Note 5 – Equity

The Company has authorized 75,000,000 shares of common stock having a par value of $0.001 per share. In addition, the Company authorized 5,000,000 shares of preferred stock to be issued having a par value of $0.001. The specific rights of the preferred stock shall be determined by the board of directors.

On August 25, 2022, the stockholders of the Company approved an amendment to the Company’s amended and restated articles of incorporation (the “Amendment”) to effect the reverse stock split at a ratio in the range of 1-for-2 to 1-for-30, with such ratio to be determined in the discretion of the Company’s board of directors and with such reverse stock split to be effected at such time and date, if at all, as determined by the Company’s board of directors in its sole discretion prior to the one-year anniversary of the annual meeting.

Pursuant to such authority granted by the Company’s stockholders, the Company’s board of directors approved a one-for-thirty (1:30) reverse stock split of the Company’s common stock and the filing of the Amendment to effectuate the reverse split. The reverse stock split became effective on November 28, 2022 on a 1-for-30 basis without any change in the par value per share, which remained at $0.001.

Common Stock

2022

The Company engaged H.C. Wainwright & Co., LLC (“Wainwright”), to act as placement agent related to the Securities Purchase Agreement described below. The Company agreed to pay Wainwright an aggregate fee equal to 7.0% of the gross proceeds received by the Company from the sale of the securities in the transaction. The Company also issued to Wainwright or its designees warrants to purchase up to 5.0% of the aggregate number of shares of Common Stock sold in the transactions (the “Placement Agent Warrants”), or 20,176 Placement Agent Warrants. The Placement Agent Warrants have substantially the same terms as the Common Warrants, except that the Placement Agent Warrants have an exercise price equal to 125% of the offering price, or $35.625 per share. The Company also paid Wainwright $50,000 for non-accountable expenses and $10,000 for legal fees and expenses.

On January 5, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with several institutional investors for the sale by the Company of (i) 316,316 shares (the “Shares”) of the Company’s common stock, (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to an aggregate of 87,193 shares of common stock and (iii) warrants to purchase up to an aggregate of 403,509 shares of common stock (the “Common Warrants” and, collectively with the Pre-Funded Warrants, the “Warrants”), in a private placement offering. The combined purchase price of one share of common stock (or one Pre-Funded Warrant) and the accompanying Common Warrant is $28.50.

Subject to certain ownership limitations, the Warrants are exercisable upon issuance. Each Pre-Funded Warrant is exercisable into one share of common stock at a price per share of $0.001 (as adjusted from time to time in accordance with the terms thereof). Each Common Warrant is exercisable into one share of common stock at a price per share of $24.60 (as adjusted from time to time in accordance with the terms thereof) and will expire on the fifth anniversary of the date of issuance. The gross proceeds from the Purchase Agreement were $11,497,385 resulting in net proceeds, after payment of commissions and expenses, received by the Company of $10,625,786.

On November 30, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an institutional investor for the sale by the Company of (i) 147,000 shares (the “Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to an aggregate of 1,742,764 shares of Common Stock and (iii) warrants to purchase up to an aggregate of 1,889,764 shares of Common Stock (the “Common Warrants” and, collectively with the Pre-Funded Warrants, the “Warrants”), in a public offering. The combined purchase price of one share of Common Stock and accompanying Common Warrant is $3.175 and the combined purchase price of one Pre-Funded Warrant and accompanying Common Warrant is $3.174.

Subject to certain ownership limitations, the Warrants are exercisable upon issuance. Each Pre-Funded Warrant is exercisable into one share of Common Stock at a price per share of $0.001 (as adjusted from time to time in accordance with the terms thereof). Each Common Warrant is exercisable into one share of Common Stock at a price per share of $3.03 (as adjusted from time to time in accordance with the terms thereof) and will expire on the fifth anniversary of the date of issuance. Each Pre-Funded Warrant is exercisable into one share of Common Stock at a price per share of $0.001 (as adjusted from time to time in accordance with the terms thereof). The gross proceeds to the Company from the offering were $5.998 million, resulting in net proceeds, after payment of commissions and expenses, received by the Company of $5,412,308.

On November 30, 2022, in connection with the offering, the Company also entered into a warrant amendment agreement (the “Warrant Amendment Agreement”) with the investor in the offering. Under the Warrant Amendment Agreement, the Company agreed to amend certain existing warrants (the “Existing Warrants”) to purchase up to an aggregate of (i) 16,667 shares of common stock at an exercise price of $66.00 per share and an expiration date of December 28, 2025 and (ii) 210,527 shares of common stock at an exercise price of $24.60 per share and an expiration date of January 10, 2027, as follows: (i) to lower the exercise price of the Existing Warrants to $3.03 per share, and (ii) to extend the expiration date of the Existing Warrants to five years following the closing of the offering.

On November 30, 2022, the Company entered into a placement agency agreement with H.C. Wainwright & Co., LLC (“Wainwright”) and Brookline Capital Markets, a division of Arcadia Securities, LLC (“Brookline” and collectively with Wainright, the “Placement Agents”) (the “Placement Agreement”), pursuant to which the Company has agreed to pay the Placement Agents an aggregate fee equal to 7.0% of the gross proceeds received by the Company from the sale of the securities in the transaction. Pursuant to the Placement Agreement, the Company will also issue to the Placement Agents or their designees warrants to purchase up to 5.0% of the aggregate number of shares of Common Stock issued in the offering and issuable upon the exercise of the pre-funded warrants issued in the offering (the “Placement Agent Warrants”), or 94,488 Placement Agent Warrants. The Placement Agent Warrants have substantially the same terms as the Common Warrants, except that the Placement Agent Warrants have an exercise price equal to 125% of the offering price, or $3.7875 per share, subject to adjustments. The Company also agreed to reimburse certain expenses of Wainwright, including a non-accountable expense allowance of $50,000, legal fees and expenses in an amount up to $100,000 and clearing fees of $15,950. The Company also agreed to pay Wainwright a tail fee equal to the cash compensation in this offering, if any investor, who was contacted or introduced to the Company by Wainwright during the term of its engagement, provides the Company with capital in any public or private offering or other financing or capital raising transaction during the nine-month period following expiration or termination of our engagement of Wainwright. In addition, with certain exceptions, for a period of seven month following the closing of the offering, the Company has granted Wainwright the right to act as sole book-runner, sole manager, sole placement agent or sole agent with respect to any financing or refinancing of indebtedness; and if the Company decides to raise funds by means of a public offering (including at-the-market facility) or a private placement or any other capital-raising financing of equity, equity-linked or debt securities, the Company has granted Wainwright the right to act as sole book-running manager, sole underwriter or sole placement agent for such financing.

As consideration for entering into a purchase agreement with Lincoln Park Capital Fund, LLC in fiscal year 2020, the Company recorded as deferred offering costs of $440,902, on the balance sheet. As of December 31, 2021, unamortized deferred offering costs totaled $334,138. During the year ended December 31, 2022, the Company wrote off the remaining $334,138 deferred offering costs to the statement of operations.

2021

In January 2021, the Company entered into a twelve-month agreement with an investor relations firm that includes the issuance of 834 restricted shares of common stock. Upon signing the agreement, 209 shares vested immediately, and the remaining 625 shares will vest quarterly over the remainder of the agreement. The Company may terminate the agreement at any time during the twelve-month period with a fifteen-day notice. During the year ended December 31, 2021, the Company issued 834 common shares and recognized $50,500 of stock-based compensation related to the agreement and will issue the remaining shares over the service period.

During the year ended December 31, 2021, the Company issued 2,500 shares of common stock and recognized $140,250 of expense for investor relations services for a four month period ending September 2021.

On February 12, 2021, the Company entered into a Capital on Demand™ Sales Agreement (the “Agreement”) with JonesTrading Institutional Services LLC and Brookline Capital Markets, a division of Arcadia Securities, LLC (collectively, the “Agent”). Pursuant to the terms of the Agreement, the Company may sell from time to time, through the Agent, shares of the Company’s common stock with an aggregate sales price of up to $20.0 million. During the year ended December 31, 2021, the Company sold 68,784 shares of common stock to the Agent for net proceeds of $4,653,821. 

Stock Options

In 2017, the Board of Directors of the Company approved the CNS Pharmaceuticals, Inc. 2017 Stock Plan (the “2017 Plan”). The 2017 Plan allows for the Board of Directors to grant various forms of incentive awards for up to 66,667 shares of common stock. No key employee may receive more than 16,667 shares of common stock (or options to purchase more than 16,667 shares of common stock) in a single year.

In 2020, the Board of Directors of the Company approved the CNS Pharmaceuticals, Inc. 2020 Stock Plan (the “2020 Plan”). The 2020 Plan allows for the Board of Directors to grant various forms of incentive awards for up to 100,000 shares of common stock. No key employee may receive more than 25,000 shares of common stock (or options to purchase more than 25,000 shares of common stock) in a single year. 

During the year ended December 31, 2021, the Board of Directors approved grants of 24,633 options to officers, employees, board of directors and a consultant. The exercise price of the options ranges from $54.00 to $100.80 and the options expire ten-years following issuance. The total fair value of these option grants at issuance was $1,969,712. Of the 24,633 options issued, 4,267 options vest on the first anniversary date of issuance, 2,500 options have a vesting term of 25% vest upon issuance, 50% vest upon Board approving a business development acquisition and 25% vest over a three year period in equal installments on each of the succeeding three anniversary dates. The remaining options issued vest in four equal annual installments beginning on the first anniversary following issuance.

During the years ended December 31, 2022 and 2021, the Company recognized $1,149,364 and $1,533,092 of stock-based compensation, respectively, related to outstanding stock options. At December 31, 2022, the Company had $1,318,183 of unrecognized expenses related to options.

The following table summarizes the stock option activity for the year ended December 31, 2022 and 2021: 

The aggregate fair value of the options measured during the year ended December 31, 2021 were calculated using the Black-Scholes option pricing model based on the following assumptions:

As of December 31, 2022, the outstanding stock options have a weighted average remaining term of 6.73 years and the aggregate intrinsic value of options vested and outstanding were $9,626. As of December 31, 2022, there were no awards remaining to be issued under the 2017 Plan and 35,580 awards remaining to be issued under the 2020 Plan.

Stock Warrants

The following table summarizes the stock warrant activity for the years ended December 31, 2022 and 2021: 

During the year ended December 31, 2022, the Company received $2,734 in cash proceeds from the exercise of 204,957 warrants previously issued at an exercise price range of $0.01 to $0.03.

During the year ended December 31, 2021, the Company received $332,750 in cash proceeds from the exercise of 5,041 warrants previously issued at an exercise price of $66.00. In addition, the Company received notices to exercise 83,187 warrants on a cashless basis resulting in the issuance of 58,544 shares of common stock.

As of December 31, 2022 the outstanding and exercisable warrants have a weighted average remaining term of 4.84 years and with an intrinsic value of $3,898,375.

Restricted Stock Units

On April 28, 2022, the Compensation Committee approved cash bonuses totaling $213,000 to the officers of the Company. In addition, the officers and employees were awarded a total of 9,523 Restricted Stock Units that partially vest over 4 years. The Company valued the RSUs based on the stock price at grant which total $95,399.

During the year ended December 31, 2022, the Company recognized $17,887 of stock-based compensation, related to outstanding stock RSUs. At December 31, 2022, the Company had $77,512 of unrecognized expenses related to outstanding RSUs.

The following table summarizes the RSUs activity for the year ended December 31, 2022: 

Performance Units

On April 28, 2022, the Compensation Committee approved, the officers and employees were awarded a total of 28,563 PUs. For awards granted in 2022, they vest as follows: (i) 9,521 of the PU grant will vest if within 24 months from issuance the average the closing price of the Company’s common stock over a ten trading day period exceeds $60.00 (subject to pro rata adjustment for stock splits or similar events), (ii) 9,521 of the PU grant will vest if within 36 months from issuance the average the closing price of the Company’s common stock over a ten trading day period exceeds $120.00 (subject to pro rata adjustment for stock splits or similar events) and (iii) 9,521 of the PU grant will vest if within 24 months from issuance the Company achieves “Positive Interim, Clinical Data” as defined by the Board of Directors. To the extent that the market and/or “Positive Interim Clinical Data” conditions are not met, the applicable portions of the PUs will not vest and will be cancelled. The fair value at grant date of these performance units was $169,663. Compensation expense is recognized over the derived service period for the PUs with market conditions and over the requisite service period for PUs with performance conditions on the date when achievement of such conditions are deemed probable.

The fair value of each performance unit with market conditions (vesting terms (i) and (ii)) is estimated at the date of grant using a Monte Carlo simulation with the following assumptions: underlying stock price $10.02, hurdle prices ranging from $60.00 -$120.00, expected terms ranging from 2-3 years, cost of equity 18.7% and risk-free rate of 2.8%.

During the year ended December 31, 2022, the Company recognized $21,928 for vesting term (i), $13,787 for vesting term (ii) and $0 for vesting term (iii), related to outstanding stock PUs. At December 31, 2022, the Company had $133,948 of unrecognized expenses related to PUs.

The following table summarizes the PUs activity for the year ended December 31, 2022: