CNS Pharmaceuticals, Inc. 10-K

Item 8. Financial Statements and Supplementary Data. CNS Pharmaceuticals, Inc. Index to Financial Statements Page Report of Independent Registered Public Accounting Firm 40 Balance Sheets as of December 31, 2021 and 2020 41 Statements of Operations for the years ended December 31, 2021 and 2020 42 Statements of Stockholders’ Equity for the years ended December 31, 2021 and 2020 43 Statements of Cash Flows for the years ended December 31, 2021 and 2020 44 Notes to Financial Statements 45-55 39 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of CNS Pharmaceuticals, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of CNS Pharmaceuticals, Inc. (the “Company”) as of December 31, 2021 and 2020, and the related statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Going Concern Matter The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ MaloneBailey, LLP www.malonebailey.com We have served as the Company's auditor since 2019. Houston, Texas March 2, 2022 206 206 40 CNS Pharmaceuticals, Inc. Balance Sheets December 31, 2021 December 31, 2020 Assets Current Assets: Cash and cash equivalents $ 5,004,517 $ 14,039,493 Prepaid expenses 2,472,933 1,456,350 Total current assets 7,477,450 15,495,843 Noncurrent Assets: Prepaid expenses, net of current portion 929,688 – Property and equipment, net 16,109 23,431 Deferred offering costs 334,138 334,138 Total noncurrent assets 1,279,935 357,569 Total Assets $ 8,757,385 $ 15,853,412 Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 1,522,823 $ 946,330 Accrued expenses 224,949 519,804 Notes payable 387,794 439,294 Total current liabilities 2,135,566 1,905,428 Total Liabilities 2,135,566 1,905,428 Commitments and contingencies – – Stockholders' Equity: Preferred stock, $ 0.001 par value, 5,000,000 shares authorized and 0 shares issued and outstanding – – Common stock, $ 0.001 par value, 75,000,000 shares authorized and 27,927,217 and 23,856,151 shares issued and outstanding, respectively 27,927 23,856 Additional paid-in capital 41,576,813 34,870,471 Accumulated deficit ( 34,982,921 ) ( 20,946,343 ) Total Stockholders' Equity 6,621,819 13,947,984 Total Liabilities and Stockholders' Equity $ 8,757,385 $ 15,853,412 See accompanying notes to the financial statements. 41 CNS Pharmaceuticals, Inc. Statements of Operations Year Ended December 31, 2021 Year Ended December 31, 2020 Operating expenses: General and administrative $ 4,680,840 $ 4,392,873 Research and development 9,346,453 5,061,734 Total operating expenses 14,027,293 9,454,607 Loss from operations ( 14,027,293 ) ( 9,454,607 ) Other expenses: Interest expense ( 9,285 ) ( 3,264 ) Total other expenses ( 9,285 ) ( 3,264 ) Net loss $ ( 14,036,578 ) $ ( 9,457,871 ) Loss per share - basic and diluted $ ( 0.53 ) $ ( 0.57 ) Weighted average shares outstanding - basic and diluted 26,353,282 16,618,441 See accompanying notes to the financial statements. 42 CNS Pharmaceuticals, Inc. Statements of Stockholders' Equity For the years ended December 31, 2021 and 2020 Additional Total Common Stock Paid-in Accumulated Stockholders' Shares Amount Capital Deficit Equity Balance December 31, 2019 16,450,234 $ 16,450 $ 19,073,098 $ ( 11,488,472 ) $ 7,601,076 Common stock and warrants issued for cash, net 7,203,926 7,204 14,108,281 – 14,115,485 Common stock issued for deferred offering costs 201,991 202 395,700 – 395,902 Stock-based compensation – – 1,293,392 – 1,293,392 Net loss – – – ( 9,457,871 ) ( 9,457,871 ) Balance December 31, 2020 23,856,151 23,856 34,870,471 ( 20,946,343 ) 13,947,984 Common stock and warrants issued for cash, net 2,063,509 2,063 4,651,758 – 4,653,821 Exercise of warrants 1,907,557 1,908 330,842 – 332,750 Stock-based compensation 100,000 100 1,723,742 – 1,723,842 Net loss – – – ( 14,036,578 ) ( 14,036,578 ) Balance December 31, 2021 27,927,217 $ 27,927 $ 41,576,813 $ ( 34,982,921 ) $ 6,621,819 See accompanying notes to the financial statements. 43 CNS Pharmaceuticals, Inc. Statements of Cash Flows Year Ended December 31, 2021 Year Ended December 31, 2020 Cash Flows from Operating Activities: Net loss $ ( 14,036,578 ) $ ( 9,457,871 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation 1,723,842 1,293,392 Depreciation 13,070 11,096 Loss on disposal of fixed assets – 1,583 Changes in operating assets and liabilities: Prepaid expenses ( 1,520,281 ) ( 321,353 ) Accounts payable 576,493 702,664 Accounts payable and accrued expenses - related party – ( 45,833 ) Accrued expenses ( 294,855 ) 498,304 Net cash used in operating activities ( 13,538,309 ) ( 7,318,018 ) Cash Flows from Investing Activities: Purchase of property and equipment ( 5,748 ) ( 17,945 ) Net cash used in investing activities ( 5,748 ) ( 17,945 ) Cash Flows from Financing Activities: Payment of deferred offering costs – ( 45,000 ) Payments on notes payable ( 477,490 ) ( 43,081 ) Proceeds from exercise of warrants 332,750 – Proceeds from sale of common stock and warrants 4,653,821 14,222,249 Net cash provided by financing activities 4,509,081 14,134,168 Net change in cash and cash equivalents ( 9,034,976 ) 6,798,205 Cash and cash equivalents, at beginning of period 14,039,493 7,241,288 Cash and cash equivalents, at end of period $ 5,004,517 $ 14,039,493 Supplemental disclosures of cash flow information: Cash paid for interest $ 9,774 $ 1,708 Cash paid for income taxes $ – $ – Supplemental disclosure of non-cash investing and financing activities: Common stock issued for deferred offering costs $ – $ 395,902 Prepaid expenses financed with note payable $ 425,990 $ 482,375 Deferred offering costs offset against additional paid in capital $ – $ 106,764 Cashless exercise of warrants $ 1,756 $ – See accompanying notes to the financial statements. 44 CNS Pharmaceuticals, Inc. Notes to the Financial Statements 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 The accompanying financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). The Company’s fiscal year end is December 31. Use of Estimates in Financial Statement Presentation - The preparation of these financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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 or debt 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 at period end combined with the funds raised subsequent to year end 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 December 31, 2021 was $ 4,754,517 . 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. Property and Equipment - Property and equipment is recorded at cost and depreciated over their estimated useful lives using the straight-line depreciation method as follows: Schedule of estimated useful lives Leasehold improvement Shorter of estimated useful lives or the term of the lease Computer equipment 3 years Machinery and equipment 5 years Furniture and office equipment 7 years Repairs and maintenance costs are expensed as incurred. 45 Impairment of Long-lived Asset - The Company evaluates its long-lived tangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of a long-lived asset is measured by comparison of the carrying amount to the expected future undiscounted cash flows that the asset is expected to generate. Any impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Fair Value of Financial Instruments - The carrying value of short-term instruments, including cash and cash equivalents, accounts payable and accrued expenses, and short-term notes approximate fair value due to the relatively short period to maturity for these instruments. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company utilizes a three-level valuation hierarchy for disclosures of fair value measurements, defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value. The Company does not have any assets or liabilities that are required to be measured and recorded at fair value on a recurring basis. Related Parties - The Company follows ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. Income Taxes - The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of reported assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company must then assess the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The Company accounts for uncertain tax positions in accordance with the provisions of Accounting Standards Codification (ASC) 740-10 which prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken, or expected to be taken, on its tax return. The Company evaluates and records any uncertain tax positions based on the amount that management deems is more likely than not to be sustained upon examination and ultimate settlement with the tax authorities in the tax jurisdictions in which it operates. Stock-based Compensation - Employee and non-employee share-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period. 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. As of December 31, 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 4,214,977 common shares, and options for 2,864,736 common shares. As of December 31, 2020, the Company’s potentially dilutive shares and options, which were not included in the calculation of net loss per share, included warrants to purchase 6,861,630 common shares, and options for 2,200,736 common shares. 46 Research and Development Costs - Research and development costs are expensed as incurred. Recent Accounting Pronouncements The Company does not believe that any other recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements. Note 3 – Note Payable On November 8, 2021, the Company entered into a short-term note payable for an aggregate of $ 425,990 , bearing interest at 3.3 % per year to finance certain insurance policies. Principal and interest payments related to the note will be repaid over a 11-month period with the final payment due on September 30, 2022 . As of December 31, 2021, the Company’s note payable balance was $ 387,794 . During the year ended December 31, 2020, the Company entered into a short-term note payable for an aggregate of $ 482,375 , bearing interest at 4.25 % per year to finance certain insurance policies. Principal and interest payments related to the note will be repaid over a 11-month period with the final payment due on September 30, 2021 . As of December 31, 2020, the Company’s note payable balance was $ 439,294 . During the year ended December 31, 2021, the Company repaid the full balance of the note. Note 4 – Equity The Company has authorized 75,000,000 shares of common stock having a par value of $ 0.001 per share. In addition, the Company authorized 5,000,000 shares of preferred stock to be issued having a par value of $ 0.001 . The specific rights of the preferred stock shall be determined by the board of directors. 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 year ended December 31, 2021, the Company issued 25,000 common shares and recognized $ 50,500 of stock-based compensation related to the agreement and will issue the remaining shares over the service period. During the year ended December 31, 2021, the Company issued 75,000 shares of common stock and recognized $ 140,250 of expense for investor relations services for a four month period ending September 2021. On February 12, 2021, the Company entered into a Capital on Demand™ Sales Agreement (the “Agreement”) with JonesTrading Institutional Services LLC and Brookline Capital Markets, a division of Arcadia Securities, LLC (collectively, the “Agent”). Pursuant 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 year ended December 31, 2021, the Company sold 2,063,059 shares of common stock to the Agent for net proceeds of $ 4,653,821 . On September 15, 2020, Company entered into a purchase agreement (the “Purchase Agreement”), and a registration rights agreement (the “Registration Rights Agreement”), with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which Lincoln Park has committed to purchase up to $15.0 million worth of the Company’s common stock (the “Common Stock”). 47 Under the terms and subject to the conditions of the Purchase Agreement, the Company has the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase up to $15.0 million worth of shares of the Company’s Common Stock. Such sales of Common Stock by the Company, if any, will be subject to certain limitations, and may occur from time to time, at the Company’s sole discretion, over the 36-month period commencing on the date on which all of conditions precedent are satisfied, the “Commencement Date”), including that a registration statement covering the resale of shares of Common Stock that have been and may be issued under the Purchase Agreement has been declared effective by the SEC, a final prospectus in connection therewith is filed and the other conditions set forth in the purchase agreement are satisfied. Thereafter, under the Purchase Agreement, on any business day selected by the Company that the closing sale price of the Common Stock equals or exceeds the threshold price set forth in the Purchase Agreement, the Company may direct LPC to purchase up to 30,000 shares of Company Common Stock on such business day (each, a “Regular Purchase”), provided, however, that (i) the Regular Purchase may be increased to up to 50,000 shares, provided that the closing sale price of the Common Stock is not below $2.00 on the purchase date; (ii) the Regular Purchase may be increased to up to 75,000 shares, provided that the closing sale price of the Common Stock is not below $2.50 on the purchase date; (iii) the Regular Purchase may be increased to up to 100,000 shares, provided that the closing sale price of the Common Stock is not below $3.00 on the purchase date; and (iv) the Regular Purchase may be increased to up to 150,000 shares, provided that the closing sale price of the Common Stock is not below $4.00 on the purchase date. In each case, Lincoln Park’s maximum commitment in any single Regular Purchase may not exceed $1,000,000. In addition, after the Commencement Date, the Company may direct Lincoln Park to purchase, on two separate occasions that must be at least 30 business days apart, $1,000,000 worth of Common Stock per such purchase (each, a “Tranche Purchase”). The purchase price per share for each Regular Purchase and each Tranche Purchase will be based on prevailing market prices of the Common Stock immediately preceding the time of sale. There are no upper limits on the price per share that Lincoln Park must pay for shares of Common Stock under the Purchase Agreement. In addition to Regular Purchases and Tranche Purchases, the Company may also direct Lincoln Park to purchase other amounts as accelerated purchases or as additional accelerated purchases if the closing sale price of the Common Stock equals or exceeds the threshold price at the times set forth in the Purchase Agreement. The above-referenced share amount limitations and closing sale price thresholds are subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction as provided in the Purchase Agreement. As consideration for entering into the purchase agreement, the Company issued 201,991 shares of common stock to Lincoln Park as a commitment fee. The shares were valued at approximately $ 395,902 and were recorded as deferred offering costs on the balance sheet. In addition to the commitment shares, the Company recorded $ 45,000 of due diligence expenses and legal fees as deferred offering costs. The deferred charges will be charged against paid-in capital upon future proceeds from the sale of common stock under this agreement. During the year ended December 31, 2020, $ 106,764 of deferred offering cost were charged against paid-in capital. As of December 31, 2020 and 2021, unamortized deferred offering costs totaled $ 334,138 . During the year ended December 31, 2020, the Company sold 1,453,926 shares of common stock to Lincoln Park under the Purchase Agreement for net proceeds of $ 3,632,249 . On December 22, 2020, the Company entered into an underwriting agreement with A.G.P./Alliance Global Partners (the “Underwriters”), in connection with a public offering (the “Offering”) of an aggregate of (i) 5,000,000 shares (the “Shares”) of the Company’s common stock, and (ii) warrants to purchase 2,500,000 shares of common stock (the “Warrants”). In addition, the Company granted the Underwriter a 45-day option to purchase up to an additional 750,000 Shares and/or 375,000 Warrants to cover over-allotments, if any. Each Share sold in the Offering was sold together with a Warrant to purchase 0.5 shares of common stock as a fixed combination. The Shares and accompanying Warrants were sold at a price to the public of $2.00, less underwriting discounts and commissions. The Warrants are exercisable immediately, will expire on December 28, 2025 and have an exercise price of $2.20 per share, subject to anti-dilution and other adjustments for certain stock splits, stock dividends, or recapitalizations. The Company used the Black-Scholes option valuation model to estimate the fair value of the warrants with the following assumptions: fair value of common stock on December 28, 2020, the measurement date, $1.85, exercise price of $2.20, expected term of 5 years, volatility of 130.30% and risk free interest rate of 0.38%. As of December 31, 2020, the fair value of the 2,875,000 warrants issued was $ 4,485,441 and recorded to additional paid in capital as a cost of capital. The Offering, including the full over-allotment securities, closed on December 28, 2020 and the Company received net proceeds of $ 10,590,000 after deducting underwriting discounts, commissions and underwriter expenses associated with the Offering. 48 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 year ended December 31, 2020, the Board of Directors approved grants of 561,236 options to employees, Scientific Advisory Board members and members of the Board of Directors. The exercise price of the options ranges from $2.06 to $2.47 and expire ten-years following issuance. The total fair value of these option grants at issuance was $ 1,115,508 . 300,000 of the issued options vest in four equal annual installments beginning on the first anniversary following issuance. 261,236 of the issued options vest in one annual installment on the first anniversary of the grant date. During the year ended December 30, 2021, the Board of Directors approved grants of 739,000 options to officers, employees, board of directors and a consultant. The exercise price of the options ranges from $1.80 to $3.36 and the options expire ten-years following issuance. The total fair value of these option grants at issuance was $ 1,969,712 . Of the 739,000 options issued, 128,000 options vest on the first anniversary date of issuance, 75,000 options have a vesting term of 25% vest upon issuance, 50% vest upon Board approving a business development acquisition and 25% vest over a three year period in equal installments on each of the succeeding three anniversary dates. The remaining options issued vest in four equal annual installments beginning on the first anniversary following issuance. During the years ended December 31, 2021 and 2020, the Company recognized $ 1,533,092 and $ 1,208,154 of stock-based compensation, respectively, related to outstanding stock options. At December 31, 2021, the Company had $ 2,559,446 of unrecognized expenses related to options. The following table summarizes the stock option activity for the year ended December 31, 2021 and 2020: Schedule of Stock Option Activity Options Weighted-Average Exercise Price Per Share Outstanding, December 31, 2019 1,764,500 $ 1.92 Granted 561,236 $ 2.27 Exercised – – Forfeited ( 125,000 ) $ 2.20 Expired – – Outstanding, December 31, 2020 2,200,736 $ 2.00 Granted 739,000 $ 2.99 Exercised – – Forfeited ( 75,000 ) $ 2.06 Expired – – Outstanding, December 31, 2021 2,864,736 $ 2.25 49 The aggregate fair value of the options measured during the years ended December 31, 2021 and 2020 were calculated using the Black-Scholes option pricing model based on the following assumptions: Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions Year Ended December 31, 2021 Year Ended December 31,2020 Fair value of common stock on measurement date $1.80 to $3.36 per share $2.06 to $2.47 per share Risk free interest rate (1) 0.28 % to 1.28 % 0.33 % to 0.82 % Volatility (2) 128.17 % to 130.72 % 122.79 % to 128.57 % Dividend yield (3) 0 % 0 % Expected term (in years) 5.5 - 6.3 5.5 - 6.3 (1) The risk-free interest rate was determined by management using the market yield on U.S. Treasury securities with comparable terms as of the measurement date. (2) The trading volatility was determined by calculating the volatility of the Company’s peer group. (3) The Company does not expect to pay a dividend in the foreseeable future. As of December 31, 2021, the outstanding stock options have a weighted average remaining term of 7.77 years and the aggregate intrinsic value of options vested and outstanding were $ 180,675 . As of December 31, 2021, there were 60,500 awards remaining to be issued under the 2017 Plan and 2,074,764 awards remaining to be issued under the 2020 Plan. Stock Warrants The following table summarizes the stock warrant activity for the years ended December 31, 2021 and 2020: Schedule of warrant activity Warrants Weighted-Average Exercise Price Per Share Outstanding, December 31, 2019 3,986,630 $ 3.99 Granted 2,875,000 $ 2.20 Exercised – – Forfeited – – Expired – – Outstanding, December 31, 2020 6,861,630 $ 3.24 Granted – – Exercised ( 2,646,653 ) $ 0.82 Forfeited – – Expired – – Outstanding, December 31, 2021 4,214,977 $ 4.76 During the years ended December 31, 2020, the Company recognized $ 85,238 of stock-based compensation, respectively, related to outstanding stock warrants. At December 31, 2020 and 2021, the Company had $ 0 of unrecognized expenses related to warrants. 50 During the year ended December 31, 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 2,495,403 warrants on a cashless basis resulting in the issuance of 1,756,307 shares of common stock. As of December 31, 2021 the outstanding and exercisable warrants have a weighted average remaining term of 2.93 years and have no intrinsic value. Note 5 – Commitments and Contingencies Executive Employment Agreements On September 1, 2017, the Company entered into an employment agreement with Mr. John Climaco pursuant to which Mr. Climaco agreed to serve as Chief Executive Officer and Director of the Company commencing on such date for an initial term of three years. On September 1, 2020, the Company entered into an amendment to the employment agreement with Mr. Climaco. The amendment extends the term of employment under the Employment Agreement, which was originally for a three-year period, for additional twelve-month periods, unless and until either the Company or Mr. Climaco provides written notice to the other party not less than sixty days before such anniversary date that such party is electing not to extend the term. If the Company provides notice of its election not to extend the term, Mr. Climaco may terminate his employment at any time prior to the expiration of the term by giving written notice to the Company at least thirty days prior to the effective date of termination, and upon the earlier of such effective date of termination or the expiration of the term, Mr. Climaco shall be entitled to receive the same severance benefits as are provided upon a termination of employment by the Company without cause. Pursuant to the Amendment, the severance benefits shall be twelve months of Mr. Climaco’s base salary. Such severance payment shall be made in a single lump sum sixty days following the termination, provided that Mr. Climaco has executed and delivered to the Company and has not revoked a general release of the Company. Pursuant to the employment agreement, the compensation committee of the board of directors reviews the base salary payable to Mr. Climaco annually during the term of the agreement. On February 6, 2021, the compensation committee of the board of directors set Mr. Climaco’s 2021 annual base salary to $ 525,000 . On June 28, 2019, we entered into employment letters with Drs. Silberman and Picker pursuant to which Dr. Silberman agreed to commit 50% of her time to our matters; and Dr. Picker agreed to commit 25% of his time to our matters. On February 6, 2021, the compensation committee of the board of directors set Drs. Silberman and Picker 2021 annual base salaries to $ 200,000 and $ 115,000 , respectively. On September 14, 2019, the Company, entered into an employment agreement with Christopher Downs to serve as its Chief Financial Officer commencing on the closing date of the Company’s IPO, which occurred on November 13, 2019. The initial term of the Employment Agreement will continue for a period of three years. Pursuant to the employment agreement, the compensation committee of the board of directors reviews the base salary payable to Mr. Downs annually during the term of the agreement. On February 6, 2021, the compensation committee of the board of directors set Mr. Downs’ 2021 annual base salary to $ 340,000 . Scientific Advisory Board On July 15, 2021, our compensation committee recommended to our Board and our Board approved the following policy for the Scientific Advisory Board members. The Scientific Advisory board consists of Dr. Waldemar Priebe, a significant shareholder and related party, and Dr. Sigmond Hsu. Each scientific advisory board member shall receive annual cash compensation of $ 68,600 . As of December 31, 2021, the Company has accrued $ 63,067 related to the Scientific Advisory Board compensation. 51 WP744 Portfolio (Berubicin) On November 21, 2017, the Company entered into a Collaboration and Asset Purchase Agreement with Reata Pharmaceuticals, Inc. (“Reata”). Through this agreement, the Company purchased all of Reata’s rights, title, interest and previously conducted research and development results in the chemical compound commonly known as Berubicin. In exchange for these rights, the Company agreed to pay Reata an amount equal to 2.25% of the net sales of Berubicin for a period of 10 years from the Company’s first commercial sale of Berubicin plus $10,000. Reata also agreed to collaborate with the Company on the development of Berubicin, from time to time. On December 28, 2017, the Company entered into a Technology Rights and Development Agreement with Houston Pharmaceuticals, Inc. (“HPI”). HPI is affiliated with Dr. Waldemar Priebe, our founder and significant shareholder. Pursuant to this agreement, the Company obtained a worldwide exclusive license to the chemical compound commonly known as WP744. In exchange for these rights, the Company agreed to pay consideration to HPI as follows: (i) a royalty of 2% of net sales of any product utilizing WP744 for a period of ten years after the first commercial sale of such; and (ii) $100,000 upon beginning Phase II clinical trials (paid in 2021); and (iii) $200,000 upon the approval by the FDA of a New Drug Application for any product utilizing WP744; and (iv) a series of quarterly development payments totaling $750,000 beginning immediately after the Company’s raise of $7,000,000 of investment capital. In addition, the Company issued 200,000 shares of the Company’s common stock valued at $0.045 per share to HPI upon execution of the agreement. On November 13, 2019, the Company closed its IPO, thereby fulfilling all conditions precedent and completing the acquisition of the intellectual property discussed in the HPI agreement. During the year ended December 31, 2021 and 2020, the Company recognized $ 450,000 and $ 237,500 , respectively related to this agreement. Unrelated to this agreement, from time to time, the Company purchases pharmaceutical products from HPI which are necessary for the manufacturing of Berubicin API and drug product in related party transactions which are reviewed and approved by the Company’s audit committee based upon the standards of providing superior pricing and time to delivery than that available from unrelated third parties. During the year ended December 31, 2021 and 2020, the Company expensed $ 441,075 and $ 0 , respectively related to the purchase of pharmaceutical products from HPI of which $ 41,075 was included in Accounts Payable as of December 31, 2021. Subsequent to December 31, 2021 the Company purchased an additional $41,075 of pharmaceutical products from HPI. On August 30, 2018, we entered into a sublicense agreement with WPD Pharmaceuticals, Inc. (“WPD”). Pursuant to the agreement, the Company granted WPD an exclusive sublicense, even as to us, for the patent rights we licensed pursuant to the HPI License within the following countries: Poland, Estonia, Latvia, Lithuania, Belarus, Ukraine, Moldova, Romania, Bulgaria, Serbia, Macedonia, Albania, Armenia, Azerbaijan, Georgia, Montenegro, Bosnia, Croatia, Slovenia, Slovakia, Czech Republic, Hungary, Chechnya, Uzbekistan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Greece, Austria, and Russia. The sublicense agreement provides that WPD must use commercially reasonable development efforts to attempt to develop and commercialize licensed products in the above mentioned territories, which means the expenditure of at least $2.0 million on the development, testing, regulatory approval or commercialization of the licensed products during the three year period immediately following the date of the sublicense agreement. In the event that WPD fails to use commercially reasonable development efforts by the foregoing three-year deadline, we have the right to terminate this sublicense agreement. 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 and largest shareholder. On February 19, 2021, CNS entered into an Investigational Medicinal Product Supply Agreement with WPD, a related party. CNS agreed to sell the Berubicin drug product to WPD at historical cost of manufacturing without markup so that WPD may conduct the clinical trials contemplated by the sublicense agreement. WPD agreed to pay CNS the following payments: (i) an upfront payment of $ 131,073 upon execution of the agreement, (ii), a payment of $ 262,145 upon final batch release and certification performed by WPD's subcontractor, and (iii) a final payment of $ 262,145 upon Clinical Trial Application acceptance by the relevant regulatory authority. All three milestones have been met as of December 31, 2021. In addition, as of December 31, 2021, the drug product with a cost of approximately $655,000 has been delivered to WPD and is being held at a third party depot. As such, the full amount of approximately $ 655,000 is now due from WPD. As of December 31, 2021, CNS has invoiced the three amounts plus pass through cost for a total of $656,938. However, as of December 31, 2021, WPD has not remitted payment for the invoices and, as such, we have not recorded a receivable due to the collectability issues. Subsequent to December 31, 2021, the Company has received payment for the first amount due of $131,073. The Company is continuing to work with WPD to resolve this situation. 52 On August 31, 2018, the Company entered into a sublicense agreement with Animal Life Sciences, LLC (“ALI”), a related party, pursuant to which we granted ALI an exclusive sublicense, even as to us, for the patent rights we licensed pursuant to the HPI License solely for the treatment of cancer in non-human animals through any type of administration. In consideration for the rights granted under the sublicense agreement, ALI agreed to issue us membership interests in ALI equal to 1.52% of the outstanding ALI membership interests. As additional consideration for the rights granted, to the extent we are required to make any payments to HPI pursuant to the HPI License as a result of this sublicense agreement, ALI agreed to advance us such payments, and to pay us a royalty equal to 1% of such payments. Dr. Waldemar Priebe, our founder and largest shareholder, is also the founder and a shareholder of ALI, holds 38% of the membership interests of ALI. On June 10, 2020, the FDA granted Orphan Drug Designation (“ODD”) for Berubicin for the treatment of malignant gliomas. ODD from the FDA is available for drugs targeting diseases with less than 200,000 cases per year. ODD may enable market exclusivity of 7 years from the date of approval of a NDA in the United States. During that period the FDA generally could not approve another product containing the same drug for the same designated indication. Orphan drug exclusivity will not bar approval of another product under certain circumstances, including if a subsequent product with the same active ingredient for the same indication is shown to be clinically superior to the approved product on the basis of greater efficacy or safety, or providing a major contribution to patient care, or if the company with orphan drug exclusivity is not able to meet market demand. The ODD now constitutes our primary intellectual property protections although the Company is exploring if there are other patents that could be filed related to Berubicin to extend additional protections. On July 24, 2021, the Company received Fast Track Designation from the FDA for Berubicin. Fast Track Designation is designed to facilitate the development and expedite the review of drugs to treat serious conditions and fill an unmet medical need. WP1244 Portfolio On January 10, 2020, Company entered into a Patent and Technology License Agreement (“Agreement”) with The Board of Regents of The University of Texas System, an agency of the State of Texas, on behalf of The University of Texas M. D. Anderson Cancer Center (“UTMDACC”). Pursuant to the Agreement, the Company obtained a royalty-bearing, worldwide, exclusive license to certain intellectual property rights, including patent rights, related to the Company’s recently announced WP1244 drug technology. In consideration, the Company must make payments to UTMDACC including an up-front license fee, annual maintenance fee, milestone payments and royalty payments (including minimum annual royalties) on sales of licensed products developed under the Agreement. The term of the Agreement expires on the last to occur of: (a) the expiration of all patents subject to the Agreement, or (b) fifteen years after execution; provided that UTMDACC has the right to terminate this Agreement in the event that the Company fails to meet certain commercial diligence milestones. The commercial diligence milestones are as follows (i) initiated PC toxicology to support filing of Investigational New Drug Application (“IND”) or New Drug Application (“NDA”) for the Licensed Product within the eighteen (18) month period following the Effective Date (ii) file and IND for the Licensed Product within three (3) year period following the Effective Date and (iii) Commencement of Phase I Study within the five (5) year period following the Effective Date. During the year ended December 31, 2021, the Company paid $ 48,668 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. During the year ended December 31, 2020, the Company paid $ 334,000 and accrued $ 400,000 related to this agreement in research and development expenses in the Company’s Consolidated Statements of Operations. During the year ended December 31, 2021, the Company paid $ 800,000 to UTMDACC related to this agreement. The Company has no further payment obligations as of December 31, 2021. The principal investigator for this agreement is Dr. Waldemar Priebe, a significant shareholder. 53 Anti-Viral Portfolio On March 20, 2020, the Company entered into a Development Agreement (“Agreement”) with WPD Pharmaceuticals (“WPD”), a company founded by Dr. Waldemar Priebe, the founder and largest shareholder of the Company. Pursuant to the Agreement, WPD agreed to use its commercially reasonable efforts in good faith to develop and commercialize certain products that WPD had previously sublicensed, solely in the field of pharmaceutical drug products for the treatment of any viral infection in humans, with a goal of eventual approval of in certain territories consisting of: Germany, Poland, Estonia, Latvia, Lithuania, Belarus, Ukraine, Romania, Armenia, Azerbaijan, Georgia, Slovakia, Czech Republic, Hungary, Uzbekistan, Kazakhstan, Greece, Austria, Russia, Netherlands, Turkey, Belgium, Switzerland, Sweden, Portugal, Norway, Denmark, Ireland, Finland, Luxembourg, Iceland. Pursuant to the Agreement, the Company agreed to pay WPD the following payments: (i) an upfront payment of $ 225,000 to WPD (paid in April 2020); and (ii) within thirty days of the verified achievement of the Phase II Milestone, (such verification shall be conducted by an independent third party mutually acceptable to the parties hereto), the Company will make a payment of $ 775,000 to WPD. WPD agreed to pay the Company a development fee of 50% of the net sales for any products in the above territories; provided that Poland shall not be included as a territory after WPD receives marketing approval for a product in one-half of the countries included in the agreed upon territories or upon the payment by WPD to the Company of development fees of $ 1.0 million. The term of the Agreement will expire on the expiration of the sublicense pursuant to which WPD has originally sublicensed the products. During the year ended December 31, 2020, the Company paid $ 225,000 related to this agreement. Note 6 – Income Taxes The Company is subject to United States federal income taxes at an approximate rate of 21 %. The reconciliation of the provision for income taxes at the United States federal statutory rate compared to the Company’s income tax expense as reported is as follows: Schedule of Effective Income Tax Rate Reconciliation Year Ended Year Ended December 31, December 31, 2021 2020 Income tax benefit computed at the statutory rate $ 2,946,000 $ 1,986,000 Tax effect of: Non-deductible expenses ( 100,000 ) ( 70,000 ) Change in valuation allowance ( 2,846,000 ) ( 1,916,000 ) Provision for income taxes $ – $ – Significant components of the Company’s deferred tax assets and liabilities after applying enacted corporate income tax rates are as follows: Schedule of Deferred Tax Assets As of As of December 31, December 31, 2021 2020 Deferred income tax assets Net operating losses $ 5,763,000 $ 2,771,000 Stock-based compensation 533,000 271,000 Deferred income tax liability Prepaid expenses ( 714,000 ) ( 306,000 ) Valuation allowance ( 5,582,000 ) ( 2,736,000 ) Net deferred income tax assets $ – $ – The Company has an operating loss carry forward of approximately $ 27,764,000 , which expires commencing in 2037. 54 Note 7 – Subsequent Events Securities Purchase Agreement The Company engaged H.C. Wainwright & Co., LLC (“Wainwright”), to act as placement agent related to the Securities Purchase Agreement described below. The Company agreed to pay Wainwright an aggregate fee equal to 7.0% of the gross proceeds received by the Company from the sale of the securities in the transaction. The Company will also issue to Wainwright or its designees warrants to purchase up to 5.0% of the aggregate number of shares of Common Stock sold in the transactions (the “Placement Agent Warrants”), or 605,263 Placement Agent Warrants. The Placement Agent Warrants have substantially the same terms as the Common Warrants, except that the Placement Agent Warrants have an exercise price equal to 125% of the offering price, or $1.1875 per share. The Company will also pay Wainwright $50,000 for non-accountable expenses and $10,000 for legal fees and expenses. On January 5, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with several institutional investors for the sale by the Company of (i) 9,489,474 shares (the “Shares”) of the Company’s common stock, (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to an aggregate of 2,615,790 shares of common stock and (iii) warrants to purchase up to an aggregate of 12,105,264 shares of common stock (the “Common Warrants” and, collectively with the Pre-Funded Warrants, the “Warrants”), in a private placement offering. The combined purchase price of one share of common stock (or one Pre-Funded Warrant) and accompanying Common Warrant is $0.95. Subject to certain ownership limitations, the Warrants are exercisable upon issuance. Each Pre-Funded Warrant is exercisable into one share of common stock at a price per share of $0.001 (as adjusted from time to time in accordance with the terms thereof). Each Common Warrant is exercisable into one share of common stock at a price per share of $0.82 (as adjusted from time to time in accordance with the terms thereof) and will expire on the fifth anniversary of the date of issuance. The gross proceeds from the Purchase Agreement was $11.5 million resulting in net proceeds, after payment of commissions and expenses, received by the Company of $10.6 million. On February 18, 2022, the Company received a deficiency letter from the Listing Qualifications Department of the Nasdaq Stock Market (“Nasdaq”) notifying the Company that for the last 30 consecutive business days the bid price for the Company’s common stock had closed below the minimum $1.00 per share requirement for continued inclusion in Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). The deficiency letter does not result in the immediate delisting of the Company’s common stock from Nasdaq . The Company has been provided an initial period of 180 calendar days, or until August 17, 2022, to regain compliance with the Bid Price Rule. If the Company is not in compliance with the Bid Price Rule by August 17, 2022, the Company may be afforded a second 180 calendar day period to regain compliance. To qualify, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards required by Nasdaq, except for the minimum bid price requirement. The Company intends to monitor the closing bid price of its common stock and may, if appropriate, consider available options to regain compliance with the Bid Price Rule, which could include effecting a reverse stock split. However, there can be no assurance that the Company will be able to regain compliance with the Bid Price Rule. On March 1, 2022, the Company received $2,616 in cash proceeds from the exercise of 2,615,790 Pre-Funded Warrants issued at an exercise price of $0.001. 55 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures. None.