CNS Pharmaceuticals, Inc 10-Q for FY2020 Q1
CNS Pharmaceuticals, Inc. (CNSP)
About this 10-Q
CNS Pharmaceuticals, Inc filed this 10-Q on May 15, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).
Headline figures
Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $1.97M
- compared with a net loss of $211.5K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2020
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to__________
Commission file number 001-39126
CNS Pharmaceuticals, Inc.
(Exact Name of Registrant as Specified in Its Charter)
| Nevada | 82-2318545 | |
|
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
|
2100 West Loop South, Suite 900 Houston, Texas |
77027 | |
| (Address of Principal Executive Offices) | (Zip Code) |
800-946-9185
(Registrant's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [_]
Indicate by check mark whether the registrant has submitted electronically if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [ X ] No [_]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Non-accelerated filer ☒ | Smaller reporting company ☒ | |
| Emerging growth company ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [_]
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock | CNSP | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [_] No [ X ]
The registrant had 16,450,234 shares of common stock outstanding at May 15, 2020.
| i |
PART I - FINANCIAL INFORMATION
| Item 1. | Financial Statements |
CNS Pharmaceuticals, Inc.
(Unaudited)
| March 31, 2020 | December 31, 2019 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 5,379,790 | $ | 7,241,288 | ||||
| Prepaid expenses | 808,746 | 652,622 | ||||||
| Total current assets | 6,188,536 | 7,893,910 | ||||||
| Fixed Assets: | ||||||||
| Furniture and equipment, net | 22,658 | 18,165 | ||||||
| Total Assets | $ | 6,211,194 | $ | 7,912,075 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 141,247 | $ | 243,666 | ||||
| Accounts payable and accrued expenses - related party | 50,000 | 45,833 | ||||||
| Accrued expenses | 144,793 | 21,500 | ||||||
| Total current liabilities | 336,040 | 310,999 | ||||||
| Total Liabilities | 336,040 | 310,999 | ||||||
| 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 16,450,234 shares issued and outstanding | 16,450 | 16,450 | ||||||
| Additional paid-in capital | 19,315,307 | 19,073,098 | ||||||
| Accumulated deficit | (13,456,603 | ) | (11,488,472 | ) | ||||
| Total Stockholders' Equity | 5,875,154 | 7,601,076 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 6,211,194 | $ | 7,912,075 | ||||
See accompanying notes to the unaudited financial statements.
| 1 |
CNS Pharmaceuticals, Inc.
(Unaudited)
| Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |||||||
| Operating expenses: | ||||||||
| General and administrative | $ | 1,355,054 | $ | 146,783 | ||||
| Research and development | 613,077 | 48,307 | ||||||
| Total operating expenses | 1,968,131 | 195,090 | ||||||
| Loss from operations | (1,968,131 | ) | (195,090 | ) | ||||
| Other expense: | ||||||||
| Interest expense | – | (7,494 | ) | |||||
| Amortization of debt discount | – | (8,917 | ) | |||||
| Net loss | $ | (1,968,131 | ) | $ | (211,501 | ) | ||
| Loss per share - basic and diluted | $ | (0.12 | ) | $ | (0.02 | ) | ||
| Weighted average shares outstanding - basic and diluted | 16,450,234 | 12,694,504 | ||||||
See accompanying notes to the unaudited financial statements.
| 2 |
CNS Pharmaceuticals, Inc.
Statements of Stockholders' Equity (Deficit)
(Unaudited)
| Common Stock | Additional Paid-in | Accumulated | Total Stockholders' Equity | |||||||||||||||||
| Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||
| Balance December 31, 2019 | 16,450,234 | $ | 16,450 | $ | 19,073,098 | $ | (11,488,472 | ) | $ | 7,601,076 | ||||||||||
| Stock-based compensation | – | – | 242,209 | – | 242,209 | |||||||||||||||
| – | ||||||||||||||||||||
| Net loss | – | – | – | (1,968,131 | ) | (1,968,131 | ) | |||||||||||||
| – | ||||||||||||||||||||
| Balance March 31, 2020 | 16,450,234 | $ | 16,450 | $ | 19,315,307 | $ | (13,456,603 | ) | $ | 5,875,154 | ||||||||||
| Balance December 31, 2018 | 12,694,504 | $ | 12,695 | $ | 7,049,268 | $ | (7,611,261 | ) | $ | (549,298 | ) | |||||||||
| Stock-based compensation | – | – | 44,016 | – | 44,016 | |||||||||||||||
| Net loss | – | – | – | (211,501 | ) | (211,501 | ) | |||||||||||||
| Balance March 31, 2019 | 12,694,504 | $ | 12,695 | $ | 7,093,284 | $ | (7,822,762 | ) | $ | (716,783 | ) | |||||||||
See accompanying notes to the unaudited financial statements.
| 3 |
CNS Pharmaceuticals, Inc.
(Unaudited)
| Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | (1,968,131 | ) | $ | (211,501 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | 242,209 | 44,016 | ||||||
| Amortization of debt discount | – | 8,917 | ||||||
| Depreciation | 1,917 | – | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | (156,124 | ) | 13,000 | |||||
| Accounts payable | (102,419 | ) | 58,965 | |||||
| Accounts payable and accrued expenses - related party | 4,167 | (794 | ) | |||||
| Accrued expenses | 123,293 | 4,709 | ||||||
| Net cash used in operating activities | (1,855,088 | ) | (82,688 | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of furniture and equipment | (6,410 | ) | – | |||||
| Net cash used in investing activities | (6,410 | ) | – | |||||
| Cash Flows from Financing Activities: | ||||||||
| Payment of deferred issuance cost | – | (13,025 | ) | |||||
| Payments on loan payable | – | (35,000 | ) | |||||
| Net cash used in financing activities | – | (48,025 | ) | |||||
| Net change in cash and cash equivalents and restricted cash | (1,861,498 | ) | (130,713 | ) | ||||
| Cash and cash equivalents and restricted cash, at beginning of period | 7,241,288 | 555,133 | ||||||
| Cash and cash equivalents and restricted cash, at end of period | $ | 5,379,790 | $ | 424,420 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | – | $ | – | ||||
| Cash paid for income taxes | $ | – | $ | – | ||||
See accompanying notes to the unaudited financial statements.
| 4 |
CNS Pharmaceuticals, Inc.
Notes to the Financial Statements
(Unaudited)
Note 1 – Nature of Business
CNS Pharmaceuticals, Inc. (the “Company”) is a clinical pharmaceutical company organized as a Nevada corporation on July 27, 2017 to focus on the development of anti-cancer drug candidates.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation - The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United Stated of America (“U.S. GAAP”) for interim unaudited financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The unaudited financial statements include all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary in order to make the condensed financial statements not misleading. Operating results for the three months ended March 31, 2020 are not necessarily indicative of the final results that may be expected for the year ended December 31, 2020. 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, 2019 included in the Company’s Form 10-K filed with the SEC on March 12, 2020 (“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 - 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. On November 13, 2019, the Company closed its initial public offering (“IPO”) of 2,125,000 shares of its common stock at a price to the public of $4.00 per share, followed shortly by the exercise of the over-allotment option issued to the underwriter which resulted in an additional 318,750 shares of common stock being issued at the IPO price of $4.00 per share. The completion of the IPO resolved the previously disclosed substantial doubt regarding the Company’s ability to continue as a going concern. The Company has a history of and expects to continue to report negative cash flows from operations and a net loss. However, management believes that the cash on hand is sufficient to fund its planned operations beyond the near term.
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 March 31, 2020 was $5,129,790.
Restricted Cash - The following table provides a reconciliation of cash and restricted cash reported within the balance sheet that sum to the total of the same such amounts shown in the statement of cash flows. Restricted cash are funds related to the SAFE agreements that were released to the Company on November 13, 2019.
March 31, 2020 | March 31, 2019 | |||||||
| Cash and cash equivalents | $ | 5,379,790 | $ | 155,021 | ||||
| Restricted cash | – | 269,399 | ||||||
| Total | $ | 5,379,790 | $ | 424,420 | ||||
| 5 |
Loss Per Common Share - Basic loss per common share is computed by dividing net loss available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. For the three months ended March 31, 2020, the Company’s potentially dilutive shares and options, which were not included in the calculation of net loss per share warrants to purchase 3,986,630 common shares, and options for 1,939,500 common shares. For the three months ended March 31, 2019, the Company’s potentially dilutive shares and options, which were not included in the calculation of net loss per share, included notes convertible to 200,000 common shares, warrants to purchase 3,674,130 common shares, and options for 675,000 common shares.
Note 3 – Equity
Stock Options
In 2017, the Board of Directors of the Company approved the CNS Pharmaceuticals, Inc. 2017 Stock Plan (the “Plan”). The Plan allows for the Board of Directors to grants 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.
On March 12, 2020, the Board of Directors approved to grant 175,000 options to one employee of the Company and two consultants. The options to the employee vest in four equal annual installments beginning on the first anniversary following issuance. The options to the consultants vest in one annual installment on the first anniversary following issuance. The options have a ten-year term and have an exercise price of $2.21 per share. The fair value of the options at issuance was $337,691.
During the three months ended March 31, 2020 and 2019, the Company recognized $242,209 and $44,016 of stock-based compensation, respectively, related to outstanding stock options. At March 31, 2020, the Company had $2,774,019 of unrecognized expenses related to options.
The following table summarizes the stock option activity for the three months ended March 31, 2020:
Options | Weighted-Average Exercise Price Per Share | ||||||||
| Outstanding, December 31, 2019 | 1,764,500 | $ | 1.92 | ||||||
| Granted | 175,000 | 2.21 | |||||||
| Exercised | – | – | |||||||
| Forfeited | – | – | |||||||
| Expired | – | – | |||||||
| Outstanding, March 31, 2020 | 1,939,500 | $ | 1.95 | ||||||
| 6 |
The following table discloses information regarding outstanding and exercisable options at March 31, 2020:
| Outstanding | Exercisable | |||||||||||||||||||||
Exercise Price | Number of Option/Warrant Shares | Weighted Average Exercise Price | Weighted Average Remaining Life (Years) | Number of Option Shares | Weighted Average Exercise Price | |||||||||||||||||
| $4.00 | 300,000 | 9.61 | – | |||||||||||||||||||
| $2.21 | 175,000 | 9.95 | – | |||||||||||||||||||
| $2.00 | 789,500 | 9.25 | – | |||||||||||||||||||
| $1.50 | 400,000 | 8.17 | 225,014 | |||||||||||||||||||
| $0.045 | 275,000 | 7.64 | 198,624 | |||||||||||||||||||
| Total | 1,939,500 | $ | 1.95 | 8.93 | 423,638 | $ | 0.82 | |||||||||||||||
As of March 31, 2020, the aggregate intrinsic value of options exercisable was $543,181. As of March 31, 2020, there are 60,500 awards remaining to be issued under the Plan.
Stock Warrants
The following table summarizes the stock warrant activity for the three months ended March 31, 2020:
Warrants | Weighted-Average Exercise Price Per Share | ||||||||
| Outstanding, December 31, 2019 | 3,986,630 | 3.99 | |||||||
| Granted | – | – | |||||||
| Exercised | – | – | |||||||
| Forfeited | – | – | |||||||
| Expired | – | – | |||||||
| Outstanding, March 31, 2020 | 3,986,630 | $ | 3.99 | ||||||
The following table discloses information regarding outstanding and exercisable warrants at March 31, 2020:
| Outstanding | Exercisable | |||||||||||||||||||||
Exercise Price | Number of Option/Warrant Shares | Weighted Average Exercise Price | Weighted Average Remaining Life (Years) | Number of Option Shares | Weighted Average Exercise Price | |||||||||||||||||
| $11.00 | 1,206,059 | 2.39 | 1,206,059 | |||||||||||||||||||
| $4.00 | 148,750 | 4.61 | – | |||||||||||||||||||
| $2.00 | 63,750 | 4.18 | 63,750 | |||||||||||||||||||
| $1.75 | 100,000 | 4.04 | 61,116 | |||||||||||||||||||
| $1.50 | 14,000 | 3.20 | 14,000 | |||||||||||||||||||
| $0.70 | 2,454,071 | 3.75 | 2,454,071 | |||||||||||||||||||
| Total | 3,986,630 | $ | 3.99 | 3.38 | 3,798,996 | $ | 4.01 | |||||||||||||||
As of March 31, 2020, the aggregate intrinsic value of warrants exercisable was $3,471,865.
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Note 4 – Commitments and Contingencies
Executive Employment Agreements
On September 1, 2017, the Company entered into an employment agreement with Mr. John Climaco pursuant to which Mr. Climaco agreed to serve as Chief Executive Officer and Director of the Company commencing on such date for an initial term of three years. The agreement provides for an initial annual salary of $150,000. The annual salary shall increase at the completion of the Company’s initial public offering to an annual salary of $300,000. Pursuant to the employment agreement, the Company and Mr. Climaco agreed to issue Mr. Climaco 900,000 shares of common stock in exchange for $900, which purchase was finalized on September 30, 2017. The common shares may be reacquired by the Company if employment is terminated prior to the initial public offering. After the completion of the initial public offering a portion of the shares may be reacquired by the Company if employment is terminated prior to the expiration of the agreement. Effective March 1, 2019, the employment agreement was amended to increase the annual salary to $186,000 and establish Mr. Climaco as a full-time employee. On June 28, 2019, the compensation committee of the board of directors agreed to modify Mr. Climaco’s compensation to increase the annual base salary to $440,000 and Mr. Climaco will be entitled to a cash bonus with a target of 55% of his base salary following the initial public offering.
On June 28, 2019, the Company entered into employment letters with Drs. Silberman and Picker pursuant to which the Company agreed to the following compensation terms: (i) Dr. Silberman agreed to commit 50% of her time to Company matters in exchange for a base salary, commencing upon the successful closing of the IPO, of $175,000; commencing at the end of 2019, an annual cash bonus target of 28% of her base salary (prorated for any partial years); and a ten-year option to purchase 125,000 shares of common stock with an exercise price of $2.00 per share vesting annually in four equal installments; and (ii) Dr. Picker agreed to commit 25% of his time to Company matters in exchange for a base salary, commencing upon the successful closing of the IPO, of $91,000; commencing at the end of 2019, an annual cash bonus target of 36% of his base salary (prorated for any partial years); and a ten-year option to purchase 100,000 shares of common stock with an exercise price of $2.00 per share vesting annually in four equal installments.
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. The Employment Agreement provides for an initial annual base salary of $300,000. Mr. Downs may receive an annual bonus (pro rated for 2019), targeted at 35% of base salary. Under the agreement, upon the closing of the IPO, Mr. Downs was granted a ten-year option to purchase 300,000 shares at an exercise price per share equal to the public offering price per share of the shares sold in the IPO. The option vests in four equal installments on each of the succeeding four anniversary dates of the option grant, provided Mr. Downs is employed by the Company on each such vesting date.
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. Priebe, who controls a majority of the Company’s shares. Pursuant to this agreement, the Company obtained a worldwide exclusive license to the chemical compound commonly known as WP744. In exchange for these rights, the Company agreed to pay consideration to HPI as follows: (i) a royalty of 2% of net sales of any product utilizing WP744 for a period of ten years after the first commercial sale of such; and (ii) $100,000 upon beginning Phase II clinical trials; and (iii) $200,000 upon the approval by the FDA of a New Drug Application for any product utilizing WP744; and (iv) a series of quarterly development payments totaling $750,000 beginning immediately after the Company’s raise of $7,000,000 of investment capital. In addition, the Company issued 200,000 shares of the Company’s common stock valued at $0.045 per share to HPI upon execution of the agreement. The Company’s rights pursuant to the HPI License are contingent on us raising at least $7.0 million within 12 months from the effective date of the HPI License, a date which was extended by an additional 12 months by the payment of $40,000. On November 13, 2019, the Company closed its IPO and as a result completed the acquisition of the intellectual property discussed in the HPI agreement. As of March 31, 2020 and December 31, 2019, $50,000 and $45,833 is payable to HPI related to the above agreements, respectively.
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On August 30, 2018, the Company 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 the Company 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, the Company has the right to terminate this sublicense agreement. In consideration for the rights granted under the sublicense agreement, to the extent the Company is 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 owned by an entity controlled by Dr. Priebe, the Company’s founder and largest shareholder.
On August 31, 2018, the Company entered into a sublicense agreement with Animal Life Sciences, LLC (“ALI”), a related party, pursuant to which the Company granted ALI an exclusive sublicense, even as to us, for the patent rights the Company 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 the Company is 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, the Company’s founder and largest shareholder, is also the founder and a shareholder of ALI with 38% of ALI’s membership interests.
WP1244 Portfolio
On January 10, 2020, the Company entered into a Patent and Technology License Agreement (“Agreement”) with The Board of Regents of The University of Texas System, an agency of the State of Texas, on behalf of The University of Texas M. D. Anderson Cancer Center (“UTMDACC”). Pursuant to the Agreement, the Company obtained a royalty-bearing, worldwide, exclusive license to certain intellectual property rights, including patent rights, related to the Company’s recently announced WP1244 drug technology. In consideration, the Company must make payments to UTMDACC including an up-front license fee, annual maintenance fee, milestone payments and royalty payments (including minimum annual royalties) on sales of licensed products developed under the Agreement. The term of the Agreement expires on the last to occur of: (a) the expiration of all patents subject to the Agreement, or (b) fifteen years after execution; provided that UTMDACC has the right to terminate this Agreement in the event that the Company fails to meet certain commercial diligence milestones. The commercial diligence milestones are as follows (i) initiated PC toxicology to support filing of Investigational New Drug Application (“IND”) or New Drug Application (“NDA”) for the Licensed Product within the eighteen (18) month period following the Effective Date (ii) file and IND for the Licensed Product within three (3) year period following the Effective Date and (iii) Commencement of Phase I Study within the five (5) year period following the Effective Date. During the three months ended March 31, 2020, the Company paid $50,000 to UTMDACC related to this agreement.
Anti-Viral Portfolio
On March 20, 2020, the Company entered into a Development Agreement (“Agreement”) with WPD. Pursuant to the Agreement, WPD agreed to use its commercially reasonable efforts in good faith to develop and commercialize certain products (including WP1122) 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.
| 9 |
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 which will occur in 2028.
Note 5 – Subsequent Events
On April 6, 2020, the Board of Directors approved to grant 125,000 options to one employee of the Company. The options to the employee vest in four equal annual installments beginning on the first anniversary following issuance. The options have a ten-year term and have an exercise price of $2.20 per share.
On May 1, 2020, the US Securities and Exchange Commission (“SEC”) published Release No. 88802, under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), announced a temporary suspension of trading in the Company's securities due to statements made by the Company and others in press releases issued between March 23, 2020 and April 13, 2020 concerning the Company's business, including the status of development of a drug candidate labeled WP1122, the status of testing WP1122's impact on COVID-19, and the ability to expedite regulatory approval of any such treatment. Pursuant to the suspension order, the trading halt was initiated at 9:30 a.m. EDT on May 4, 2020 and terminates at 11:59 p.m. EDT on May 15, 2020. As of the date of this report, the Company has submitted a petition to terminate the suspension, but there is no assurance that the Company will be successful. The Company believes it will be able to demonstrate the accuracy and adequacy of the Company’s public disclosures, but the SEC may determine to extend the trading suspension until such time that it believes the information in the marketplace about the Company and the Company’s securities is accurate and adequate. The Company will provide further guidance as appropriate.
On May 7, 2020, pursuant to the WP1244 Portfolio license agreement described above, the Company entered into a Sponsored Research Agreement with The University of Texas M. D. Anderson Cancer Center (“UTMDACC”) to perform research relating to novel anticancer agents targeting CNS malignancies. The Company agreed to fund approximately $1.3 million over a two-year period. The Company will pay and record $0.6 million in 2020 related to this agreement in research and development expenses in the Company’s Consolidated Statements of Operations. The remainder will be paid and recorded in 2021. The principal investigator for this agreement is Dr. Waldemar Priebe, who controls a majority of the Company’s shares.
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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, 2019, 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, 2019 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:
· the economic and market uncertainty caused by the COVID-19 outbreak;
· our ability to obtain additional funding to develop our product candidates;
· the need to obtain regulatory approval of our product candidates;
· the success of our clinical trials through all phases of clinical development;
· compliance with obligations under intellectual property licenses with third parties;
· any delays in regulatory review and approval of product candidates in clinical development;
· our ability to commercialize our product candidates;
· 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.
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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 a license agreements with HPI and The University of Texas M.D. Anderson Cancer Center and own pursuant to a collaboration and asset purchase agreement with Reata.
We believe our lead drug candidate, Berubicin, if approved by the FDA, may be a significant discovery in the treatment of glioblastoma. Glioblastoma 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 chemotherapy drugs known. Based on limited clinical data, we believe Berubicin is the first anthracycline that appears to have crossed the blood brain barrier and target brain cancer cells. While our current focus is solely on the development of Berubicin, we are also in the process of attempting to secure intellectual property rights in additional compounds that may be developed into drugs to treat cancers.
Berubicin was discovered at MD Anderson by Dr. Waldemar Priebe, the founder of the Company. Through a series of transactions, Berubicin was initially licensed to Reata. Reata conducted a Phase I clinical trial on Berubicin but subsequently allowed their IND with the FDA to lapse for strategic reasons. This will require us to obtain a new IND for Berubicin before beginning further clinical trials.
We do not have manufacturing facilities and all manufacturing activities are contracted out to third parties. Additionally, we do not have a sales organization.
On November 21, 2017, we entered into a Collaboration and Asset Purchase Agreement with Reata (the “Reata Agreement”). Pursuant to the Reata Agreement we purchased all of Reata’s intellectual property and development data regarding Berubicin, including all trade secrets, knowhow, confidential information and other intellectual property rights, which we refer to as the Reata Data.
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 patented 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 an NDA for Berubicin; and (v) 200,000 shares of our common stock.
With the Reata Agreement and the HPI License, we believe we have obtained all rights and intellectual property necessary to develop Berubicin. As stated earlier, it is our plan to obtain additional intellectual property covering other compounds which, subject to the receipt of additional financing, may be developed into drugs for brain and other cancers.
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Recent Developments
On January 10, 2020, we entered into a Patent and Technology License Agreement (the “1244 Agreement”) with The Board of Regents of The University of Texas System, an agency of the State of Texas, on behalf of The University of Texas M. D. Anderson Cancer Center (“UTMDACC”). Pursuant to the 1244 Agreement, we obtained a royalty-bearing, worldwide, exclusive license to certain intellectual property rights, including patent rights, related to our WP1244 drug technology. In consideration, we must make payments to UTMDACC including an up-front license fee, annual maintenance fee, milestone payments and royalty payments (including minimum annual royalties) for sales of licensed products developed under the 1244 Agreement. The term of the 1244 Agreement expires on the last to occur of: (a) the expiration of all patents subject to the 1244 Agreement, or (b) fifteen years after execution; provided that UTMDACC has the right to terminate the 1244 Agreement in the event that we fail to meet certain commercial diligence milestones.
On March 20, 2020, we entered into a Development Agreement with WPD Pharmaceuticals (“WPD”) (the “Development Agreement”), a company founded by Dr. Priebe. Pursuant to the Development 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 Development Agreement, we 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), we will make a payment of $775,000 to WPD. WPD agreed to pay us 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 us of development fees of $1.0 million. The term of the Development Agreement will expire on the expiration of the sublicense pursuant to which WPD has originally sublicensed the products.
On May 1, 2020, the SEC pursuant to Section 12(k) of the Securities Exchange Act of 1934, as amended, ordered the temporary suspension of trading in the securities of Moleculin because of questions regarding the accuracy and adequacy of information in the marketplace about Moleculin and its securities. Pursuant to the suspension order, the suspension commenced at 9:30 a.m. EDT on May 4, 2020 and terminates at 11:59 p.m. EDT on May 15, 2020. As of the date of this report, we have submitted a petition to terminate the suspension, but there is no assurance that we will be successful. We believe we will be able to demonstrate the accuracy and adequacy of our public disclosures, but the SEC may determine to extend the trading suspension until such time that it believes the information in the marketplace about us and our securities is accurate and adequate.
Results of Operations for the Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019
General and Administrative Expense
General and administrative expense was $1,355,054 for the three months ended March 31, 2020 compared to $146,783 for the comparable period in 2019. The increase in general and administrative expense, was mainly attributable to an increase of approximately $153,000 for stock-based compensation, $367,000 in employee compensation and taxes, $90,000 for investor relations services, $235,000 increase in advertising and marketing, $84,000 increase in legal and accounting expenses and $136,500 increase in insurance expenses.
Research and Development Expense
Research and development expense was $613,077 for the three months ended March 31, 2019 compared to $48,307 for the comparable period in 2019. The expenses incurred during the period were related to drug manufacturing and labor related to the preparation of our Phase II study. We expect to incur increased research and development costs in the future as our product development activities expand.
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Net Loss
The net loss for the three months ended March 31, 2020 was $1,968,131 compared to $211,501 for the comparable period in 2019. The change in net loss is attributable to increased personnel and activity associated with preparing for our clinical trials in 2020.
Liquidity and Capital Resources
On March 31, 2020, we had cash of $5,379,790 and we had working capital of $5,852,496. We have historically funded our operations from proceeds from debt and equity sales. We believe that our cash on hand is sufficient to fund our planned operations beyond the near term.
Our plan of operations is primarily focused on our Phase II clinical trial for Berubicin. We estimate that we will require additional financing of approximately $10.0 million to complete the trial, approximately $2.0 million to support near-term WP1244 preclinical work, plus such additional working capital to fund our operations during the pendency of the trial. The timing and costs of clinical trials are difficult to predict and as such the foregoing estimates may prove to be inaccurate.
We will need to raise additional capital in order to meet our obligations and execute our business plan. If we are unable to raise sufficient funds, we will be required to develop and implement an alternative plan to further extend payables, reduce overhead or scale back our business plan until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.
Summary of Cash Flows
Cash used in operating activities
Net cash used in operating activities was $1,855,088 and $82,688 for the three months ended March 31, 2020 and 2019 and mainly included payments made for clinical trial preparation, officer compensation, marketing and professional fees to our consultants, attorneys and accountants for services related to completion of our audit and preparation of our public offering filings.
Cash used by financing activities
Net cash used by financing activities was $0 and $48,025 for the three months ended March 31, 2020 and 2019. The amounts used in 2019 are related to the repayment of a loan and deferred issuance cost.
Cash used by investing activities
Net cash used by investing activities was $6,410 and $0 for the three months ended March 31, 2020 and 2019. The amount used in 2020 is related to the purchase of furniture and equipment.
Off-balance Sheet Arrangements
As of March 31, 2020, 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.
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Purchase Commitments
We do not have any material commitments for capital expenditures, although we are required to pay certain development fees to HPI and WPD as described in the section “Overview” above.
JOBS Act Accounting Election
The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, exempts an “emerging growth company” such as us from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements, including the notes thereto. We consider critical accounting policies to be those that require more significant judgments and estimates in the preparation of our financial statements, including the following: long lived assets; intangible assets valuations; and income tax valuations. Management relies on historical experience and other assumptions believed to be reasonable in making its judgment and estimates. Actual results could differ materially from those estimates.
Management believes its application of accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates are periodically reevaluated, and adjustments are made when facts and circumstances dictate a change.
Stock-based Compensation – Employee and non-employee share-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period.
Research and Development Costs - Research and development costs are expensed as incurred.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
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| 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 (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures.
Under the supervision, and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness, as of March 31, 2020, 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. Based upon such evaluation, our CEO and CFO have concluded that, as of March 31, 2020, our disclosure controls and procedures were not effective. 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 on the evaluation, our management concluded that our internal controls over financial reporting were, and continue to be ineffective, due to material weaknesses in our internal controls due to the lack of sufficient numbers of staff to allow for the proper segregation of duties and the lack of formal documentation of our control environment.
In light of the material weakness described above, we continue to perform additional analysis and other post-closing procedures to ensure our financial statements are prepared in accordance with GAAP. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented. Additional experienced personnel will be hired in the accounting and finance department, appropriate consultants will be retained, and our accounting system will be upgraded as soon as it becomes economically feasible and sustainable.
Other than as described above, there has been no change in our internal control over financial reporting during our most recent calendar quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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| Item 1. | Legal Proceedings |
From time to time in the ordinary course of our business, we may be involved in legal proceedings, the outcomes of which may not be determinable. The results of litigation are inherently unpredictable. Any claims against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in diversion of significant resources. We are not able to estimate an aggregate amount or range of reasonably possible losses for those legal matters for which losses are not probable and estimable. We have insurance policies covering potential losses where such coverage is cost effective.
We are not at this time involved in any legal proceedings.
| Item 1A. | Risk Factors |
In addition to the other information set forth in this report, you should carefully consider the factors discussed in the section entitled “Risk Factors” in our 2019 Annual Report on Form 10-K, filed with the SEC, which are incorporated herein by reference. The risks described in the 2019 Annual Report on Form 10-K 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. Except as set forth below, there have been no material changes to our risk factors from those set forth in the 2019 Annual Report on Form 10-K.
The outbreak of COVID-19 may adversely impact our business, preclinical studies and clinical trials.
In December 2019, a novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease 2019 (“COVID-19”), surfaced in Wuhan, China. Since then, COVID-19 has spread to multiple countries, including the United States. In response to the spread of COVID-19, we have expanded our virtual work environment by restricting all CNS-related travel through the adoption of additional virtual communications systems, encouraging employees to avoid non-work travel and to take all necessary precautions in accordance with guidance promulgated from the Centers for Disease Control (“CDC”), the White House Coronavirus Task Force, and the World Health Organization (“WHO”).
As a result of the COVID-19 outbreak, or similar pandemics, we have and may in the future experience disruptions that could severely impact our business, preclinical studies and clinical trials, including:
· delays or difficulties in enrolling patients in our clinical trials;
· delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;
· increased rates of patients withdrawing from our clinical trials following enrollment as a result of contracting COVID-19 and/or being forced to quarantine,
· increased rates of non-compliance with follow-up visits with patients failing to attend their clinical trial follow-up visits or clinics closing during the scheduled visit;
· interruption of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures (particularly any procedures that may be deemed non-essential), which may impact the integrity of subject data and clinical study endpoints;
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· interruption or delays in the operations of the FDA and comparable foreign regulatory agencies, which may impact approval timelines;
· interruption of, or delays in receiving, drug supply due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems;
· limitations on employee resources that would otherwise be focused on the conduct of our preclinical studies and clinical trials, including because of sickness of employees or their families, the desire of employees to avoid contact with large groups of people, an increased reliance on working from home or travel disruptions; and
· general market conditions that could impact our ability to raise future financing that we are dependent upon.
These and other factors arising from the COVID-19 pandemic could worsen in countries that are already afflicted with COVID-19, could continue to spread to additional countries, or could return to countries where the pandemic has been partially contained, each of which could further adversely impact our ability to conduct clinical trials and our business generally, and could have a material adverse impact on our operations and financial condition and results.
In addition, the trading prices for our common stock and other biotechnology companies have been highly volatile as a result of the COVID-19 epidemic. As a result, we may face difficulties raising capital through sales of our common stock or such sales may be on unfavorable terms. The COVID-19 outbreak continues to rapidly evolve. The extent to which the outbreak may impact our business, preclinical studies and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and actions to contain the outbreak or treat its impact, such as social distancing and quarantines or lock-downs in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
The SEC issued an order suspending the trading of our common stock.
On May 1, 2020, the SEC pursuant to Section 12(k) of the Securities Exchange Act of 1934, as amended, ordered the temporary suspension of trading in the securities of Moleculin because of questions regarding the accuracy and adequacy of information in the marketplace about Moleculin and its securities. Pursuant to the suspension order, the suspension commenced at 9:30 a.m. EDT on May 4, 2020 and terminates at 11:59 p.m. EDT on May 15, 2020. As of the date of this report, we have submitted a petition to terminate the suspension, but there is no assurance that we will be successful. We believe we will be able to demonstrate the accuracy and adequacy of our public disclosures, but the SEC may determine to extend the trading suspension until such time that it believes the information in the marketplace about us and our securities is accurate and adequate.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
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| Item 3. | Defaults Upon Senior Securities |
None.
| Item 4. | Mine Safety Disclosures |
Not applicable.
| Item 5. | Other Information |
None.
| Item 6. | Exhibits |
INDEX TO EXHIBITS
| * | Filed herewith. |
| (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. |
+ 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 supplementally furnish to the SEC, upon its request, an unredacted copy of this exhibit.
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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 | May 15, 2020 | ||
| John Climaco | (principal executive officer) | |||
| /s/ Christopher Downs | Chief Financial Officer | May 15, 2020 | ||
| Christopher Downs | (principal financial and accounting officer) |
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Exhibit 3.1
BARBARA K. CEGAVSKE
Secretary of State
204 North Carson Street, Suite 4
Carson City, Nevada 89701-4520
(775) 684-5706
Website: www.nvsos.gov
| Filed in the office of | Business Number E0354342017-0 | ||
| Certificate to Accompany Articles of Incorporation | /s/ Barbara K. Cegavske | Filing Numbe | |
| Restated Articles or | Barbara K. Cegavske | 20180462076-71 | |
| Amended and Restated Articles | Secretary of State | Filed on | |
| (PURSUANT TO NRS) | State of Nevada | 10/24/2018 |
This Form is to Accompany Restated Articles or Amended and Restated Articles of Incorporation
(Pursuant to NRS 78.403, 82.371, 86.221, 87A, 88.355 or 88A.250)
(This form is also to be used to accompany Restated Articles or Amended and Restated Articles for Limited-Liability
Companies, Certificates of Limited Partnership, Limited-Liability Limited Partnerships and Business Trusts)
1. Name of Nevada entity as last recorded in this office:
CNS Pharmaceutical, Inc.
2. The articles are: (mark only one
box) ☐ Restated ☒ Amended and Restated
Please entitle your attached articles "Restated" or "Amended and Restated," accordingly.
3. Indicate what changes have been made by checking the appropriate box:*
| ☐ | No amendments; articles are restated only and are signed by an officer of the corporation who has been authorized to execute the certificate by resolution of the board of directors adopted on:The certificate correctly sets forth the text of the articles or certificate as amended to the date of the certificate. | |
| ☐ | The entity name has been amended. | |
| ☐ | The registered agent has been changed. (attach Certificate of Acceptance from new registered agent) | |
| ☐ | The purpose of the entity has been amended. | |
| ☒ | The authorized shares have been amended. | |
| ☐ | The directors, managers or general partners have been amended. | |
| ☐ | IRS tax language has been added. | |
| ☒ | Articles have been added. | |
| ☐ | Articles have been deleted. | |
| ☐ | Other. The articles or certificate have been amended as follows: (provide article numbers, if available) |
| |
4. Effective date and time of filing : optional) Date: ____________________ Time: ___________________
(must not be later than 90 days after the certificate is filed)
* This form is to accompany Restated Articles or Amended and Restated Articles which contain newly altered or amended articles. The Restated Articles must contain all of the requirements as set forth in the statutes for amending or altering the articles for certificates.
IMPORTANT: Failure to include any of the above information and submit with the proper fees may cause this filing to be rejected.
| This form must be accompanied by appropriate fees. | Nevada Secretary of State Restated Articles |
Revised: 1-5-1
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AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF CNS PHARMACEUTICALS, INC.
Pursuant to NRS 78.403 under Nevada General Corporation Law (Title 7, Chapter 78 of the Nevada Revised Statutes), CNS Pharmaceuticals, Inc., a Nevada corporation (the "Corporation"), hereby amends and restates its Articles of Incorporation as follows:
ARTICLE I
NAME
The name of the corporation shall be CNS Pharmaceuticals, Inc. (the "Corporation").
ARTICLE II
REGISTERED OFFICE AND AGENT
The name of the registered agent and the street address of the registered office in the State of Nevada where process may be served upon the Corporation is CSC Services of Nevada, Inc. The Corporation may, from time to time, in the manner provided by law, change the registered agent and registered office within the State of Nevada. The Corporation may also maintain an office or offices for the conduct of its business, either within or without the State of Nevada.
ARTICLE III
AUTHORIZED CAPITAL STOCK
3.1 The Corporation shall have the authority to issue 75,000,000 million shares of common stock having a par value of $0.001 per share (the "Common Stock").
3.2 Preferred Stock. The Corporation shall have the authority to issue 5,000,000 shares of preferred stock having a par value of $0.001 per share (the "Preferred Stock"). The Board of Directors is expressly granted authority to issue shares of Preferred Stock, in one or more series, and to fix for each such series such voting powers, full or limited, and such designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issue of such series (a "Preferred Stock Designation") and as may be permitted by the Nevada Revised Statutes. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, without a separate vote of the holders of the Preferred Stock, or any series thereof, unless a vote of any such holders is required pursuant to any Preferred Stock Designation.
ARTICLE IV
BOARD OF DIRECTORS
The members of the governing board of the Corporation are styled as directors. The Board of Directors shall be elected in such manner as shall be provided in the Amended and Restated Bylaws of the Corporation. The current Board of Directors consists of five directors. The number of directors may be changed from time to time in such manner as shall be provided in the Bylaws of the Corporation.
ARTICLE V
PURPOSE
The purpose of the Corporation shall be to engage in any lawful business for which corporations may be organized under NRS Chapter 78.
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ARTICLE VI
INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
6.1 Expenses for Actions Other Than By or In The Right of the Corporation. The Corporation shall indemnify to the fullest extent under Nevada law, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director or officer of the Corporation, or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, association or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with which action, suit or proceeding, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, that he had reasonable cause to believe that his conduct was unlawful.
6.2 Expenses for Actions By or In the Right of the Corporation. The Corporation shall indemnify to the fullest extent under Nevada law, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the Corporation, or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, association or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper.
6.3 Non-Exclusivity. The rights to indemnification and to the advancement of expenses conferred in this Article VI shall not be deemed exclusive of any other rights to which any person seeking indemnification or advancement of expenses may be entitled under the articles of incorporation or under any other bylaw, agreement, insurance policy, vote of stockholders or disinterested directors, statute or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.
6.4 Repeal and Modification. Any repeal or modification of this Article VI shall not adversely affect any rights to indemnification and to the advancement of expenses of a director or officer of the Corporation existing at the time of such repeal or modification with respect to any acts or omissions occurring prior to such repeal or modification.
ARTICLE VII
LIMITATION OF LIABILITY
No director shall be personally liable to the Corporation, any of its stockholders or its creditors for money damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the NRS as the same exists or may hereafter be amended. If the NRS is hereafter amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent authorized by the NRS, as so amended. Any repeal or modification of this Article VII shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification.
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ARTICLE VIII
BYLAWS
In furtherance and not in limitation of the powers conferred upon it by law, the Board shall have the power to adopt, amend, alter or repeal the Bylaws. The affirmative vote of a majority of the Board shall be required to adopt, amend, alter or repeal the Bylaws. The Bylaws also may be adopted, amended, altered or repealed by the stockholders; provided, however, that in addition to any vote of the holders of any class or series of capital stock of the Corporation required by law or by this Amended and Restated Articles, the affirmative vote of the holders of at least a majority of the voting power of all then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required for the stockholders to adopt, amend, alter or repeal the Bylaws.
ARTICLE IX
AMENDMENTS
The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation in the manner now or hereafter prescribed by law, and, except as set forth in Article VI and VII all rights and powers conferred herein on stockholders, directors and officers are subject to this reserved power.
IN WITNESS WHEREOF, the Corporation has caused these Amended and Restated Articles of Incorporation to be signed on October 23, 2018.
| CNS PHARMACEUTICALS, INC. | |
| By: /s/ Matt Lourie | |
| Name: Matt Lourie | |
| Title: Chief Financial Officer |
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Exhibit 31.1
CERTIFICATION BY CHIEF EXECUTIVE OFFICER
I, John Climaco, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CNS Pharmaceuticals, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
May 15, 2020
By: /s/ John Climaco
John Climaco
Chief Executive Officer
(Principal executive officer)
Exhibit 31.2
CERTIFICATION BY CHIEF FINANCIAL OFFICER
I, Christopher Downs, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CNS Pharmaceuticals, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
May 15, 2020
By: /s/ Christopher Downs
Christopher Downs
Chief Financial Officer
(Principal financial and accounting officer)
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of CNS Pharmaceuticals, Inc., a Nevada corporation (the "Company"), does hereby certify, to such officer’s knowledge, that:
The quarterly report on Form 10-Q for the quarter ended March 31, 2020 (the "Form 10-Q") of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
May 15, 2020
By: /s/ John Climaco
John Climaco
Chief Executive Officer
(Principal executive officer)
Exhibit 32.2
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of CNS Pharmaceuticals, Inc., a Nevada corporation (the "Company"), does hereby certify, to such officer’s knowledge, that:
The quarterly report on Form 10-Q for the quarter ended March 31, 2020 (the "Form 10-Q") of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
May 15, 2020
By: /s/ Christopher Downs
Christopher Downs
Chief Financial Officer
(Principal financial and accounting officer)