CNS Pharmaceuticals(CNSP) - 2024 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION This section presents CNS Pharmaceuticals, Inc.'s unaudited financial statements and related disclosures Item 1. Financial Statements This section presents CNS Pharmaceuticals, Inc.'s unaudited financial statements, including balance sheets, operations, equity, cash flows, and notes Balance Sheets This section provides the unaudited balance sheets as of March 31, 2024, and December 31, 2023 | Metric (USD) | March 31, 2024 | December 31, 2023 | | :-------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $815,226 | $548,721 | | Total current assets | $1,601,276 | $1,591,170 | | Total Assets | $1,660,877 | $1,700,853 | | Total current liabilities | $6,091,402 | $6,132,968 | | Total Liabilities | $6,091,402 | $6,132,968 | | Total Stockholders' Equity | $(4,430,525) | $(4,432,115) | Statements of Operations This section presents the unaudited statements of operations for the three months ended March 31, 2024, and 2023 | Metric | Three Months Ended March 31, 2024 (USD) | Three Months Ended March 31, 2023 (USD) | | :------------------------------ | :-------------------------------------- | :-------------------------------------- | | General and administrative | $1,114,442 | $1,358,752 | | Research and development | $2,430,412 | $3,567,759 | | Total operating expenses | $3,544,854 | $4,926,511 | | Net loss | $(3,544,748) | $(4,931,947) | | Loss per share - basic | $(0.41) | $(2.59) | | Loss per share - diluted | $(0.41) | $(2.59) | | Weighted average shares outstanding - basic (count) | 8,712,680 | 1,906,494 | | Weighted average shares outstanding - diluted (count) | 8,712,680 | 1,906,494 | Statements of Stockholders' Equity (Deficit) This section details the unaudited statements of stockholders' equity (deficit) for the three months ended March 31, 2024, and 2023 | Metric | Balance Dec 31, 2023 (USD) | Common Stock Issued for Cash, Net (USD) | Exercise of Warrants, Net (USD) | Stock-based Compensation (USD) | Net Loss (USD) | Balance Mar 31, 2024 (USD) | | :----------------------------------- | :------------------------- | :-------------------------------------- | :------------------------------ | :----------------------------- | :------------- | :------------------------- | | Common Shares (count) | 6,214,598 | 2,215,667 | 2,238,667 | – | – | 10,668,932 | | Stock (USD) | 6,214 | 2,216 | 2,239 | – | – | 10,669 | | Additional Paid-in Capital (USD) | 65,128,574 | 3,328,784 | 10,166 | 202,933 | – | 68,670,457 | | Accumulated Deficit (USD) | (69,566,903) | – | – | – | (3,544,748) | (73,111,651) | | Total Stockholders' Equity (Deficit) | (4,432,115) | 3,331,000 | 12,405 | 202,933 | (3,544,748) | (4,430,525) | Statements of Cash Flows This section presents the unaudited statements of cash flows for the three months ended March 31, 2024, and 2023 | Metric | Three Months Ended March 31, 2024 (USD) | Three Months Ended March 31, 2023 (USD) | | :---------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Net loss | $(3,544,748) | $(4,931,947) | | Stock-based compensation | $202,933 | $290,313 | | Net cash used in operating activities | $(3,192,057) | $(4,824,592) | | Payments on notes payable | $(87,702) | $(120,893) | | Proceeds from exercise of warrants | $12,405 | $609 | | Proceeds from sale of common stock | $3,533,859 | – | | Net cash provided by (used in) financing activities | $3,458,562 | $(120,284) | | Net change in cash and cash equivalents | $266,505 | $(4,944,876) | | Cash and cash equivalents, at end of period | $815,226 | $5,110,531 | Notes to the Financial Statements This section provides detailed notes explaining the significant accounting policies, equity changes, commitments, contingencies, and subsequent events impacting the financial statements Note 1 – Nature of Business This note describes CNS Pharmaceuticals, Inc.'s core business as a clinical pharmaceutical company focused on anti-cancer drug development - CNS Pharmaceuticals, Inc. is a clinical pharmaceutical company focused on developing anti-cancer drug candidates, organized in Nevada on July 27, 2017[146] Note 2 – Summary of Significant Accounting Policies This note outlines the significant accounting policies, going concern considerations, and the impact of a reverse stock split on the financial statements - The financial statements are unaudited and prepared in accordance with U.S. GAAP for interim information, and should be read in conjunction with the Form 10-K for the period ended December 31, 2023[39] - The company's ability to continue as a going concern is dependent on obtaining additional equity financings, as it has a history of negative cash flows and net losses, with current cash sufficient only for the near term[147] - A 1-for-30 reverse stock split became effective on November 28, 2022, retroactively adjusted in the financial statements[8][150] - As of March 31, 2024, $565,226 of cash balances at financial institutions exceeded the federally insured limit of $250,000[9] Note 3 – Note Payable This note details the company's note payable balance, interest rate, and final payment due date as of March 31, 2024 - As of March 31, 2024, the company had a note payable balance of $213,104, bearing interest at 9.74% per year, with the final payment due on October 8, 2024[149] Note 4 – Equity This note provides information on changes in authorized common stock, stock option and warrant activity, and stock-based compensation recognized during the period - On May 2, 2024, the company increased its authorized common stock from 75,000,000 shares to 300,000,000 shares[120] Stock Option Activity (Three Months Ended March 31, 2024) | Metric | Options (count) | Weighted Average Exercise Price Per Share (USD) | | :----------------------------------- | :-------------- | :---------------------------------------------- | | Outstanding, December 31, 2023 | 328,770 | $20.35 | | Granted | 12,420 | $0.25 | | Outstanding, March 31, 2024 | 341,190 | $19.62 | | Exercisable, March 31, 2024 | 99,920 | $58.39 | - The company recognized $192,375 in stock-based compensation related to outstanding stock options for the three months ended March 31, 2024[152] Stock Warrant Activity (Three Months Ended March 31, 2024) | Metric | Warrants (count) | Weighted Average Exercise Per Share (USD) | | :----------------------------------- | :--------------- | :---------------------------------------- | | Outstanding, December 31, 2023 | 4,240,063 | $3.88 | | Granted | 37,784,335 | $0.30 | | Exercised | (2,238,667) | $0.30 | | Outstanding, March 31, 2024 | 39,785,731 | $0.59 | | Exercisable, March 31, 2024 | 39,785,731 | $0.59 | - On January 29, 2024, the company entered into a warrant amendment agreement to reduce the exercise price of certain existing warrants to $0.30 per share, subject to shareholder approval[16] - For the three months ended March 31, 2024, the company recognized $5,962 of stock-based compensation related to outstanding RSUs and $4,596 related to outstanding PUs[18][50] Note 5 – Commitments and Contingencies This note outlines the company's financial commitments, including approved bonuses, accrued compensation, and potential license terminations - The Board approved cash bonuses totaling $240,608 for officers, payable upon completion of a sufficient financing round[52] - The cash compensation program for the Scientific Advisory Board was terminated on March 14, 2024, with $185,884 accrued for Mr. Hsu's compensation[22] - The company provided notice on May 14, 2024, to Houston Pharmaceuticals, Inc. (HPI) of its intent to terminate the HPI License for WP744 (Berubicin) effective July 14, 2024, as the patents under the license expired in March 2020[23][169][184] - The University of Texas M. D. Anderson Cancer Center (UTMDACC) notified the company on April 25, 2024, of its intent to terminate the WP1244 Agreement if the annual maintenance fee of $50,000 plus $1,300 in expenses are not paid, as the company has not met commercial diligence milestones[25][63][75] Note 6 – Subsequent Events This note describes significant events occurring after March 31, 2024, including warrant exercises, equity plan approvals, and Nasdaq listing compliance extensions - Subsequent to March 31, 2024, 1,183,000 warrants were exercised by investors at an exercise price of $0.001 per share[80] - On April 30, 2024, stockholders approved an increase of 3,500,000 shares for issuance under the 2020 Equity Plan, bringing the total to 4,345,800 shares[164] - On April 7, 2024, equity grants for 2023 service were approved, totaling 179,000 Options (vesting over 3 years) and 179,000 Restricted Stock Units (vesting over 2 years)[57] - The Nasdaq Hearings Panel granted an extension until July 15, 2024, for the company to demonstrate compliance with listing rules 5550(a)(2) and 5550(b)[26][181] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis covers financial condition, operations, liquidity, capital resources, and forward-looking statements Cautionary Note Regarding Forward-Looking Statements This note advises readers that the report contains forward-looking statements subject to various risks and uncertainties, which may differ from actual results - The report contains forward-looking statements subject to known and unknown risks and uncertainties, including clinical trial success, regulatory approval, market acceptance, intellectual property protection, and the ability to obtain additional funding[16][28][29][30][58][60][81][82][83][136][137][165][166][167][187] - Readers are cautioned not to place undue reliance on these statements, which speak only as of the filing date, and the company is under no duty to update them[83][136][167] Overview This section provides an overview of CNS Pharmaceuticals' business, focusing on its anti-cancer drug development and lead candidate, Berubicin - CNS Pharmaceuticals is a clinical pharmaceutical company focused on developing anti-cancer drug candidates for brain and central nervous system tumors, primarily based on licensed intellectual property[138][146] - The lead drug candidate, Berubicin, is being evaluated in a Phase II clinical trial for Glioblastoma Multiforme, with an independent Data Safety Monitoring Board (DSMB) recommending continuation of the study without modification on December 18, 2023[31][61][84] - Berubicin has received Orphan Drug Designation (ODD) from the FDA on June 10, 2020, and Fast Track Designation on July 24, 2021, which may provide market exclusivity and expedited review[55][85][132] - The company does not have manufacturing facilities or a sales organization, relying on third parties for these activities[139] Results of Operations This section compares the company's operating expenses and net loss for the three months ended March 31, 2024, and 2023 Operating Expenses and Net Loss (Three Months Ended March 31) | Metric | 2024 (USD) | 2023 (USD) | Change (USD) | Change (%) | | :------------------------------ | :------------ | :------------ | :------------ | :--------- | | General and administrative | $1,114,442 | $1,358,752 | $(244,310) | -18.0% | | Research and development | $2,430,412 | $3,567,759 | $(1,137,347) | -31.9% | | Net loss | $(3,544,748) | $(4,931,947) | $1,387,199 | -28.1% | - The decrease in general and administrative expense was mainly due to reductions in legal and professional expenses, insurance, stock compensation, and travel expenses[64] - The decrease in research and development expenses was primarily attributed to the timing of Contract Research Organization (CRO) expenses related to the Phase II clinical trial[87] Liquidity and Capital Resources This section assesses the company's cash position, working capital, and future capital requirements to sustain operations and clinical trials Cash Flow Summary (Three Months Ended March 31) | Metric | 2024 (USD) | 2023 (USD) | | :---------------------------------------- | :------------ | :------------ | | Net cash used in operating activities | $(3,192,057) | $(4,824,592) | | Net cash provided by (used in) financing activities | $3,458,562 | $(120,284) | | Cash and cash equivalents, at end of period | $815,226 | $5,110,531 | - As of March 31, 2024, the company had approximately $815,000 in cash and a working capital deficit of approximately $4,490,000[191] - The company requires an additional $13 to $15 million to complete the Berubicin Phase 2 trial, plus $4.5 to $5.0 million annually for operations, and an extra $5.0 million for WP1244/WP1874 preclinical work[173] - Management believes current cash is sufficient only into the latter half of the second quarter of 2024, and significant additional capital is needed to avoid scaling back or ceasing operations[89][173] Critical Accounting Policies and Estimates This section discusses management's determination regarding critical accounting estimates and the inherent judgments in financial statement preparation - Management determined there were no critical accounting estimates for the period, but notes that financial statements require judgments and estimates that could differ from actual results[69] Off-balance Sheet Arrangements This section confirms the absence of off-balance sheet arrangements as of March 31, 2024 - As of March 31, 2024, the company did not have any relationships with unconsolidated entities or financial partnerships for off-balance sheet arrangements[91] JOBS Act Accounting Election This section explains the company's election as an 'emerging growth company' to utilize the extended transition period for new accounting standards - The company, as an 'emerging growth company,' elected not to opt out of the extended transition period for complying with new or revised financial accounting standards, which may affect comparability with other public companies[92] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, CNS Pharmaceuticals, Inc. is not required to provide the information typically required under this item - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[93] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were ineffective as of March 31, 2024, due to material weaknesses, and is implementing actions to address these issues Evaluation of Disclosure Controls and Procedures and Changes in Internal Control over Financial Reporting This section details the ineffectiveness of disclosure controls and procedures due to material weaknesses and outlines management's remediation efforts - As of March 31, 2024, the company's disclosure controls and procedures were deemed ineffective due to material weaknesses in internal control over financial reporting[71][197] - Material weaknesses include a lack of segregation of duties, limited access to timely and complete information from the third-party Contract Research Organization (CRO), and a lack of formal documentation of the control environment[71] - Management is taking actions to address these weaknesses, including formalizing documentation, working with the CRO for improved data timeliness and completeness, and conducting increased analytical analysis[71] - Additional experienced personnel will be hired in accounting and finance, and the accounting system will be upgraded when economically feasible[178] PART II OTHER INFORMATION This section includes legal proceedings, risk factors, equity sales, defaults, mine safety, other disclosures, exhibits, and signatures Item 1. Legal Proceedings CNS Pharmaceuticals, Inc. is not currently involved in any material legal proceedings - The company is not currently involved in any legal proceedings[199] Item 1A. Risk Factors The company faces significant risks related to its Nasdaq listing compliance, having received notifications of non-compliance with minimum stockholders' equity and bid price requirements, with a delisting risk if compliance is not met by July 15, 2024 - The company received notifications from Nasdaq for non-compliance with the minimum $2,500,000 stockholders' equity requirement (August 17, 2023) and the $1.00 minimum bid price requirement (February 27, 2024)[74][163] - An extension has been granted until July 15, 2024, to demonstrate compliance with Nasdaq listing rules, but this plan requires significant, uncommitted financing[26][181] - Failure to maintain Nasdaq listing compliance could result in delisting, adversely affecting the company's ability to raise financing, trade securities, and potentially impacting its value and liquidity[97][98] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - None to report for unregistered sales of equity securities and use of proceeds[182] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report for the period - None to report for defaults upon senior securities[202] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable to the company[183] Item 5. Other Information The company provided notice to terminate its HPI License for Berubicin, believing it will not impact development due to expired patents, and reported no Rule 10b5-1 trading arrangements by directors or executive officers - On May 14, 2024, the company provided notice to Houston Pharmaceuticals, Inc. (HPI) of its intent to terminate the HPI License effective July 14, 2024, believing it will not affect Berubicin development as the patents have expired[184] - No Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements were adopted or terminated by the company's directors or executive officers during the reporting period[203] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including various corporate documents, warrant forms, agreements, and certifications - The exhibits include a Certificate of Amendment to Articles of Incorporation, forms of Series A, Series B, and Pre-Funded Warrants, Placement Agent Agreement, Securities Purchase Agreement, Amendment to Common Stock Purchase Warrants, the 2020 Equity Plan, and certifications by the Principal Executive and Financial Officers[76][204][205] Signatures The report was duly signed on behalf of CNS Pharmaceuticals, Inc. by its Chief Executive Officer and Chief Financial Officer on May 15, 2024 - The report was signed by John Climaco, Chief Executive Officer and Director, and Christopher Downs, Chief Financial Officer, on May 15, 2024[78][101][206]