Annual report pursuant to Section 13 and 15(d)

5. Equity

v3.20.1
5. Equity
12 Months Ended
Dec. 31, 2019
Equity [Abstract]  
Equity

Note 5 – Equity

 

In October 2018 the Company amended the articles of incorporation to increase the authorized shares of common stock to 75,000,000 having a par value of $0.001 per share. In addition, the Company authorized 5,000,000 shares of preferred stock to be issued having a par value of $0.001. The specific rights of the preferred stock shall be determined by the board of directors.

 

Common Stock

 

On January 12, 2018, the Company issued 5,000 shares of common stock valued at $7,500 to a consultant for services.

 

On April 10, 2018, the Company engaged Boustead Securities, LLC (“Boustead”) to act as exclusive financial advisor related to the Company’s IPO. The agreement expired in April 2019 prior to the Company completing its IPO. Upon expiration of the agreement, $102,225 of underwriting fees previously capitalized as deferred issuance costs were expensed. In addition, an entity related to Boustead was a holder of the Company’s outstanding convertible debt. On November 13, 2019, upon the closing of the IPO, the 10% convertible note of $300,000 in principal plus accrued interest of $42,493 automatically converted into 228,329 shares of common stock at a conversion rate of $1.50 per share.

 

During the year ended December 31, 2018, the Company issued 260,337 shares of common stock for cash proceeds of $390,500.

 

On December 31, 2018, the Company issued 2,158,500 shares of common stock upon conversion of debt and accrued interest. See Note 3.

 

On April 11, 2019, the Company’s board of directors approved a Bridge Offering private placement up to a maximum of 817,500 shares of common stock at $2.00 per share. As of December 31, 2019, 817,500 shares have been sold for proceeds net of fundraising expenses of $1,507,170.

 

On April 11, 2019, the Company entered into a consulting agreement with a consultant to provide services and advice related to social media, investor relations, marketing and public markets. The initial term of the agreement is twelve months. As consideration for entering into this agreement the Company issued a total of 75,000 shares of common stock. The shares vest over an eight-month period in equal monthly installments provided that the consultant is providing services on each vesting date. If the agreement is terminated prior to full vesting the Company shall have the right to repurchase unvested shares from the consultant for $0.001 per share. During the year ended December 31, 2019, $150,000 of expense has been recognized related to this agreement.

 

On November 13, 2019, the Company closed its IPO of 2,125,000 shares of its common stock at a price to the public of $4.00 per share. The net proceeds from the offering were $7,601,827 after deducting $898,173 of underwriting fees and other offering expenses.

 

On November 20, 2019, the Company closed the issuance of an additional 318,750 shares of its common stock pursuant to the exercise in full of the underwriters’ over-allotment option in connection with its IPO. The additional shares were sold at the IPO price of $4.00 per share less underwriting discounts and commissions of $89,250 for total net proceeds of $1,185,750.

 

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 February 19, 2018, the Company issued non-qualified stock options to a new member of our Scientific Advisory Committee. The options cover 100,000 shares, have an original life of ten years and vest in four equal installments on each of the succeeding four anniversary dates. The exercise price is $1.50 for these options. The fair value of the options was $138,017 on the grant date.

 

On June 25, 2018, the Company issued non-qualified stock options to a new member of the board of directors. The options cover 100,000 shares, have an original life of ten years and vest over 36 months. The options had a fair value of $138,016 at grant date. The exercise price per share is $1.50 for these shares.

 

On July 9, 2018, the Company issued non-qualified stock options to two new members of the board of directors. The options cover 200,000 shares, have an original life of ten years and vest over 36 months. The options had a fair value of $276,024 at grant date. The exercise price per share is $1.50 for these shares.

 

On June 28, 2019, the Board of Directors approved a grant 889,500 to officers and employees of the Company. The options vest in four equal annual instalments beginning on the first anniversary following issuance. The options have a ten-year term and have an exercise price of $2.00 per share. The fair value of the options at issuance was $1,631,737.

 

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. 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. The fair value of the options at issuance was $1,085,708.

 

During the years ended December 31, 2019 and 2018, the Company recognized $400,834 and $102,740 of stock-based compensation, respectively, related to outstanding stock options. At December 31, 2019, the Company had $2,753,499 of unrecognized expenses related to options.

 

The following table summarizes the stock option activity for the years ended December 31, 2019 and 2018:

 

    Options     Weighted-
Average
Exercise Price
Per Share
 
Outstanding, December 31, 2017     275,000     $ 0.045  
Granted     400,000       1.5  
Exercised            
Forfeited            
Expired            
Outstanding, December 31, 2018     675,000     $ 0.91  
Granted     1,189,500       2.50  
Exercised            
Forfeited     (100,000 )     2.00  
Expired            
Outstanding, December 31, 2019     1,764,500     $ 1.92  

 

The following table discloses information regarding outstanding and exercisable options at December 31, 2019:

 

    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       9.86      
$2.00   789,500       9.50      
$1.50   400,000       8.42   175,012    
$0.045   275,000       7.89   181,956    
Total   1,764,500   $1.92   9.06   356,968   $0.76

 

As of December 31, 2019, the aggregate intrinsic value of options vested and outstanding was $1,139,318. The aggregate fair value of the options measured during the years ended December 31, 2019 and 2018 were calculated using the Black-Scholes option pricing model based on the following assumptions:

 

   

Year Ended

December 31, 2019

 

Year Ended

December 31,2018

Fair value of common stock on measurement date   $2.00 to $4.00 per share   $1.50 per share
Risk free interest rate (1)   1.74% to 2.00%   2.5% to 2.88%
Volatility (2)   102.55% to 106.71%   106.4% to 106.9%
Dividend yield (3)   0%   0%
Expected term (in years)   10   10

 

(1) The risk-free interest rate was determined by management using the market yield on U.S. Treasury securities with comparable terms as of the measurement date.
(2) The trading volatility was determined by calculating the volatility of the Company’s peer group.
(3) The Company does not expect to pay a dividend in the foreseeable future.

 

As of December 31, 2019, there are 235,500 awards remaining to be issued under the Plan.

 

Stock Warrants

 

The following table summarizes the stock warrant activity for the year ended December 31, 2019:

 

    Warrants     Weighted-
Average
Exercise Price
Per Share
 
Outstanding, December 31, 2017     1,206,059     $ 11.00  
Granted     2,468,071       0.70  
Exercised            
Forfeited            
Expired            
Outstanding, December 31, 2018     3,674,130     $ 4.08  
Granted     312,500       2.87  
Exercised            
Forfeited            
Expired            
Outstanding, December 31, 2019     3,986,630     $ 3.99  

 

In April 2019, the Company entered into two consulting agreements with consultants to provide services and advice related to company operations, investor relations, marketing, corporate structure, financing and public markets. The initial term of the agreement is eighteen months. As consideration for entering into this agreement the Company issued to each consultant 50,000 common stock warrants with a term of five years and an exercise price of $1.75. The warrants vest over an eighteen-month period in equal monthly installments provided that the consultant is providing services on each vesting date. In addition, each consultant will earn $5,000 per month for these services. Payment of the cash portion of the fee were accrued until the Company completed its IPO on November 13, 2019. During the year ended 2019, the Company paid $80,000 related to the two consulting agreements.

 

The common stock warrants were valued at $161,500 and were recognized over the 18-month vesting term. During the year ended December 31, 2019, $76,262 has been recognized as an expense. At December 31, 2019, the Company had $85,238 of unrecognized expenses related to options.

 

The following table discloses information regarding outstanding and exercisable warrants at December 31, 2019:

 

    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       2.64   1,206,059    
$2.00   63,750       4.43   63,750    
$4.00   148,750       4.86      
$1.75   100,000       4.29   44,448    
$1.50   14,000       3.45   14,000    
$0.70   2,454,071       4.00   2,454,071    
Total   3,986,630   $3.99   3.63   3,782,328   $4.02

 

As of December 31, 2019, the aggregate intrinsic value of warrants vested and outstanding was $8,232,129.

 

Other

 

On April 17, 2019, the Company entered into an agreement with a foreign registered broker dealer to assist in fundraising on the Company’s behalf. Fees for these services consisted of a cash fee of 10% of amounts raised and an equity fee of 10% of the amounts raised. The equity fee was payable in five-year common stock warrants with an exercise price of $2.00 per share. The Company used the Black-Scholes option valuation model to estimate the fair value of the warrants. As of December 31, 2019, 63,750 warrants with a fair value of $101,206 were issued under this agreement and recorded to additional paid in capital as a cost of capital.

 

On June 3, 2019, the Company engaged The Benchmark Company, LLC (“Benchmark”) to act as exclusive financial advisor related to the Company’s NASDAQ Initial Public Offering. Benchmark was compensated a success fee of 7% of the gross offering proceeds, expense allowance of 1% of the gross offering proceeds and warrants equal to 7% of the shares sold with a five-year term and an exercise price equal to the price of the initial public offering. In addition, the Company agreed to reimburse Benchmark for expenses. On November 13, 2019, the Company closed its initial public offering of 2,125,000 shares of its common stock at a price to the public of $4.00 per share. In conjunction with the closing Benchmark was issued 148,750 common stock warrants with a term of five years and an exercise price of $4.00. The warrants become exercisable on May 5, 2020. The Company used the Black-Scholes option valuation model to estimate the fair value of the warrants. As of December 31, 2019, the fair value of the 148,750 warrants issued was $451,722 and recorded to additional paid in capital as a cost of capital.