See accompanying notes to the unaudited financial
statements.
See accompanying notes to the unaudited financial
statements.
See accompanying notes to the unaudited financial
statements.
See accompanying notes to the unaudited financial
statements.
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 three months ended March 31, 2022 are not necessarily indicative of the
final results that may be expected for the year ending December 31, 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, 2021 included in our
Form 10-K filed with the SEC on March 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 March 31, 2022 was $12,190,498. 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.
Loss Per Common Share - Basic loss per common share is computed
by dividing net loss available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted
loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the
dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding
excludes common stock equivalents, because their inclusion would be anti-dilutive. For the three months ended March 31, 2022 and 2021,
the Company’s potentially dilutive shares and options, which were not included in the calculation of net loss per share, included
warrants to purchase 16,925,504 and 5,130,240 common shares, and options for 2,864,736 and 2,736,736 common shares, respectively.
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 March 31, 2022 and December 31, 2021, the Company’s note payable balance was $272,572
and $387,794, respectively.
Note 4 – Equity
Common Stock
The
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 will also issue 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 605,263
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 5, 2022, the Company entered
into a Securities Purchase Agreement (the “Purchase Agreement”) with several institutional investors for the sale by the
Company of (i) 9,489,474 shares (the “Shares”) of the Company’s common stock, (ii) pre-funded warrants (the
“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 “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 Warrants 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 $10,625,786.
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 2,000,000 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.
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 3,000,000 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 three months ended March 31, 2022 and 2021, the Company
recognized $336,685 and $418,053 of stock-based compensation, respectively, related to outstanding stock options. At March 31, 2022, the
Company had $2,222,762 of unrecognized expenses related to outstanding options.
The following table summarizes the stock option
activity for the three months ended March 31, 2022:
Schedule of Stock Option Activity |
|
|
|
|
|
|
|
|
Options |
|
|
Weighted-Average Exercise Price Per Share |
|
Outstanding, December 31, 2021 |
|
|
2,864,736 |
|
|
$ |
2.25 |
|
Granted |
|
|
– |
|
|
|
– |
|
Exercised |
|
|
– |
|
|
|
– |
|
Forfeited |
|
|
– |
|
|
|
– |
|
Expired |
|
|
– |
|
|
|
– |
|
Outstanding, March 31, 2022 |
|
|
2,864,736 |
|
|
$ |
2.25 |
|
Exercisable, March 31, 2022 |
|
|
1,727,486 |
|
|
$ |
1.93 |
|
As of March 31, 2022, the outstanding stock options have a
weighted average remaining term of 7.52 years
and the aggregate intrinsic value of options vested and outstanding were $81,400.
As of March 31, 2022, there were 60,500 awards
remaining to be issued under the 2017 Plan and 2,074,764 awards
remaining to be issued under the 2020 Plan.
Stock Warrants
During the three months ended March 31, 2022, the Company received
$2,616 in cash proceeds from the exercise of 2,615,790 warrants previously issued at an exercise price of $0.001.
The
following table summarizes the stock warrant activity for the three months ended March 31, 2022 :
Schedule of warrants activity |
|
|
|
|
|
|
|
|
|
|
Warrants |
|
|
Weighted-Average Exercise Price Per Share |
|
Outstanding, December 31, 2021 |
|
|
4,214,977 |
|
|
$ |
4.76 |
|
Granted |
|
|
15,326,317 |
|
|
|
0.69 |
|
Exercised |
|
|
(2,615,790 |
) |
|
|
0.001 |
|
Forfeited |
|
|
– |
|
|
|
– |
|
Expired |
|
|
– |
|
|
|
– |
|
Outstanding, March 31, 2022 |
|
|
16,925,504 |
|
|
$ |
1.81 |
|
Exercisable, March 31, 2022 |
|
|
16,925,504 |
|
|
$ |
1.81 |
|
As of March 31, 2022, the outstanding and exercisable warrants have
a weighted average remaining term of 4.26 years and have no aggregate intrinsic value.
Note 5 – 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 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. During the three month months ended March 31,
2022, the Company paid $48,684 related to the Scientific Advisory Board compensation. As of March 31, 2022, the Company has accrued $48,684
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 significant 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 (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. On November 13, 2019, the Company closed its IPO, thereby fulfilling all
conditions precedent and completing the acquisition of the intellectual property discussed in the HPI agreement. During the three months
ended March 31, 2022 and 2021, the Company recognized $87,500
related to this agreement. Unrelated to this agreement, from time to time, the Company purchases pharmaceutical products from
HPI which are necessary for the manufacturing of Berubicin API and drug product in related party transactions which are reviewed and
approved by the Company’s audit committee based upon the standards of providing superior pricing and time to delivery than that
available from unrelated third parties. During the three months ended March 31, 2022 and 2021, the Company expensed $41,075
and $385,000
respectively related to the purchase of pharmaceutical products from 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-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 $131,073 upon execution of the agreement, (ii), a payment of $262,145 upon 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 December 31, 2021. In addition, as of December 31, 2021,
the drug product with a cost of approximately $655,000 has 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 December 31, 2021, CNS has invoiced the three amounts plus pass
through cost for a total of $656,938. As of March 31, 2022, the Company has received payments for the first and second amounts due for
a total of $393,182. However, as of March 31, 2022, WPD has not remitted payment for the final invoice and, as such, we have not recorded
a receivable due to the collectability issues. The Company is continuing 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 three months ended March 31, 2022 and 2021, the Company paid $44,424 and $22,902 to UTMDACC related to this 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. During the year ended December 31, 2020, the Company paid $ and
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 Company has no further payment obligations as of March 31, 2022. The principal investigator
for this agreement is Dr. Waldemar Priebe, a 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
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
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 year ended December 31, 2020, the Company paid $225,000
related to this agreement.
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 intends to monitor the closing
bid price of its common stock and may, if appropriate, consider available options to regain compliance with the Bid Price Rule, which
could include effecting a reverse stock split. However, there can be no assurance that the Company will be able to regain compliance with
the Bid Price Rule.
Note 6 – Subsequent Events
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 1,142,500 Restricted
Stock Units that partially vest over 4 years, partially vest upon the Company’s common stock price exceeding various closing prices
ranging from $2.00 - $4.00 per share and partially upon the completion of milestones established by the Board.