date of termination, and upon the earlier of such effective date of termination or the expiration of the term, Mr. Climaco shall be entitled to receive the same severance benefits as are provided upon a termination of employment by the Company without cause. Pursuant to the Amendment, the severance benefits shall be twelve months of Mr. Climaco’s base salary. Such severance payment shall be made in a single lump sum sixty days following the termination, provided that Mr. Climaco has executed and delivered to the Company and has not revoked a general release of the Company. Pursuant to the employment agreement, the compensation committee of the board of directors reviews the base salary payable to Mr. Climaco annually during the term of the agreement. On February 6, 2021, the compensation committee of the board of directors set Mr. Climaco’s 2021 annual base salary to $525,000.
On June 28, 2019, we entered into employment letters with Drs. Silberman and Picker pursuant to which Dr. Silberman agreed to commit 50% of her time to our matters; and Dr. Picker agreed to commit 25% of his time to our matters. On February 6, 2021, the compensation committee of the board of directors set Drs. Silberman and Picker 2021 annual base salaries to $200,000 and $115,000, respectively.
On September 14, 2019, the Company, entered into an employment agreement with Christopher Downs to serve as its Chief Financial Officer commencing on the closing date of the Company’s IPO, which occurred on November 13, 2019. The initial term of the Employment Agreement will continue for a period of three years. Pursuant to the employment agreement, the compensation committee of the board of directors reviews the base salary payable to Mr. Downs annually during the term of the agreement. On February 6, 2021, the compensation committee of the board of directors set Mr. Downs’ 2021 annual base salary to $340,000.
Scientific Advisory Board
On July 15, 2021, our compensation committee recommended to our Board and our Board approved the following compensation policy for the Scientific Advisory Board members. The Scientific Advisory board consists of Dr. Waldemar Priebe, a significant shareholder and related party, and Dr. Sigmond Hsu. Each scientific advisory board member shall receive annual cash compensation of $68,600. As of SeptemberDuring the six month months ended June 30, 2021,2022, the Company has accruedpaid $28,767 65,834related to the Scientific Advisory Board compensation. As of June 30, 2022, the Company has accrued $65,834 related to the Scientific Advisory Board compensation.
WP744 Portfolio (Berubicin)
On November 21, 2017, the Company entered into a Collaboration and Asset Purchase Agreement with Reata Pharmaceuticals, Inc. (“Reata”). Through this agreement, the Company purchased all of Reata’s rights, title, interest and previously conducted research and development results in the chemical compound commonly known as Berubicin. In exchange for these rights, the Company agreed to pay Reata an amount equal to 2.25% of the net sales of Berubicin for a period of 10 years from the Company’s first commercial sale of Berubicin plus $10,000. Reata also agreed to collaborate with the Company on the development of Berubicin, from time to time.
On December 28, 2017, the Company entered into a Technology Rights and Development Agreement with Houston Pharmaceuticals, Inc. (“HPI”). HPI is affiliated with Dr. Waldemar Priebe, our founder and largestsignificant shareholder. Pursuant to this agreement, the Company obtained a worldwide exclusive license to the chemical compound commonly known as WP744. In exchange for these rights, the Company agreed to pay consideration to HPI as follows: (i) a royalty of 2% of net sales of any product utilizing WP744 for a period of ten years after the first commercial sale of such; and (ii) $100,000 upon beginning Phase II clinical trials;trials (paid in 2021); and (iii) $200,000 upon the approval by the FDA of a New Drug Application for any product utilizing WP744; and (iv) a series of quarterly development payments totaling $750,000 beginning immediately after the Company’s raise of $7,000,000 of investment capital. In addition, the Company issued 200,000 shares of the Company’s common stock valued at $0.045 per share to HPI upon execution of the agreement. Our rights pursuant to the HPI License are contingent on us raising at least $7.0 million within 12 months from the effective date of the HPI License, a date which was extended by an additional 12 months by the payment of $40,000. On November 13, 2019, the Company closed its IPO, thereby fulfilling all conditions precedent and as a result completedcompleting the acquisition of the intellectual property discussed in the HPI agreement. During the six months ended June 30, 2022 and 2021, the Company recognized $175,000 related to this agreement. Unrelated to this agreement, from time to time, the Company purchased $385,000 ofpurchases pharmaceutical products from HPI which are necessary for the manufacturing of Berubicin API and drug product in a related party transactiontransactions which are reviewed and approved by the Company’s audit committee.committee based upon the standards of providing superior pricing and time to delivery than that available from unrelated third parties. During the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, the Company recognizedexpensed $262,50041,075 and $150,000385,000, respectively related to this agreement. Asthe purchase of September 30, 2021, the Company accrued $100,000 related to the beginning of Phase II clinical trials. Subsequent to September 30, 2021, the Company committed to purchase additional materials to be used in future drug manufacturingpharmaceutical products from HPI with an estimated cost of $85,000.HPI.
On August 30, 2018, we entered into a sublicense agreement with WPD Pharmaceuticals, Inc. (“WPD”). Pursuant to the agreement, the Company granted WPD an exclusive sublicense, even as to us, for the patent rights we licensed pursuant to the HPI License within the following countries: Poland, Estonia, Latvia, Lithuania, Belarus, Ukraine, Moldova, Romania, Bulgaria, Serbia, Macedonia, Albania, Armenia, Azerbaijan, Georgia, Montenegro, Bosnia, Croatia, Slovenia, Slovakia, Czech Republic, Hungary, Chechnya, Uzbekistan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Greece, Austria, and Russia. The sublicense agreement provides that WPD must use commercially reasonable development efforts to attempt to develop and commercialize licensed products in the above mentionedabove-mentioned territories, which means the expenditure of at least $2.0 million on the development, testing, regulatory approval or commercialization of the licensed products during the three year period immediately following the date of the sublicense agreement. In the event that WPD fails to use commercially reasonable development efforts by the foregoing three-year deadline, we have the right to terminate this sublicense agreement. The Company is currently validating WPD expenditures related to this agreement. In consideration for the rights granted under the sublicense agreement, to the extent we are required to make any payments to HPI pursuant to the HPI License as a result of this sublicense agreement, WPD agreed to advance us such payments, and to pay us a royalty equal to 1% of such payments. WPD is a Polish corporation that is majority-owned by an entity controlled by Dr. Priebe, our founder and largest shareholder.
On February 19, 2021, CNS entered into an Investigational Medicinal Product Supply Agreement with WPD, a related party. CNS agreed to sell the Berubicin drug product to WPD at historical cost of manufacturing without markup so that WPD may conduct the clinical trials contemplated by the sublicense agreement. WPD agreed to pay CNS the following payments: (i) an upfront payment of $131,073upon execution of the agreement, (ii), a payment of $262,145upon final batch release and certification performed by WPD's subcontractor, and (iii) a final payment of $262,145 upon Clinical Trial Application acceptance by the relevant regulatory authority. All three milestones have been met as of September 30,December 31, 2021. In addition, as of September 30,December 31, 2021, the drug product with a cost of approximately $655,000has been delivered to WPD and is being held at a third party depot. As such, the full amount of approximately $655,000 is now due from WPD. As of September 30,December 31, 2021, CNS has invoiced the first of the three amounts plus pass through cost for a total of $132,648.$656,938. As of June 30, 2022, the Company has received payments for the first and second amounts due for a total of $393,182. However, as of June 30, 2022, WPD has not remitted payment for thatthe final invoice and, as such, we have not recorded a receivable for the second and third milestones due to the collectability issues, and we have recorded a reserve against the related receivable resulting in an increase to our research and development expense.issues. The Company is workingcontinuing to work with WPD to resolve this situation.
On August 31, 2018, the Company entered into a sublicense agreement with Animal Life Sciences, LLC (“ALI”), a related party, pursuant to which we granted ALI an exclusive sublicense, even as to us, for the patent rights we licensed pursuant to the HPI License solely for the treatment of cancer in non-human animals through any type of administration. In consideration for the rights granted under the sublicense agreement, ALI agreed to issue us membership interests in ALI equal to 1.52% of the outstanding ALI membership interests. As additional consideration for the rights granted, to the extent we are required to make any payments to HPI pursuant to the HPI License as a result of this sublicense agreement, ALI agreed to advance us such payments, and to pay us a royalty equal to 1% of such payments. Dr. Waldemar Priebe, our founder and largest shareholder, is also the founder and a shareholder of ALI, holds 38% of the membership interests of ALI.
On June 10, 2020, the FDA granted Orphan Drug Designation (“ODD”) for Berubicin for the treatment of malignant gliomas. ODD from the FDA is available for drugs targeting diseases with less than 200,000 cases per year. ODD may enable market exclusivity of 7 years from the date of approval of a New Drug Application (“NDA) in the United States. During that period the FDA generally could not approve another product containing the same drug for the same designated indication. Orphan drug exclusivity will not bar approval of another product under certain circumstances, including if a subsequent product with the same active ingredient for the same indication is shown to be clinically superior to the approved product on the basis of greater efficacy or safety, or providing a major contribution to patient care, or if the company with orphan drug exclusivity is not able to meet market demand. The ODD now constitutes our primary intellectual property protections although the Company is exploring if there are other patents that could be filed related to Berubicin to extend additional protections.
On July 24, 2021, the Company received Fast Track Designation from the FDA for Berubicin. Fast Track Designation is designed to facilitate the development and expedite the review of drugs to treat serious conditions and fill an unmet medical need.
WP1244 Portfolio
On January 10, 2020, Company entered into a Patent and Technology License Agreement (“Agreement”) with The Board of Regents of The University of Texas System, an agency of the State of Texas, on behalf of The University of Texas M. D. Anderson Cancer Center (“UTMDACC”). Pursuant to the Agreement, the Company obtained a royalty-bearing, worldwide, exclusive license to certain intellectual property rights, including patent rights, related to the Company’s recently announced WP1244 drug technology. In consideration, the Company must make payments to UTMDACC including an up-front license fee, annual maintenance fee, milestone payments and royalty payments (including minimum annual royalties) on sales of licensed products developed under the Agreement. The term of the Agreement expires on the last to occur of: (a) the expiration of all patents subject to the Agreement, or (b) fifteen years after execution; provided that UTMDACC has the right to terminate this Agreement in the event that the Company fails to meet certain commercial diligence milestones. The commercial diligence milestones are as follows (i) initiated PC toxicology to support filing of Investigational New Drug Application (“IND”) or New Drug Application (“NDA”) for the Licensed Product within the eighteen (18) month period following the Effective Date (ii) file and IND for the Licensed Product within three (3) year period following the Effective Date and (iii) Commencement of Phase I Study within the five (5) year period following the Effective Date. During the ninesix months ended SeptemberJune 30, 2022 and 2021, the Company paid $22,90244,424 and accrued $25,76622,902 to UTMDACC related to this agreement.agreement, respectively.
On May 7, 2020, pursuant to the WP1244 Portfolio license agreement described above, the Company entered into a Sponsored Research Agreement with UTMDACC to perform research relating to novel anticancer agents targeting CNS malignancies. The Company agreed to fund approximately $1,134,000 over a two-year period. TheDuring the year ended December 31, 2020, the Company recordedpaid $734,000334,000 in 2020and accrued $400,000 related to this agreement in research and development expenses in the Company’s Consolidated Statements of Operations. During the year ended December 31, 2021, the Company paid $800,000 to UTMDACC related to this agreement. The remainder will be paid and recorded in 2021.Company has no further payment obligations as of June 30, 2022. The principal investigator for this agreement is Dr. Waldemar Priebe, who controls a majority of the Company’s share. During the nine months ended September 30, 2021, the Company paid $200,000 and accrued an additional $400,000 to UTMDACC related to this agreement. As of September 30, 2021, the Company has accrued $600,000 in research and development expenses to UTMDACC.significant shareholder.
Anti-Viral Portfolio
On March 20, 2020, the Company entered into a Development Agreement (“Agreement”) with WPD Pharmaceuticals (“WPD”), a company founded by Dr. Waldemar Priebe, the founder and largest shareholder of the Company. Pursuant to the Agreement, WPD agreed to use its commercially reasonable efforts in good faith to develop and commercialize certain products that WPD had previously sublicensed, solely in the field of pharmaceutical drug products for the treatment of any viral infection in humans, with a goal of eventual approval of in certain territories consisting of: Germany, Poland, Estonia, Latvia, Lithuania, Belarus, Ukraine, Romania, Armenia, Azerbaijan, Georgia, Slovakia, Czech Republic, Hungary, Uzbekistan, Kazakhstan, Greece, Austria, Russia, Netherlands, Turkey, Belgium, Switzerland, Sweden, Portugal, Norway, Denmark, Ireland, Finland, Luxembourg, Iceland.
Pursuant to the Agreement, the Company agreed to pay WPD the following payments: (i) an upfront payment of $225,000 to WPD (paid in April 2020); and (ii) within thirty days of the verified achievement of the Phase II Milestone, (such verification shall be conducted by an independent third party mutually acceptable to the parties hereto), the Company will make a payment of $775,000$775,000 to WPD. WPD agreed to pay the Company a development fee of 50% of the net sales for any products in the above territories; provided that Poland shall not be included as a territory after WPD receives marketing approval for a product in one-half of the countries included in the agreed upon territories or upon the payment by WPD to the Company of development fees of $1.0$1.0 million. The term of the Agreement will expire on the expiration of the sublicense pursuant to which WPD has originally sublicensed the products. During the nine monthsyear ended September 30,December 31, 2020, the Company paid $225,000$225,000 related to this agreement.
On July 24, 2021, the Company received Fast Track Designation from the FDA for Berubicin. Fast Track Designation is designed to facilitate the development and expedite the review of drugs to treat serious conditions and fill an unmet medical need.
Note 5 – Subsequent Events
Subsequent to September 30, 2021, the Company received a notice to exercise 915,263 warrants on a cashless basis resulting in issuance of 460,232 shares of common stock.
Nasdaq Capital Markets Listing Qualifications
On February 18, 2022, the Company received a deficiency letter from the Listing Qualifications Department of the Nasdaq Stock Market (“Nasdaq”) notifying the Company that for the last 30 consecutive business days the bid price for the Company’s common stock had closed below the minimum $1.00 per share requirement for continued inclusion in Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). The deficiency letter does not result in the immediate delisting of the Company’s common stock from Nasdaq.
The Company has been provided an initial period of 180 calendar days, or until August 17, 2022, to regain compliance with the Bid Price Rule. If the Company is not in compliance with the Bid Price Rule by August 17, 2022, the Company may be afforded a second 180 calendar day period to regain compliance. To qualify, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards required by Nasdaq, except for the minimum bid price requirement. The Company believes it meets the foregoing requirements and has requested an additional 180 day period.
On July 7, 2022, the Company filed a Definitive Proxy Statement on Form DEF 14A for its Annual Meeting of Stockholders to be held on July 27, 2022. The Annual Meeting of Stockholders was adjourned on July 27, 2022 until August 3, 2022, and then adjourned again until August 16, 2022. In this Definitive Proxy Statement, the Company included a proposal to authorize an amendment to the Company’s amended and restated articles of incorporation to empower the Board of Directors to effect a reverse stock split of the outstanding shares of the Company’s common stock, at a split ratio of between 1-for-2 and 1-for-30 as determined by the Board of Directors in its sole discretion, prior to the one-year anniversary of this Annual Meeting. Assuming this proposal is approved by the Company’s stockholders, the Company intends to monitor the closing bid price of its common stock and may, if appropriate, effect a reverse stock split of the Company’s common stock, to regain compliance with the Bid Price Rule in order to avoid being delisted from Nasdaq as well as to provide for additional shares available for issuance to continue to fund the Company’s clinical research programs. Notwithstanding the foregoing, there can be no assurance that the stockholders of the Company will authorize a reverse stock split, nor that the Company will be able to regain compliance with the Bid Price Rule if a reverse stock split is authorized.
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| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the financial statements and the related notes appearing elsewhere in this Form 10-Q. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. See Item 1A. “Risk Factors” of our Form 10-K for the year ended December 31, 2020,2021, available on the Security and Exchange Commission's (“SEC”) EDGAR website at www.sec.gov, for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under “Risk Factors” and elsewhere in this Form 10-Q.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We make forward-looking statements under the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in other sections of this Form 10-Q. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “should,” “would,” “could,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential” or “continue,” and the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. In particular, you should consider the numerous risks and uncertainties described under Item 1A. “Risk Factors” of our Form 10-K for the year ended December 31, 20202021 and in other filings made by us from time to time with the SEC.
While we believe we have identified material risks, these risks and uncertainties are not exhaustive. Other sections of this Form 10-Q may describe additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date of this Form 10-Q to conform our prior statements to actual results or revised expectations, and we do not intend to do so.
Forward-looking statements include, but are not limited to, statements about:
| · | our ability to obtain additional funding to develop our product candidates; |
| · | the need to obtain regulatory approval of our product candidates; |
| · | the success of our clinical trials through all phases of clinical development; |
| · | compliance with obligations under intellectual property licenses with third parties; |
| · | any delays in regulatory review and approval of product candidates in clinical development; |
| · | our ability to commercialize our product candidates; |
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| · | market acceptance of our product candidates; |
| · | competition from existing products or new products that may emerge; |
| · | potential product liability claims; |
| · | our dependency on third-party manufacturers to supply or manufacture our products; |
| · | our ability to establish or maintain collaborations, licensing or other arrangements; |
| · | our ability and third parties’ abilities to protect intellectual property rights; |
| · | our ability to adequately support future growth; and |
| · | our ability to attract and retain key personnel to manage our business effectively. |
We caution you not to place undue reliance on the forward-looking statements, which speak only as of the date of this Form 10-Q in the case of forward-looking statements contained in this Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Therefore, you should not rely on any of the forward-looking statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Overview
We are a clinical pharmaceutical company organized as a Nevada corporation in July 2017 to focus on the development of anti-cancer drug candidates for the treatment of brain and central nervous system tumors, based on intellectual property that we license under license agreements with Houston Pharmaceuticals, Inc. (“HPI”) and The University of Texas M.D. Anderson Cancer Center (“UTMDACC”) and own pursuant to a collaboration and asset purchase agreement with Reata Pharmaceuticals, Inc. (“Reata”).
We believe our lead drug candidate, Berubicin, may be a significant development in the treatment of Glioblastoma and other CNS malignancies, and if approved by the FDA, may be a significant discovery inU.S. Food and Drug Administration (“FDA”), could give Glioblastoma patients an important new therapeutic alternative to the treatmentcurrent standard of glioblastoma. Glioblastomacare. Glioblastomas are tumors that arise from astrocytes, which are star-shaped cells making up the supportive tissue of the brain. These tumors are usually highly malignant (cancerous) because the cells reproduce quickly, and they are supported by a large network of blood vessels. Berubicin is an anthracycline, which is a class of drugs that are among the most powerful and extensively used chemotherapy drugs known. Based on limited clinical data, we believe Berubicin is the first anthracycline that appears to have crossedcross the blood brain barrier and targetin significant concentrations targeting brain cancer cells. While our current focus is solelycurrently on the development of Berubicin, we are also in the process of attempting to secure intellectual property rights into additional compounds that may be developedwe plan to develop into drugs to treat CNS and other cancers.
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Berubicin was discovered at UTMDACC by our founder, Dr. Waldemar Priebe, Professorthe founder of Medicinal Chemistry at The University of Texas MD Anderson Cancer Center.the Company. Through a series of transactions, Berubicin was initially licensed to Reata. Reata conducted ainitiated several Phase I clinical trial ontrials with Berubicin for CNS malignancies, one of which was for malignant gliomas, but subsequently allowed their IND with the FDA to lapse for strategic reasons. This required us to obtain a new IND for Berubicin before beginning further clinical trials. On December 17, 2020, we announced that our IND application with the FDA for Berubicin for the treatment of Glioblastoma Multiforme was in effect. We intend to initiate ourinitiated this trial for patient enrollment during the second quarter of 2021 with the first patient dosed during the third quarter of 2021 to investigate the efficacy of Berubicin in adults with Glioblastoma Multiforme who have failed first-line therapy. Recent correspondenceThe first patient on the trial was treated during the third quarter of 2021. Correspondence between usthe Company and the FDA resulted in modifications to our previously disclosedinitial trial design, including designating overall survival (OS) as the primary endpoint of the study. OS is a rigorous endpoint that the FDA has recognized as a basis for approval of oncology drugs when a statistically significant improvement can be shown relative to a randomized control arm.
The Phase IIcurrent trial which was open for enrollment during the second quarter of 2021 and treated the first patient during the third quarter of 2021,being conducted will evaluate the efficacy of Berubicin in patients with Glioblastoma Multiforme who have failed primary treatment for their disease, and results will be compared to the efficacy of Lomustine, a current standard of care in this setting, with a 2 to 1 randomization of the estimated 243 patients to Berubicin or Lomustine. SubjectsPatients receiving Berubicin will be administered a 2-hour IV infusion of 7.5 mg/m2 berubicin hydrochloride daily for three consecutive days followed by 18 days off (21-day(a 21-day cycle). Lomustine is administered orally.orally once every six weeks. The trial will include an interim analysis that will evaluate the comparative effectiveness of these treatments.treatments, which is an adaptive design intended to demonstrate that there are no differences in efficacy between treatments (futility analysis). Even if Berubicin is approved, there is no assurance that patients will choose an infusion treatment, as compared to the current standard of care, which requires oral administration.
We do not have manufacturing facilities and all manufacturing activities are contracted out to third parties. Additionally, we do not have a sales organization.
On November 21, 2017, we entered into a Collaboration and Asset Purchase Agreement with Reata (the “Reata Agreement”). Pursuant to the Reata Agreement we purchased all of Reata’s intellectual property and development data regarding Berubicin, including all trade secrets, knowhow, confidential information and other intellectual property rights, which we refer to as the Reata Data.rights.
On December 28, 2017, we obtained the rights to a worldwide, exclusive royalty-bearing, license to the chemical compound commonly known as Berubicin from HPI in an agreement we refer to as the HPI License. HPI is affiliated with Dr. Priebe, who controls a majority of our founder and largest shareholder.shares. Under the HPI License we obtained the exclusive right to develop certain chemical compounds for use in the treatment of cancer anywhere in the world. In the HPI License we agreed to pay HPI: (i) development fees of $750,000 over a three-year period beginning November 2019; (ii) a 2% royalty on net sales; (iii) a $50,000 per year license fee; (iv) milestone payments of $100,000 upon the commencement of a Phase II trial and $1.0 million upon the approval of a New Drug Application (“NDA”) for Berubicin; and (v) 200,000 shares of our common stock. The patents we licensed from HPI expired in March 2020.
On June 10, 2020, the FDA granted Orphan Drug Designation (“ODD”) for Berubicin for the treatment of malignant gliomas. ODD from the FDA is available for drugs targeting diseases with less than 200,000 cases per year. ODD may enable market exclusivity of 7 years from the date of approval of a NDA in the United States. During that period the FDA generally could not approve another product containing the same drug for the same designated indication. Orphan drug exclusivity will not bar approval of another product under certain circumstances, including if a subsequent product with the same active ingredient for the same indication is shown to be clinically superior to the approved product on the basis of greater efficacy or safety, or providing a major contribution to patient care, or if the company with orphan drug exclusivity is not able to meet market demand. The ODD now constitutes our primary intellectual property protections although the Company is exploring if there are other patents that could be filed related to Berubicin to extend additional protections.
With the Reata Agreement and the HPI License, we believe we have obtained all rights and intellectual property necessary to develop Berubicin. As stated earlier, it is our plan to obtain additional intellectual property covering other compounds which, subject to the receipt of additional financing, may be developed into drugs for brain and other cancers.
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On January 10, 2020, we entered into a Patent and Technology License Agreement (the “1244 Agreement”) with The Board of Regents of The University of Texas System, an agency of the State of Texas, on behalf of the UTMDACC. Pursuant to the 1244 Agreement, we obtained a royalty-bearing, worldwide, exclusive license to certain intellectual property rights, including patent rights, related to our portfolio of WP1244 drug technology. In consideration, we must make payments to UTMDACC including an up-front license fee, annual maintenance fee, milestone payments and royalty payments (including minimum annual royalties) for sales of licensed products developed under the 1244 Agreement. The term of the 1244 Agreement expires on the last to occur of: (a) the expiration of all patents subject to the 1244 Agreement, or (b) fifteen years after execution; provided that UTMDACC has the right to terminate the 1244 Agreement in the event that we fail to meet certain commercial diligence milestones.
On May 7, 2020, pursuant to the WP1244 Portfolioportfolio license agreement described above, wethe Company entered into a Sponsored Research Agreement with UTMDACC to perform research relating to novel anticancer agents targeting CNS malignancies. WeThe Company agreed to fund approximately $1,134,000 over a two-year period. During the nine months ended September 30, 2021, weThe Company paid $200,000 and accrued $400,000recorded $334,000 in 2020 related to this agreement in research and development expenses in ourthe Company’s Statements of Operations. The remaining $800,000 was paid in 2021. The principal investigator for this agreement is Dr. Priebe. The work conducted under this Sponsored Research Agreement has produced a new mesylate salt of WP1244 termed WP1874. We believe the enhanced solubility of this salt may increase its ability to be formulated for use in an IV infusion, while maintaining similar potency and toxicity characteristics. As such, WP1874 will be the primary focus in our development efforts of the WP1244 portfolio.
Results of Operations for the Three Months Ended SeptemberJune 30, 20212022 Compared to the Three Months Ended SeptemberJune 30, 20202021
General and Administrative Expense
General and administrative expense was approximately $1,235,000$1,343,000 for the three months ended SeptemberJune 30, 20212022 compared to approximately $969,000$1,146,000 for the comparable period in 2020.2021. The increase in general and administrative expense was mainly attributable to an increase of approximately $127,000$189,000 for employee compensation (due to the timing of annual employee incentive compensation) and taxes and $149,000 in legal and professional fees, which were offset with decreases of approximately $170,000 in stock-based compensation $59,000 in insurance, $32,000 in employee compensation and taxes, $29,000 in Scientific Advisory Board compensationother expenses. Our general and $19,000 in other expenses.administrative expenses are expected to remain approximately at these levels for the remainder of this year.
Research and Development Expense
Research and development expense was approximately $2,578,000$2,221,000 for the three months ended SeptemberJune 30, 20212022 compared to approximately $1,042,000$2,665,000 for the comparable period in 2020.2021. The decrease in research and development expenses incurred during the period were mainly attributed to the timing of drug development expenses (significant manufacturing activity occurred in the prior year period with much less occurring in the current year, and this lower level of manufacturing activity is expected to continue throughout this year), as well as a credit to research and development expense for the funds collected from WPD Pharmaceuticals related to their purchase of Berubicin drug manufacturing andproduct for their clinical trials, partially offset by an increase in contract research organization (CRO) expenses related to continued progress with our Phase II clinical trial. Our CRO expenditures are primarily for labor related to activating selected trial sites, managing patient enrollment processes, collecting and managing data from patient treatments throughout the preparationtrial, processing reimbursement to the sites for patient treatment, and assisting with necessary submissions to amend the IND. CRO expenditures are expected to remain relatively level throughout the remainder of our Phase II study.the trial as site activation efforts and the associated costs thereof transition into reimbursing clinical trial sites for patient treatment costs as site and patient enrollment increases. We expect to incur increased research and development costs in the future as we continue our product development activities expand.Phase II clinical trial.
Net Loss
The net loss for the three months ended SeptemberJune 30, 20212022 was approximately $3,813,000$3,566,000 compared to approximately $2,011,000$3,814,000 for the comparable period in 2020.2021. The change in net loss is attributable to increased personneldecreases the timing of drug development expenses (significant manufacturing activity occurred in the prior year period with much less occurring in the current year), as well as a credit to research and activity associated with preparingdevelopment expense for ourthe funds collected from WPD Pharmaceuticals related to their purchase of Berubicin drug product for their clinical trials, partially offset by an increase in 2021.
CRO expenses related to continued progress with our Phase II clinical trial as well as increases in legal and professional fees and other expenses.
Results of Operations for the NineSix Months Ended SeptemberJune 30, 20212022 Compared to the NineSix Months Ended SeptemberJune 30, 20202021
General and Administrative Expense
General and administrative expense was $3,785,000approximately $2,603,000 for the ninesix months ended SeptemberJune 30, 20212022 compared to $3,305,000approximately $2,549,000 for the comparable period in 2020.2021. The increase in general and administrative expense was mainly attributable to an increaseincreases of $348,000 in legal and professional fees and $54,000 in other expenses, which were offset with decreases of approximately $432,000$110,000 for stock-based compensation, $168,000 in employee compensation and taxes $71,000and $238,000 in professional fees, $63,000 in insurancestock-based compensation. Our general and $29,000 in Scientific Advisory Board compensation which were offset by decreases in advertising and marketingadministrative expenses are expected to remain approximately at these levels for the remainder of $231,000, travel expenses of $44,000 and $8,000 in other expenses. this year.
Research and Development Expense
Research and development expense was approximately $7,450,000$3,743,000 for the ninesix months ended SeptemberJune 30, 20212022 compared to $3,148,000approximately $4,872,000 for the comparable period in 2020.2021. The decrease in research and development expenses incurred during the period were mainly attributed to the timing of drug development expenses (significant manufacturing activity occurred in the prior year period with much less occurring in the current year, and this lower level of manufacturing activity is expected to continue throughout this year), as well as a credit to research and development expense for the funds collected from WPD Pharmaceuticals related to their purchase of Berubicin drug manufacturing andproduct for their clinical trials, partially offset by an increase in contract research organization (CRO) expenses related to continued progress with our Phase II clinical trial. Our CRO expenditures are primarily for labor related to activating selected trial sites, managing patient enrollment processes, collecting and managing data from patient treatments throughout the preparationtrial, processing reimbursement to the sites for patient treatment, and assisting with necessary submissions to amend the IND. CRO expenditures are expected to remain relatively level throughout the remainder of our Phase II study.the trial as site activation efforts and the associated costs thereof transition into reimbursing clinical trial sites for patient treatment costs as site and patient enrollment increases. We expect to incur increased research and development costs in the future as we continue our product development activities expand.Phase II clinical trial.
Net Loss
The net loss for the ninesix months ended SeptemberJune 30, 20212022 was $11,241,000approximately $6,350,000 compared to $6,453,000approximately $7,427,000 for the comparable period in 2020.2021. The change in net loss is attributable to increased personneldecreases in employee compensation and stock-based compensation, the timing of drug development expenses (significant manufacturing activity associatedoccurred in the prior year period with preparingmuch less occurring in the current year), as well as a credit to research and development expense for ourthe funds collected from WPD Pharmaceuticals related to their purchase of Berubicin drug product for their clinical trials, partially offset by an increase in 2021.CRO expenses related to continued progress with our Phase II clinical trial as well as increases in legal and professional fees and other expenses.
Liquidity and Capital Resources
On SeptemberJune 30, 2021,2022, we had cash of approximately $8,326,000$8,959,000 and we had working capital of approximately $8,748,000.$10,474,000. We fund our operations from proceeds from equity sales.
In January 2022, we completed a financing with several institutional investors for the sale of (i) 9,489,474 shares of common stock, (ii) pre-funded warrants to purchase up to an aggregate of 2,615,790 shares of common stock and (iii) warrants to purchase up to an aggregate of 12,105,264 shares of common stock. The combined purchase price of one share of common stock (or one pre-funded warrant) and accompanying common warrant was $0.95. The gross proceeds from the private placement were approximately $11.5 million, before deducting the placement agent’s fees and other offering expenses.
Our plan of operations is primarily focused on completing a Phase II clinical trial for Berubicin. We estimate that we will require additional financing of approximately $16$13 - $17 million to complete the trial, approximately $2.0$5.0 million to support near-term WP1244WP1244/WP1874 preclinical work, plus such additional working capital to fund our operations during the pendency of the trial. Our current expectation is that our cash on hand is sufficient to fund our operations into the secondfirst quarter of 2022.2023. The timing and costs of clinical trials are difficult to predict and trial plans may change in response to evolving circumstances and as such the foregoing estimates may prove to be inaccurate.
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We will need to raise additional capital in order to meet our obligations and execute our business plan. If we are unable to raise sufficient funds, we will be required to develop and implement an alternative plan to further extend payables, reduce overhead or scale back our business plan until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.
Summary of Cash Flows
Cash used in operating activities
Net cash used in operating activities was approximately $10,302,000$6,440,000 and $5,871,000$8,306,000 for the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, respectively, and mainly included payments made for clinical trial preparation, officer compensation, insurance, marketing and professional fees to our consultants, attorneys and accountants.
Cash used in investing activities
Net cash used by investing activities was approximately $4,000$3,000 and $18,000$4,000 for the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, respectively. The amount used in 20202022 and 2021 are related to the purchase of furniture and equipment.
Cash provided by financing activities
Net cash provided by financing activities was $4,592,000$10,397,000 for the ninesix months ended SeptemberJune 30, 2022 related to the sale of common stock and warrants, and from the exercise of warrants, offset by the repayment of notes payable. Net cash used in financing activities was $1,156,000 for the six months ended June 30, 2021 related to the sale of common stock and exercise of warrants, offset by the repayment of notes payable. Net cash used in financing activities was $45,000 for the nine months ended September 30, 2020 related payment of deferred offering costs.
Off-balance Sheet Arrangements
As of SeptemberJune 30, 2021,2022, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Purchase Commitments
We do not have any material commitments for capital expenditures, although we are required to pay certain development fees to HPI and WPD as described in the section “Overview” above.
JOBS Act Accounting Election
The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, exempts an “emerging growth company” such as us from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements, including the notes thereto. We consider critical accounting policies to be those that require more significant judgments and estimates in the preparation of our financial statements, including the following: long lived assets; intangible assets valuations; and income tax valuations. Management relies on historical experience and other assumptions believed to be reasonable in making its judgment and estimates. Actual results could differ materially from those estimates.
Management believes its application of accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates are periodically reevaluated, and adjustments are made when facts and circumstances dictate a change.
Stock-based Compensation – Employee and non-employee share-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period.
Research and Development Costs - Research and development costs are expensed as incurred.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
| Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures and Changes in Internal Control over Financial Reporting
We maintain a set of disclosure controls and procedures designed to ensure that material information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that material information is accumulated and communicated to our management, including our chief executive officer, who serves as our principal executive officer, and our chief financial officer, who serves as our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
Under the supervision, and with the participation of our management, including our chief executive officer and our chief financial officer, we conducted an evaluation of the effectiveness, as of SeptemberJune 30, 2021,2022, of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based upon such evaluation, our chief executive officer and our chief financial officer have concluded that, as of SeptemberJune 30, 2021,2022, our disclosure controls and procedures were, and continue to be, ineffective because of the material weaknesses in our internal control over financial reporting due to a lack of segregation of duties and the lack of formal documentation of our control environment.
In light of the material weakness described above, we continue to perform additional analysis and other post-closing procedures to ensure our financial statements are prepared in accordance with GAAP. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented. Additional experienced personnel will be hired in the accounting and finance department, appropriate consultants will be retained, and our accounting system will be upgraded as soon as it becomes economically feasible and sustainable.
Other than as described above, there has been no change in our internal control over financial reporting during our most recent calendar quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
| Item 1. | Legal Proceedings |
From time to time in the ordinary course of our business, we may be involved in legal proceedings, the outcomes of which may not be determinable. The results of litigation are inherently unpredictable. Any claims against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in diversion of significant resources. We are not able to estimate an aggregate amount or range of reasonably possible losses for those legal matters for which losses are not probable and estimable. We have insurance policies covering potential losses where such coverage is cost effective.
We are not at this time involved in any legal proceedings.
| Item 1A. | Risk Factors |
In addition to the other information set forth in this report, you should carefully consider the factors discussed in the section entitled “Risk Factors” in our 20202021 Annual Report on Form 10-K, filed with the SEC, which are incorporated herein by reference. The risks described in such reports are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
In January 2021, we entered into a twelve-month agreement with an investor relations firm that included the issuance of 25,000 restricted shares of common stock. Upon signing the agreement, 6,250 shares vested immediately, and the remaining 18,750 shares will vest quarterly over the remainder of the agreement. As of September 30, 2021, 18,750 shares have been issued. We may terminate the agreement at any time during the twelve-month period with a fifteen-day notice. The issuance was made in reliance upon an exemption from registration contained in Section 4(a)(2) of the Securities Act.None.
In May 2021, we entered into a four-month agreement with an investor relations firm that included the issuance of 75,000 shares of common stock. As of September 30, 2021, 75,000 shares have been issued. The issuance was made in reliance upon an exemption from registration contained in Section 4(a)(2) of the Securities Act.
| Item 3. | Defaults Upon Senior Securities |
None.
| Item 4. | Mine Safety Disclosures |
Not applicable.
| Item 5. | Other Information |
None.
| Item 6. | Exhibits |
INDEX TO EXHIBITS
Exhibit Number | Description | |
| 10.1 | Non-Employee Director Compensation Policy effective July 15, | |
| 31.1* | Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934. | |
| 31.2* | Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934. | |
| 32.1*(1) | Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2*(1) | Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS* | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104* | Cover Page Interactive Data File (formatted in iXBRL, and included in exhibit 101). |
______________
| * | Filed herewith. |
| + | Management contract or compensatory plan, contract or arrangement. |
| (1) | The certifications on Exhibit 32 hereto are deemed not “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CNS PHARMACEUTICALS, INC.
| SIGNATURE | TITLE | DATE | ||
| ||||
| /s/ John Climaco | Chief Executive Officer and Director | |||
| John Climaco | (principal executive officer) | |||
| /s/ Christopher Downs | Chief Financial Officer | |||
| Christopher Downs | (principal financial and accounting officer) |