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 six months ended June 30, 2021 are not necessarily indicative of the final
results that may be expected for the year ending December 31, 2021. 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, 2020 included in our
Form 10-K filed with the SEC on February 12, 2021 (“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 at June 30, 2021 was $6,635,572. 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 six months ended June 30, 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
5,130,240 common shares, and options for 2,811,736 common shares. For the six months ended June 30, 2020, the Company’s potentially
dilutive shares and options, which were not included in the calculation of net loss per share warrants to purchase 3,986,630 common shares,
and options for 2,250,736 common shares.
Note 3 – Equity
Common Stock
In January 2021, the Company entered into a
twelve-month agreement with an investor relations firm that includes 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. The Company may terminate the agreement at any time during the
twelve-month period with a fifteen-day notice. During the six months ended June 30, 2021, the Company issued 12,500
common shares and recognized $25,250
of stock-based compensation related to the agreement and will issue the remaining shares over the service period. In July 2021, the
Company issued 6,250
common shares and will issue the remaining shares over the service period.
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 to the terms of the Agreement, the Company may sell from time
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 six months ended June 30, 2021, the Company sold 2,063,509
shares of common stock to the Agent for net proceeds of $1,084,704 and recorded a subscription receivable of $3,569,117. The subscription
receivable was collected in full on July 1, 2021.
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 six months ended June 30, 2021,
the Board of Directors approved grants of 611,000
options to officers, employees and a consultant. The exercise price of the options ranges from $2.35
to $3.36
and the options expire ten-years following issuance. The total fair value of these option grants at issuance was $1,769,686.
Of the 611,000 options issued, 75,000
options provided that 25% vested upon issuance, 50% vest upon the 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 six months ended June 30, 2021
and 2020, the Company recognized $875,039
and $565,433
of stock-based compensation, respectively, related to outstanding stock options. As of June 30, 2021, the Company had $3,071,647
of unrecognized expenses related to outstanding options.
The following
table summarizes the stock option activity for the six months ended June 30, 2021:
Schedule of Stock Option Activity
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Weighted-Average Exercise Price Per Share
|
|
Outstanding, December 31, 2020
|
|
|
2,200,736
|
|
|
$
|
2.00
|
|
Granted
|
|
|
611,000
|
|
|
$
|
3.24
|
|
Exercised
|
|
|
–
|
|
|
$
|
–
|
|
Forfeited
|
|
|
–
|
|
|
$
|
–
|
|
Expired
|
|
|
–
|
|
|
$
|
–
|
|
Outstanding, June 30, 2021
|
|
|
2,811,736
|
|
|
$
|
2.27
|
|
The following table discloses information regarding
outstanding and exercisable options at June 30, 2021:
Schedule of Options by exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Exercisable
|
Exercise Price
|
|
Number of Option Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Life (Years)
|
|
Number of Option Shares
|
|
|
Weighted Average Exercise Price
|
$4.00
|
|
300,000
|
|
|
|
|
|
8.36
|
|
|
75,000
|
|
|
|
|
$3.36
|
|
536,000
|
|
|
|
|
|
9.61
|
|
|
–
|
|
|
|
|
$2.47
|
|
186,236
|
|
|
|
|
|
8.95
|
|
|
186,236
|
|
|
|
|
$2.35
|
|
75,000
|
|
|
|
|
|
9.69
|
|
|
33,750
|
|
|
|
|
$2.21
|
|
175,000
|
|
|
|
|
|
8.70
|
|
|
100,000
|
|
|
|
|
$2.06
|
|
75,000
|
|
|
|
|
|
9.20
|
|
|
–
|
|
|
|
|
$2.00
|
|
789,500
|
|
|
|
|
|
8.00
|
|
|
394,750
|
|
|
|
|
$1.50
|
|
400,000
|
|
|
|
|
|
6.92
|
|
|
375,000
|
|
|
|
|
$0.045
|
|
275,000
|
|
|
|
|
|
6.39
|
|
|
256,250
|
|
|
|
|
Total
|
|
2,811,736
|
|
$
|
2.27
|
|
|
8.22
|
|
|
1,420,986
|
|
|
$
|
1.71
|
As of June 30, 2021, the aggregate intrinsic value of options vested
and outstanding were $663,219 and $710,625 respectively. As of June 30, 2021, there are no awards remaining to be issued under the 2017
Plan and 2,188,264 awards remaining to be issued under the 2020 Plan.
Stock Warrants
During the six months ended June 30, 2021, the Company received $332,750
in cash proceeds from the exercise of 151,250 warrants previously issued at an exercise price of $2.20. In addition, the Company received
notices to exercise 1,580,140 warrants on a cashless basis resulting in issuance of 1,296,075 shares of common stock.
The following table summarizes the stock warrant
activity for the six months ended June 30, 2021:
Schedule of warrants activity
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
Weighted-Average Exercise Price Per Share
|
|
Outstanding, December 31, 2020
|
|
|
6,861,630
|
|
|
$
|
3.24
|
|
Granted
|
|
|
–
|
|
|
$
|
–
|
|
Exercised
|
|
|
(1,731,390
|
)
|
|
$
|
0.88
|
|
Forfeited
|
|
|
–
|
|
|
$
|
–
|
|
Expired
|
|
|
–
|
|
|
$
|
–
|
|
Outstanding, June 30, 2021
|
|
|
5,130,240
|
|
|
$
|
4.04
|
|
The following table discloses information regarding outstanding and
exercisable warrants at June 30, 2021:
Schedule of warrants by exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Exercisable
|
Exercise Price
|
|
Number of Warrant Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Life (Years)
|
|
Number of Warrant Shares
|
|
|
Weighted Average Exercise Price
|
$11.00
|
|
1,206,059
|
|
|
|
|
|
1.14
|
|
|
1,206,059
|
|
|
|
|
$4.00
|
|
148,750
|
|
|
|
|
|
3.36
|
|
|
148,750
|
|
|
|
|
$2.20
|
|
2,723,750
|
|
|
|
|
|
4.50
|
|
|
2,723,750
|
|
|
|
|
$2.00
|
|
2,500
|
|
|
|
|
|
2.93
|
|
|
2,500
|
|
|
|
|
$1.75
|
|
100,000
|
|
|
|
|
|
2.79
|
|
|
100,000
|
|
|
|
|
$1.50
|
|
14,000
|
|
|
|
|
|
1.95
|
|
|
14,000
|
|
|
|
|
$0.70
|
|
935,181
|
|
|
|
|
|
2.50
|
|
|
935,181
|
|
|
|
|
$Total
|
|
5,130,240
|
|
$
|
4.04
|
|
|
3.27
|
|
|
5,130,240
|
|
|
$
|
4.04
|
As of June 30, 2021, the aggregate intrinsic value of warrants vested
and outstanding was $1,205,768.
Note 4 – 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.
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 largest 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; 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. The Company’s rights pursuant to the HPI License were 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 and as a result completed the acquisition of the intellectual property discussed in the
HPI agreement. Unrelated to this agreement, the Company purchased $385,000 of pharmaceutical products from HPI for the manufacturing of
Berubicin API in a related party transaction reviewed and approved by the Company’s audit committee. During the six months
ended June 30, 2021 and 2020, the Company recognized $175,000 and $100,000, respectively related to this agreement.
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. 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. 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. As of June 30, 2021, the upfront payment of $131,073 plus pass through costs of $1,575 are recorded in other receivable - related
party.
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.
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 six months ended June 30, 2021, the Company paid $22,902 to UTMDACC related to this agreement.
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. The Company recorded $
in 2020 related to this agreement in research and development expenses in the Company’s Consolidated Statements of Operations. The
remainder will be paid and recorded in 2021. The principal investigator for this agreement is Dr. Waldemar Priebe, who controls a majority
of the Company’s share. During the six months ended June 30, 2021, the Company paid $200,000 and accrued an additional $400,000
to UTMDACC related to this agreement. As of June 30, 2021, the Company has accrued $600,000 in research and development expenses to UTMDACC.
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 six months ended June 30, 2020, the Company paid $225,000 related to this agreement.
Note 5 – Subsequent Events
On July 15, 2021, our compensation committee recommended to our Board
and our Board approved the following policy for compensating non-employee members of the Board. Each independent director shall receive
annual cash compensation of $40,000. In addition, the chairperson of the Audit Committee, Compensation Committee and Nominating and Governance
Committee shall receive an annual compensation of $12,000, $7,700 and $5,500, respectively; the other members of such committees shall
receive an annual compensation of $5,500, $4,000 and $3,500, respectively; and the lead independent director shall receive annual compensation
of $12,000. In addition, the Board approved the issuance to each independent director of options to purchase 32,000 shares of the Company’s
common stock vesting on the earlier of the one-year anniversary of the date of the grant or the date of the 2022 annual meeting. These
options have a 10-year term and an exercise equal to the closing price of the common stock on the date of the grant of $1.80.
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.
In July 2021, the Company issued 75,000
shares of common stock for investor relations services for a four-month period ending September 2021. The fair value of the shares
on the commitment date was $140,250.