SEC Form 10-Q filed by CNS Pharmaceuticals Inc.
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For the quarterly period ended
OR
For the transition period from ____________ to ______________
Commission file number:
(Name of registrant as specified in its charter)
| (State or other jurisdiction of Incorporation or Organization) | (I.R.S. Employer identification No.) |
|
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| (Address of principal executive offices | (Zip Code) |
(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 |
| The |
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.
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).
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 ☐ |
| 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 November 14, 2024 was .
TABLE OF CONTENTS
| 2 |
PART I - FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
CNS Pharmaceuticals, Inc.
Balance Sheets
(Unaudited)
| September 30, 2024 | December 31, 2023 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Deferred offering costs | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Noncurrent Assets: | ||||||||
| Prepaid expenses, net of current portion | ||||||||
| Property and equipment, net | ||||||||
| Total noncurrent assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders' Equity (Deficit) | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Notes payable | ||||||||
| Total current liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders' Equity (Deficit): | ||||||||
| Preferred stock, $ par value, shares authorized and shares issued and outstanding | ||||||||
| Common stock, $ par value, shares authorized and and shares issued and outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders' Equity (Deficit) | ( | ) | ||||||
| Total Liabilities and Stockholders' Equity (Deficit) | $ | $ | ||||||
See accompanying notes to the unaudited financial statements.
| 3 |
CNS Pharmaceuticals, Inc.
Statements of Operations
(Unaudited)
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
| September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | $ | $ | $ | $ | ||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per share - basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per share - diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares outstanding - basic | ||||||||||||||||
| Weighted average shares outstanding - diluted | ||||||||||||||||
See accompanying notes to the unaudited financial statements.
| 4 |
CNS Pharmaceuticals, Inc.
Statements of Stockholders' Equity (Deficit)
For the nine months ended September 30, 2024 and 2023
(Unaudited)
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Stockholders' | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity (Deficit) | ||||||||||||||||
| Balance December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Common stock issued for cash, net | ||||||||||||||||||||
| Exercise of warrants, net | ||||||||||||||||||||
| Stock-based compensation | – | |||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2024 | ( | ) | ( | ) | ||||||||||||||||
| Common stock issued for cash and warrants, net | ||||||||||||||||||||
| Exercise of warrants, net | ||||||||||||||||||||
| Stock-based compensation | – | |||||||||||||||||||
| Adjustment related to reverse stock split | ( | ) | ||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance, June 30, 2024 | ( | ) | ( | ) | ||||||||||||||||
| Common stock issued for cash and warrants, net | ||||||||||||||||||||
| Stock-based compensation | – | |||||||||||||||||||
| Common stock issued for license agreement | ||||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance December 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Exercise of warrants | ||||||||||||||||||||
| Stock-based compensation | – | |||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2023 | ( | ) | ||||||||||||||||||
| Common stock issued for cash, net | ||||||||||||||||||||
| Exercise of warrants | ||||||||||||||||||||
| Stock-based compensation | – | |||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance, June 30, 2023 | ( | ) | ||||||||||||||||||
| Common stock issued for cash, net | ||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
See accompanying notes to the unaudited financial statements.
| 5 |
CNS Pharmaceuticals, Inc.
Statements of Cash Flows
(Unaudited)
| Nine Months Ended | Nine Months Ended | |||||||
| September 30, 2024 | September 30, 2023 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | ||||||||
| Common stock issued for license agreement | ||||||||
| Depreciation | ||||||||
| (Gain) loss on disposal of fixed assets | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Payments of deferred offering costs | ( | ) | ||||||
| Payments on notes payable | ( | ) | ( | ) | ||||
| Proceeds from exercise of warrants | ||||||||
| Proceeds from sale of common stock and warrants, net | ||||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, at beginning of period | ||||||||
| Cash and cash equivalents, at end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Reclassification of deferred offering costs to equity | $ | $ | ||||||
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.
On August 25, 2022, the stockholders of the Company approved an amendment
to the Company’s amended and restated articles of incorporation (the “Amendment”) to effect the reverse stock split
at a ratio in the range of 1-for-2 to 1-for-30. The reverse stock split became effective on November 28, 2022 on a
On April 30, 2024, the stockholders of the Company approved an amendment
to the Company’s amended and restated articles of incorporation (the “Amendment”) to effect the reverse stock split
at a ratio in the range of 1-for-2 to 1-for-50. The reverse stock split became effective on June 4, 2024 on a
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 and nine months ended September 30, 2024 are not necessarily indicative of the final results that may be expected for the year ending December 31, 2024. 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, 2023 included in our Form 10-K filed with the SEC on April 1, 2024 (“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.
| 7 |
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 September 30, 2024 was $
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.
Note 3 – Note Payable
On November 28, 2023, the Company entered into a short-term note payable
for an aggregate of $
Note 4 – Equity
The Company has authorized shares of common stock having a par value of $ per share. In addition, the Company authorized shares of preferred stock to be issued having a par value of $. The specific rights of the preferred stock shall be determined by the board of directors. On May 2, 2024, the Company filed a Certificate of Amendment to its Amended and Restated Articles of Incorporation with the Secretary of State of the State of Nevada to increase the number of the Company’s authorized shares of common stock from shares to shares.
On August 25, 2022, the stockholders of the Company approved an amendment to the Company’s amended and restated articles of incorporation (the “Amendment”) to effect the reverse stock split at a ratio in the range of 1-for-2 to 1-for-30, with such ratio to be determined in the discretion of the Company’s board of directors and with such reverse stock split to be effected at such time and date, if at all, as determined by the Company’s board of directors in its sole discretion prior to the one-year anniversary of the annual meeting.
| 8 |
Pursuant to such authority granted by the Company’s stockholders,
the Company’s board of directors approved a one-for-thirty (1:30) reverse stock split of the Company’s common stock and the
filing of the Amendment to effectuate the reverse split. The reverse stock split became effective on November 28, 2022 on a
On April 30, 2024, the stockholders of the Company approved an amendment to the Company’s amended and restated articles of incorporation (the “Amendment”) to effect the reverse stock split at a ratio in the range of 1-for-2 to 1-for-50, with such ratio to be determined in the discretion of the Company’s board of directors and with such reverse stock split to be effected at such time and date, if at all, as determined by the Company’s board of directors in its sole discretion prior to the one-year anniversary of the annual meeting.
Pursuant to such authority granted by the Company’s stockholders,
the Company’s board of directors approved a one-for-fifty (1:50) reverse stock split of the Company’s common stock and the
filing of the Amendment to effectuate the reverse split. The reverse stock split became effective on June 4, 2024 on a
On April 30, 2024, the Company held its scheduled 2024 Annual Meeting of Stockholders at which the Company’s stockholders approved amendments to the Company's 2020 Equity Plan (the “2020 Plan”) including an increase in the number of shares of common stock, par value $0.001 per share, authorized for issuance under the 2020 Plan by 70,000 shares. As amended, the number of shares of the common stock that may be issued under the 2020 Plan is shares (this includes the 70,000 share increase).
Common Stock
On January 29, 2024, the Company entered into a placement agency agreement
with A.G.P./Alliance Global Partners (“AGP”) and Maxim Group LLC (“Maxim” and collectively with AGP, the “Placement
Agents”) (the “Placement Agreement”) for the public offering by the Company of (i) shares (the “Shares”)
of the Company’s common stock, par value $0.001 per share (the “Common Stock”) (ii) pre-funded warrants to purchase
shares of Common Stock (the “Pre-Funded Warrants”); (iii) Series A Warrants to purchase up to an aggregate of
shares of Common Stock (the “Series A Warrants”); and (iv) Series B Warrants to purchase up to an aggregate of
shares of Common Stock (the “Series B Warrants”, and together with the Series A Warrants, the “Common Warrants)). The
Common Warrants and Pre-Funded Warrants are collectively referred to herein as the (“Warrants”). The combined purchase price
of one share of Common Stock and accompanying Common Warrants was $15.00 and the combined purchase price of one Pre-Funded Warrant and
accompanying Common Warrants was $14.95. In connection with the offering, the Company entered into a Securities Purchase Agreement (the
“Purchase Agreement”) with certain institutional investors that participated in the offering. As of April 1, 2024,
On June 14, 2024, the Company entered into securities purchase agreements with institutional investors for the sale by the Company of shares of the Company’s common stock and pre-funded warrants to purchase shares of common stock in lieu thereof (the “June 14 Pre-Funded Warrants”) in a registered direct offering. In a concurrent private placement, the Company also sold to the investors unregistered warrants to purchase up to an aggregate of shares of common stock (the “June 14 Common Warrants”). The combined purchase price of one share of common stock (or pre-funded warrant in lieu thereof) and accompanying June 14 Common Warrant was $3.75. The closing of this offering and private placement occurred on June 17, 2024.
Subject to certain ownership limitations, each of the June 14 Common Warrants is immediately exercisable, has an exercise price of $3.62 per share, and expire five years from the date of issuance.
| 9 |
Subject to certain ownership limitations, each June 14 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). The gross proceeds to the Company from the offering was approximately $
On June 26, 2024, the Company entered into securities purchase agreements with institutional investors for the sale by the Company of shares of the Company’s common stock in a registered direct offering. In a concurrent private placement, the Company also sold to the investors unregistered warrants to purchase up to an aggregate of shares of common stock (the “June 26 Common Warrants”). The combined purchase price of one share of common stock and accompanying June 26 Common Warrant was $2.45. The closing of the offering and private placement occurred on June 27, 2024 (the “Closing Date”).
Subject to certain ownership limitations, each of the June 26 Common
Warrants is immediately exercisable, has an exercise price of $2.32 per share, and expire five years from the date of issuance. The June
26 Common Warrants may only be exercised on a cashless basis if there is no registration statement registering, or a prospectus contained
therein in not available for, the resale of the shares of common stock underlying the June 26 Common Warrants. The gross proceeds to the
Company from the offering were approximately $
On July 3, 2024, the Company entered into securities purchase agreements with institutional investors for the sale by the Company of shares of the Company’s common stock in a registered direct offering. In a concurrent private placement, the Company also sold to the investors unregistered warrants to purchase up to an aggregate of shares of common stock (the “July 3 Common Warrants”). The combined purchase price of one share of common stock and accompanying July 3 Common Warrant is $1.39. The closing of this offering and private placement occurred on July 5, 2024.
Subject to certain ownership limitations, each of the July 3 Common
Warrants is immediately exercisable, has an exercise price of $1.26 per share, and expire five years from the date of issuance. The gross
proceeds to the Company from the offering were approximately $
On July 26, 2024, the Company entered into a Sales Agreement (the “AGP
ATM Sales Agreement”) with A.G.P./Alliance Global Partners (“AGP”). Pursuant to the terms of the AGP ATM Sales Agreement,
the Company originally was permitted to sell from time to time through AGP, as sales agent or principal, shares of the Company’s
common stock, par value $0.001 per share with initial aggregate sales price of up to $5.2 million. On July 30, 2024, the Company increased
the aggregate sales price of common shares that may be sold under the AGP ATM Sales Agreement to $25.0 million (not including the original
$5.2 million). As of September 30, 2024, the Company has sold Shares pursuant to the Agreement for net proceeds of approximately
$
Common share issued for license agreement
On July 29, 2024, the Company entered into an Exclusive License Agreement and Stock Purchase Agreement (collectively, the “Cortice Agreements”) with Cortice Biosciences, Inc. (“Cortice”) pursuant to which Cortice granted the Company an exclusive license to the intellectual property rights related to certain patents around the compound TPI 287 in the United States, Canada, Mexico and Japan. The term of the license will expire, other than due to a breach of the Cortice Agreements, at the end of the royalty term with respect to any licensed product in any of the included territories, which begins upon the first commercial sale in such territory and ends on the latest of (i) ten years after such sale, (ii) the expiration of regulatory or marketing exclusivity for such licensed product in such country, or (c) the expiration of the last to expire valid patent claim in such country covering such licensed product.
| 10 |
Pursuant to the Cortice Agreements, the Company agreed to issue
Cortice
shares of the Company’s common stock upon the closing of the transaction, which occurred on July 29, 2024, and
shares of Company common stock upon the receipt of shareholder approval of such issuance as required by the rules of the Nasdaq
Stock Market. The Company also agreed to make milestone payments to Cortice in either cash or shares of Company common stock (at
Cortice’s option) upon: (i) meeting the primary endpoint a pivotal trial for a licensed product – either $15.0 million
or 411,132 shares of Company common stock; (ii) FDA acceptance of an New Drug Application for a licensed product – either
$30.0 million or 822,264 shares of Company common stock; (iii) the first commercial sale in the United States of a licensed product
– either $45.0 million or 1,233,395 shares of Company common stock; and (iv) the first commercial sale in Japan of a licensed
product – either $10.0 million or 205,566 shares of Company common stock. The Company’s obligation to pay the above
milestones in Company common stock is subject to the receipt of shareholder approval as required by the rules of the Nasdaq Stock
Market. The Company also agreed to pay Cortice royalties on sales of licensed products of between 3.0%-7.5%. Finally, to the extent
Cortice is required to pay any milestone payments to the original holder of the intellectual property rights licensed, the Company
has agreed to make such payments to Cortice. As of September 30, 2024, there were no accruals related to the milestone payments and
the Company issued
Shares with a fair value of $
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.
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. The 2020 Plan was amended effective as of August 9, 2023, which was approved by the Company’s stockholders at the Company’s annual meeting on September 14, 2023. The amendment increased the 2020 Plan by shares of common stock.
On January 19, 2024, the Board of Directors of the Company approved
the issuance of options to Ms. Mahery as compensation for her appointment to our Board of Directors. The options have a ten-year term
at an exercise price of $ and vest in 36 equal monthly installments succeeding the issuance date. The total fair value of these option
grants at issuance was $
On April 7, 2024, the Board of Directors approved grants of options
to officers, employees, and board of directors. The options have a ten-year term at an exercise price of $. Of the options
issued, options vest on the first anniversary or at the time of the 2025 shareholder meeting, whichever occurs first and options vest in 36 equal monthly installments over 3 years. The total fair value of these option grants at issuance was $
During the nine months ended September 30, 2024 and 2023, the Company recognized $ and $ of stock-based compensation, respectively, related to outstanding stock options. At September 30, 2024, the Company had $ of unrecognized expenses related to outstanding options.
The following table summarizes the stock option activity for the nine months ended September 30, 2024:
| Options | Weighted-Average Exercise Price Per Share | |||||||
| Outstanding, December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited | ||||||||
| Expired | ||||||||
| Outstanding, September 30, 2024 | $ | |||||||
| Exercisable, September 30, 2024 | $ | |||||||
| 11 |
The aggregate fair value of the options measured during the nine months ended September 30, 2024 were calculated using the Black-Scholes option pricing model based on the following assumptions:
Nine Months Ended September 30, 2024 | ||||
| Fair value of common stock on measurement date | ||||
| Risk free interest rate (1) | % to % | |||
| Volatility (2) | % to % | |||
| Dividend yield (3) | % | |||
| Expected term (in years) | to | |||
| (1) | |
| (2) | |
| (3) |
As of September 30, 2024, the outstanding stock options have a weighted average remaining term of years and aggregate intrinsic value. As of September 30, 2024, there were awards remaining to be issued under the 2017 Plan and awards remaining to be issued under the 2020 Plan.
Stock Warrants
On January 29, 2024, the Company entered into a warrant amendment agreement (the “Warrant Amendment”) pursuant to which the Company agreed, subject to shareholder approval (which was received on April 30, 2024), to amend certain existing warrants to purchase up to an aggregate of 75,120 shares of Common Stock at an exercise price of $64.00 per share and a termination date of October 16, 2028, so that the amended warrants will have a reduced exercise price of $15.00 per share and a new termination date of February 1, 2029.
During the nine months ended September 30, 2024, the Company received
$
The following table summarizes the stock warrant activity for the nine months ended September 30, 2024:
| Warrants | Weighted-Average Exercise Price Per Share | |||||||
| Outstanding, December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Exercised | ( | ) | ||||||
| Forfeited | ||||||||
| Expired | ( | ) | ||||||
| Outstanding, September 30, 2024 | $ | |||||||
| Exercisable, September 30, 2024 | $ | |||||||
As of September 30, 2024, the outstanding and exercisable warrants have a weighted average remaining term of years and had no aggregate intrinsic value.
| 12 |
Restricted Stock Units
On April 28, 2022, the Board of Directors granted officers and employees
a total of Restricted Stock Units that partially vest over 4 years. The Company valued the RSUs based on the stock price at grant
which total $
On April 7, 2024, the Board of Directors approved grants of RSUs
to officers, employees, and board of directors. Of the RSUs issued, RSUs vest on the first anniversary or at the time of the
2025 shareholder meeting, whichever occurs first and RSUs vest in 8 equal quarterly installments over 2 years. The Company valued
the RSUs based on the stock price at grant which total $
During the nine months ended September 30, 2024, the Company recognized $ of stock-based compensation, related to outstanding stock RSUs. At September 30, 2024, the Company had $ of unrecognized expenses related to outstanding RSUs.
The following table summarizes the RSUs activity for the nine months ended September 30, 2024:
| RSUs | Weighted-Average Grant Date Fair Value | |||||||
| Non-vested, December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Vested | ||||||||
| Forfeited | ||||||||
| Non-vested, September 30, 2024 | $ | |||||||
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) 193 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 $3,000 (subject to pro rata adjustment for stock splits or similar events), (ii) 192 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 $6,000 (subject to pro rata adjustment for stock splits or similar events) and (iii) 192 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 over the derived service period for the PUs with market conditions and over the requisite service period for PUs with performance conditions on the date when achievement of such conditions are deemed probable.
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 $501, hurdle prices ranging from $3,000 -$6,000, expected terms ranging from 2-3 years, cost of equity 18.7% and risk-free rate of 2.8%.
During the nine months ended September 30, 2024, the Company recognized $ related to outstanding stock PUs. At September 30, 2024, the Company had $ of unrecognized expenses related to PUs.
| 13 |
The following table summarizes the PUs activity for the nine months ended September 30, 2024:
| PUs | Weighted-Average Grant Date Fair Value | |||||||
| Non-vested, December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Cancelled | ( | ) | ||||||
| Non-vested, September 30, 2024 | $ | |||||||
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 $
On June 28, 2019, we entered into employment letters with Drs. Silberman and Picker. 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.
In March 2024, the Board of Directors approved, based upon the recommendation
of the Compensation Committee, cash bonuses totaling $
Scientific Advisory Board
On July 15, 2021, our Board approved the following compensation policy
for the Scientific Advisory Board members. The Scientific Advisory board consisted of Dr. Waldemar Priebe, our founder, and Dr. Sigmond
Hsu. Under this compensation policy, each scientific advisory board member was to receive annual cash compensation of $68,600. As of August
25, 2022, Dr. Waldemar Priebe was no longer a member of the Scientific Advisory Board. On March 14, 2024, the Board of Directors terminated
the cash compensation program for the Scientific Advisory Board. As of September 30, 2024, the Company has accrued $
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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.
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 134 shares of the Company’s common stock valued at $67.50 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 nine months ended September 30, 2024 and 2023, the Company recognized
$
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. As of December 31, 2021, the Company has received reports of the WPD expenditures related to this agreement, has conducted due inquiry into validating those expenditures, and has determined that WPD has exercised commercially reasonable development efforts and has therefore fulfilled the terms of the agreement necessary to secure their rights under the sublicense in perpetuity subject to the ongoing obligations of the sublicense. 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.
On August 31, 2018, the Company entered into a sublicense agreement with Animal Life Sciences, LLC (“ALI”), 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, is also the founder of ALI.
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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 an 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 (the “WP1244 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 WP1244 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 WP1244 Agreement. The term of the WP1244 Agreement expires on the last to occur of: (a) the expiration of all patents subject to the WP1244 Agreement, or (b) fifteen years after execution; provided that UTMDACC has the right to terminate this WP1244 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. The Company has not met the commercial diligence milestones and has not paid the annual maintenance fee required as of the date hereof. On April 25, 2024, UTMDACC provided notice to the Company of its intent to terminate the WP1244 Agreement if the Company fails to pay the annual maintenance fee of $50,000, as well as $1,300 in expenses. On May 25, 2024 the WP1244 Agreement was terminated. There are no termination penalty provisions in the Agreement. During the nine months ended September 30, 2024 and 2023, the Company paid $52,537 and $45,092, respectively.
Nasdaq Capital Markets Listing Qualifications
On September 12, 2024, the Company received a letter from the Staff of Nasdaq notifying the Company that for the previous 30 consecutive business days the Company’s common stock had not maintained a closing bid price of $1.00 per share (the “Minimum Bid Price Requirement”) required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2). Normally, a company would be afforded a 180-calendar day period to demonstrate compliance with the Minimum Bid Price Requirement. However, pursuant to Listing Rule 5810(c)(3)(A)(iv), the Company is not eligible for any compliance period specified in Rule 5810(c)(3)(A) because the Company effected one or more reverse stock splits over the prior two-year period with a cumulative ratio of 250 shares or more to one.
The Company requested a hearing before a Hearings Panel (the “Panel”), but prior to such hearing, on October 30, 2024 the Panel provided the Company a temporary exception to regain compliance with the Minimum Bid Price Requirement until March 11, 2025. The Panel noted that it reserves the right to reconsider the terms of this exception based on any event, condition or circumstance that exists or develops that would, in the opinion of the Panel, make continued listing of the Company’s securities on Nasdaq inadvisable or unwarranted. The Panel notification advised the Company that the Nasdaq Listing and Hearing Review Council may, on its own motion, determine to review any Panel decision within 45 calendar days after issuance of the written decision. If the Listing Council determines to review the Panel’s decision in the Company’s matter, it may affirm, modify, reverse, dismiss or remand the decision to the Panel.
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Note 6 – Subsequent Events
On October 23, 2024, the Company entered into a placement agency agreement (the “Placement Agency Agreement”) with A.G.P./Alliance Global Partners (the “Placement Agent”) in connection with the sale by the Company of: (i) 3,700,000 shares (the “Shares”) of the Company’s common stock, and (ii) pre-funded warrants to purchase 13,947,060 shares of common stock (the “Pre-Funded Warrants”), in a registered direct offering (the “Offering”). The per share purchase price of each share of common stock was $0.17 per share and the purchase price for each Pre-Funded Warrant was $0.169 per Pre-Funded Warrant. In connection with the Offering, the Company entered into a Securities Purchase Agreement with certain institutional investors that participated in the Offering. The gross proceeds to the Company from the Offering were approximately $3.0 million, before deducting the Placement Agent fees and other estimated offering expenses payable by the Company.
Pursuant to the terms of the AGP ATM Sales Agreement, the Company originally was permitted to sell from time to time through AGP, as sales agent or principal, shares of the Company’s common stock, par value $0.001 per share with initial aggregate sales price of up to $5.2 million. Subsequent to September 30, 2024, the Company has sold 6,393,243 Shares pursuant to the Agreement for net proceeds of approximately $1.6 million.
Subsequent to September 30, 2024, a total of 13,947,060 Warrants (exercisable into one share of common stock at a price per share of $0.001) were exercised by investors.
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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, 2023, 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, 2023 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 maintain our listing on the Nasdaq Capital Market; | |
| · | our ability to obtain additional funding to develop our product candidates; | |
| · | the need to obtain regulatory approval of our product candidates; |
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| · | 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; | |
| · | 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”).
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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 U.S. Food and Drug Administration (“FDA”), could give Glioblastoma patients an important new therapeutic alternative to the current standard of care. 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 cross the blood brain barrier (“BBB”) in significant concentrations targeting brain cancer cells. While our focus is currently on the development of Berubicin, we are also in the process of attempting to secure intellectual property rights to additional compounds that we plan to develop into drugs to treat CNS and other cancers.
Berubicin was discovered at UTMDACC by Dr. Waldemar Priebe, the founder of the Company. Through a series of transactions, Berubicin was initially licensed to Reata. Reata initiated several Phase I clinical trials 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 initiated 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 safety and efficacy of Berubicin in adults with Glioblastoma Multiforme who have failed first-line therapy. The first patient on the trial was treated during the third quarter of 2021. Correspondence between the Company and the FDA resulted in modifications to our initial 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 current trial being conducted will evaluate the safety and efficacy of Berubicin in patients with Glioblastoma Multiforme who have failed primary treatment for their disease, and results will be compared to the safety and efficacy of Lomustine, a current standard of care in this setting, with a 2 to 1 randomization of the 252 patients to Berubicin or Lomustine. Patients receiving Berubicin are administered a 2-hour IV infusion of 7.5 mg/m2 berubicin hydrochloride daily for three consecutive days followed by 18 days off (a 21-day cycle). Lomustine is administered orally once every six weeks. The trial design included a pre-planned, non-binding interim futility analysis. We reached the criteria required by the study protocol to conduct this interim futility analysis, which an independent Data Safety Monitoring Board (“DSMB”) is responsible for conducting. The DSMB’s charter mandated that they review the primary endpoint, Overall Survival, as well as secondary endpoints and safety data to determine whether the efficacy data for the risk-benefit profile warrants modification or discontinuation of the study. On December 18, 2023, we released the DSMB’s recommendation which was to continue the study without modification. Management remains blinded to the data underlying the recommendation of the DSMB. 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.
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 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) 134 shares of our common stock. The patents we licensed from HPI expired in March 2020. On May 14, 2024, the Company provided notice to HPI of its intent to terminate the HPI License effective on or about July 14, 2024.
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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.
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.
On January 10, 2020, we entered into a Patent and Technology License Agreement (the “WP1244 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 WP1244 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. On April 25, 2024, UTMDACC provided notice to us if its intent to terminate the WP1244 Agreement if we fail to pay the annual maintenance fee of $50,000, as well as $1,300 in expenses. On May 25, 2024 the WP1244 Agreement was terminated. There are no termination penalty provisions in the Agreement.
Results of Operations for the Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023
General and Administrative Expense
General and administrative expense was approximately $1,384,000 for the three months ended September 30, 2024 compared to approximately $1,123,000 for the comparable period in 2023. The increase in general and administrative expense was mainly attributable to increases of approximately $269,000 in legal and professional expenses, $63,000 in stock- based compensation and $12,000 in other expenses, which were offset by decreases of approximately $60,000 in marketing , advertising expenses and $23,000 in insurance expense.
Research and Development Expense
Research and development expense was approximately $4,245,000 for the three months ended September 30, 2024 compared to approximately $3,411,000 for the comparable period in 2023. The increase in research and development expenses during the period were mainly attributed to license expenses related to the Cortice Agreements entered during the quarter.
Net Loss
The net loss for the three months ended September 30, 2024 was approximately $5,606,000 compared to approximately $4,523,000 for the comparable period in 2023. The change in net loss is attributable to an increase in CRO expenses related to continued progress with our potentially pivotal Phase II clinical trial of Berubicin, as well as increases in legal and professional fees and other expenses.
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Results of Operations for the Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023
General and Administrative Expense
General and administrative expense was approximately $3,910,000 for the nine months ended September 30, 2024 compared to approximately $3,662,000 for the comparable period in 2023. The increase in general and administrative expense was mainly attributable to increases of approximately $449,000 in professional expenses and $11,000 in other expenses, which were offset by decreases of approximately $106,000 in marketing and advertising expense, $77,000 in insurance expense and $18,000 in travel expenses and $11,000 in stock- based compensation.
Research and Development Expense
Research and development expense was approximately $7,792,000 for the nine months ended September 30, 2024 compared to approximately $9,824,000 for the comparable period in 2023. The decrease in research and development expenses during the period were mainly attributed to the timing of 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 trial, processing reimbursement to the sites for patient treatment, and assisting with necessary submissions to amend the IND. CRO expenditures are expected to continue to decline throughout the remainder of the trial as the final patients complete treatment and enter follow-up.
Net Loss
The net loss for the nine months ended September 30, 2024 was approximately $11,681,000 compared to approximately $13,476,000 for the comparable period in 2023. The change in net loss is attributable to a decrease in CRO expenses related to continued progress with our potentially pivotal Phase II clinical trial of Berubicin, as well as decreases in contract labor.
Liquidity and Capital Resources
On September 30, 2024, we had cash of approximately $6,973,000 and we had a working capital of approximately $3,331,000. We fund our operations from proceeds from equity sales.
On January 29, 2024, we completed a public offering of (i) 44,314 shares of our common stock; (ii) pre-funded warrants to purchase 222,354 shares of common stock; (iii) Series A Warrants to purchase up to an aggregate of 266,667 shares of common stock; and (iv) Series B Warrants to purchase up to an aggregate of 266,667 shares of common stock. The combined purchase price of one share of common stock and accompanying Series A & B common warrants was $15 and the combined purchase price of one pre-funded warrant and accompanying Series A & B common warrants was $14.95 (with the pre-funded warrants having an exercise price of $0.001). The closing of the sales of these securities occurred on February 1, 2024. The gross proceeds from the offering were approximately $4.0 million, before deducting the placement agent’s fees and other offering expenses.
On June 14, 2024, we entered into agreements with institutional investors for the sale of 336,000 shares of our common stock and pre-funded warrants to purchase 30,000 shares of common stock in lieu thereof (the “June 14 Pre-Funded Warrants”) in a registered direct offering. In a concurrent private placement, we also sold to the investors unregistered warrants to purchase up to an aggregate of 366,000 shares of common stock (the “June 14 Common Warrants”). The combined purchase price of one share of common stock (or pre-funded warrant in lieu thereof) and accompanying June 14 Common Warrant was $3.75. The gross proceeds from the offering were approximately $1.37 million, resulting in net proceeds, after payment of commissions and expenses, received by us of $1,203,267.
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On June 26, 2024, we entered into agreements with institutional investors for the sale of 568,000 shares of our common stock in a registered direct offering. In a concurrent private placement, we also sold to the investors unregistered warrants to purchase up to an aggregate of 568,000 shares of common stock (the “June 26 Common Warrants”). The combined purchase price of one share of common stock and accompanying June 26 Common Warrant was $2.45. The gross proceeds from the offering were approximately $1.39 million resulting in net proceeds, after payment of commissions and expenses, received by the Company of $1,221,146.
On July 26, 2024, the Company entered into a Sales Agreement (the “AGP ATM Sales Agreement”) with A.G.P./Alliance Global Partners (“AGP”). Pursuant to the terms of the AGP ATM Sales Agreement, the Company originally was permitted to sell from time to time through AGP, as sales agent or principal, shares of the Company’s common stock with initial aggregate sales price of up to $5.2 million. On July 30, 2024, the Company increased the aggregate sales price of common shares that may be sold under the AGP ATM Sales Agreement to $25.0 million (not including the original $5.2 million). As of September 30, 2024, the Company has sold 30,004,761 shares of common stock pursuant to the Agreement for net proceeds of approximately $10.6 million.
On October 23, 2024, the Company entered into a placement agency agreement (the “Placement Agency Agreement”) with A.G.P./Alliance Global Partners (the “Placement Agent”) in connection with the sale by the Company of: (i) 3,700,000 shares (the “Shares”) of the Company’s common stock, and (ii) pre-funded warrants to purchase 13,947,060 shares of common stock (the “Pre-Funded Warrants”), in a registered direct offering (the “Offering”). The per share purchase price of each share of common stock was $0.17 per share and the purchase price for each Pre-Funded Warrant was $0.169 per Pre-Funded Warrant. In connection with the Offering, the Company entered into a Securities Purchase Agreement with certain institutional investors that participated in the Offering. The closing of the Offering occurred on October 24, 2024. The gross proceeds to the Company from the Offering were approximately $3.0 million, before deducting the Placement Agent fees and other estimated offering expenses payable by the Company.
Pursuant to the terms of the AGP ATM Sales Agreement, the Company originally was permitted to sell from time to time through AGP, as sales agent or principal, shares of the Company’s common stock, par value $0.001 per share with initial aggregate sales price of up to $5.2 million. Subsequent to September 30, 2024, the Company has sold 6,393,243 Shares pursuant to the Agreement for net proceeds of approximately $1.6 million.
Our plan of operations is primarily focused on completing a clinical trial for Berubicin. Our current expectation is that our cash on hand as of the date of this filing is sufficient to fund our operations through the first quarter of 2025. We currently expect to release final top-line data for our potentially pivotal trial of Berubicin in the first half of 2025. If capital is available to fund TPI 287 clinical preparations and drug manufacturing for a potentially pivotal Phase 2 trial of TPI 287, we would need to raise an additional $4.0 million to support near-term development of that program. 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.
Summary of Cash Flows
Cash used in operating activities
Net cash used in operating activities was approximately $11,642,000 and $11,604,000 for the nine months ended September 30, 2024 and 2023, respectively, and mainly included payments made for clinical trial preparation, officer compensation, insurance, marketing and professional fees to our consultants, attorneys and accountants.
Cash provided by financing activities
Net cash provided by financing activities was approximately $18,067,000 for the nine months ended September 30, 2024, related to the sale of common stock and exercise of warrants, which were offset by the repayment of notes payable and payment of deferred offering costs. Net cash provided by financing activities was approximately $2,460,000 for the nine months ended September 30, 2023, related to the sale of common stock and exercise of warrants, which were offset by the repayment of notes payable.
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Off-balance Sheet Arrangements
As of September 30, 2024, 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 milestones fees to HPI, Reata and Cortice 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. As a result, management is required to routinely make judgments and estimates about the effects of matters that are inherently uncertain. Actual results may differ from these estimates under different conditions or assumptions. Management determined there were no critical accounting estimates.
| 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.
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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 September 30, 2024, 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 September 30, 2024, 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 lack of segregation of duties (resulting from the limited number of personnel available), limited access to timely and complete information regarding the status of costs incurred in the activation of investigational sites and costs from treating patients in our study which is a result of the use of a third-party Contract Research Organization (“CRO”) to manage the study, and the lack of formal documentation of our control environment. Management is commencing actions to address the lack of formal documentation of our control environment, although this will not address the lack of segregation of duties. Management is also working with the CRO to improve the timeliness and completeness of the data reported to the Company to address this material weakness, as well as conducting increased analytical analysis of such data to be performed by the Company.
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.
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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 set forth below and discussed in the section entitled “Risk Factors” in our 2023 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.
If we are unable to maintain compliance with the listing requirements of The Nasdaq Capital Market, our common stock may be delisted from The Nasdaq Capital Market which could have a material adverse effect on our financial condition and could make it more difficult for shareholders to sell their shares.
Our common stock is listed on The Nasdaq Capital Market, and we are therefore subject to its continued listing requirements, including requirements with respect to the market value of publicly-held shares, market value of listed shares, minimum bid price per share, and minimum stockholder's equity, among others, and requirements relating to board and committee independence. If we fail to satisfy one or more of the requirements, we may be delisted from The Nasdaq Capital Market.
On September 12, 2024, we received a letter from the Staff of Nasdaq notifying us that for the previous 30 consecutive business days our common stock had not maintained a closing bid price of $1.00 per share (the “Minimum Bid Price Requirement”) required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2). Normally, a company would be afforded a 180-calendar day period to demonstrate compliance with the Minimum Bid Price Requirement. However, pursuant to Listing Rule 5810(c)(3)(A)(iv), we were not eligible for any compliance period specified in Rule 5810(c)(3)(A) because we effected one or more reverse stock splits over the prior two-year period with a cumulative ratio of 250 shares or more to one. We requested a hearing before a Hearings Panel (the “Panel”), but prior to such hearing, on October 30, 2024 the Panel provided us a temporary exception to regain compliance with the Minimum Bid Price Requirement until March 11, 2025. The Panel noted that it reserves the right to reconsider the terms of this exception based on any event, condition or circumstance that exists or develops that would, in the opinion of the Panel, make continued listing of our securities on Nasdaq inadvisable or unwarranted. The Panel notification advised us that the Nasdaq Listing and Hearing Review Council may, on its own motion, determine to review any Panel decision within 45 calendar days after issuance of the written decision. If the Listing Council determines to review the Panel’s decision in our matter, it may affirm, modify, reverse, dismiss or remand the decision to the Panel.
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We were previously not in compliance with the minimum $2,500,000 stockholders’ equity requirement for continued listing set forth in Listing Rule 5550(b) (the “Equity Requirement”). On September 10, 2024, we received a letter from the Nasdaq Office of General Counsel that we had demonstrated compliance with the Equity Requirement and that the matter is closed. According to the letter, pursuant to Nasdaq Listing Rule 5815(d)(4)(B), we are subject to a Mandatory Panel Monitor for a period of one year from the date of the letter. If, within that one-year monitoring period, the Staff finds us again out of compliance with the Equity Requirement, notwithstanding Listing Rule 5810(c)(2), we will not be permitted to provide the Staff with a plan of compliance with respect to that deficiency and Staff will not be permitted to grant additional time for us to regain compliance with respect to that deficiency, nor will we be afforded an applicable cure or compliance period pursuant to Listing Rule 5810(c)(3). Instead, Staff will issue a Delist Determination Letter and we will have an opportunity to request a new hearing with the initial Panel or a newly convened Hearings Panel if the initial Panel is unavailable. We will have the opportunity to respond/present to the Hearings Panel as provided by Listing Rule 5815(d)(4)(C). Our common stock may be at that time delisted from Nasdaq.
There can be no assurance that we will continue to meet the continued listing requirements of The Nasdaq Capital Market and could be subject to delisting at a future time. Delisting from The Nasdaq Capital Market would adversely affect our ability to raise additional financing through the public or private sale of equity securities, may significantly affect the ability of investors to trade our securities and may negatively affect the value and liquidity of our common stock. Delisting also could have other negative results, including the potential loss of employee confidence, the loss of institutional investors or interest in business development opportunities.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Except as previously disclosed on Form 8-K, we have not issued any unregistered securities during the quarter ended September 30, 2024.
| Item 3. | Defaults Upon Senior Securities |
None.
| Item 4. | Mine Safety Disclosures |
Not applicable.
| Item 5. | Other Information |
During the period covered by this Quarterly Report,
none of the Company’s directors or executive officers has
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| Item 6. | Exhibits |
INDEX TO EXHIBITS
|
Exhibit Number |
Description | |
| 4.1 | Form of Common Warrant issued in July 3, 2024 offering (incorporated by reference to exhibit 4.1 of the Form 8-K filed July 3, 2024) | |
| 4.2 | Form of Pre-Funded Warrant (incorporated by reference to exhibit 4.1 of the Form 8-K filed October 24, 2024) | |
| 10.1 | Financial Advisory Agreement dated July 3, 2024 by and among CNS Pharmaceuticals, Inc., A.G.P./Alliance Global Partners (incorporated by reference to exhibit 10.2 of the Form 8-K filed June 26, 2024) | |
| 10.2 | Form of Securities Purchase Agreement (incorporated by reference to exhibit 10.1 of the Form 8-K filed July 3, 2024) | |
| 10.3 | Sales Agreement, dated July 26, 2024, by and between CNS Pharmaceuticals, Inc. and A.G.P./Alliance Global Partners (incorporated by reference to exhibit 1.1 of the Form 8-K filed July 26, 2024) | |
| 10.4 | Form of Waiver and Consent, dated July 26, 2024 (incorporated by reference to exhibit 10.1 of the Form 8-K filed July 26, 2024) | |
| 10.5+ | Exclusive License Agreement between CNS Pharmaceuticals, Inc. and Cortice Biosciences, Inc. (incorporated by reference to exhibit 10.1 of the Form 8-K filed July 30, 2024) | |
| 10.6 | Stock Purchase Agreement between CNS Pharmaceuticals, Inc. and Cortice Biosciences, Inc. (incorporated by reference to exhibit 10.2 of the Form 8-K filed July 30, 2024) | |
| 10.7 | Placement Agency Agreement dated October 23, 2024, between CNS Pharmaceuticals, Inc. and A.G.P./Alliance Global Partners (incorporated by reference to exhibit 1.1 of the Form 8-K filed October 24, 2024) | |
| 10.8 | Form of Securities Purchase Agreement (incorporated by reference to exhibit 10.1 of the Form 8-K filed October 24, 2024) | |
| 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. |
| + | Pursuant to Item 601(b)(10)(iv) of Regulation S-K promulgated by the SEC, certain portions of this exhibit have been redacted. The Company hereby agrees to furnish supplementally to the SEC, upon its request, an unredacted copy of this exhibit. |
| (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. |
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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 | November 14, 2024 | ||
| John Climaco | (principal executive officer) | |||
| /s/ Christopher Downs | Chief Financial Officer | November 14, 2024 | ||
| Christopher Downs | (principal financial and accounting officer) |
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