Note 4 – Equity

The Company has 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 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.

During the year ended December 31, 2018, the Company entered into SAFE agreements (Simple Agreement for Future Equity) with investors through a Regulation Crowdfunding campaign in exchange for cash investments totaling $628,558. Upon an initial public offering of the Company’s common shares or a change of control, the amount invested under the SAFE agreements automatically converted into the Company’s common shares. The number of shares the SAFE agreement investors received was based on a 16% discount to the pricing in the triggering equity financing. The SAFE agreements had no interest rate or maturity date and the SAFE investors had no voting right prior to conversion. The SAFE agreements were recorded as a liability of $763,249 as of December 31, 2018. On November 13, 2019, upon the closing of the IPO, the amount invested under the SAFE agreements automatically converted into 191,151 common shares, and the $269,399 of funds held in escrow were released to the Company.

On September 15, 2020, Company entered into a purchase agreement (the “Purchase Agreement”), and a registration rights agreement (the “Registration Rights Agreement”), with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which Lincoln Park has committed to purchase up to $15.0 million worth of the Company’s common stock, $0.001 par value per share(the “Common Stock”).

Under the terms and subject to the conditions of the Purchase Agreement, the Company has the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase up to $15.0 million worth of shares of the Company’s Common Stock. Such sales of Common Stock by the Company, if any, will be subject to certain limitations, and may occur from time to time, at the Company’s sole discretion, over the 36-month period commencing on the date on which all of conditions precedent are satisfied, the “Commencement Date”), including that a registration statement covering the resale of shares of Common Stock that have been and may be issued under the Purchase Agreement has been declared effective by the SEC, a final prospectus in connection therewith is filed and the other conditions set forth in the purchase agreement are satisfied.

Thereafter, under the Purchase Agreement, on any business day selected by the Company that the closing sale price of the Common Stock equals or exceeds the threshold price set forth in the Purchase Agreement, the Company may direct LPC to purchase up to 30,000 shares of Company Common Stock on such business day (each, a “Regular Purchase”), provided, however, that (i) the Regular Purchase may be increased to up to 50,000 shares, provided that the closing sale price of the Common Stock is not below $2.00 on the purchase date; (ii) the Regular Purchase may be increased to up to 75,000 shares, provided that the closing sale price of the Common Stock is not below $2.50 on the purchase date; (iii) the Regular Purchase may be increased to up to 100,000 shares, provided that the closing sale price of the Common Stock is not below $3.00 on the purchase date; and (iv) the Regular Purchase may be increased to up to 150,000 shares, provided that the closing sale price of the Common Stock is not below $4.00 on the purchase date. In each case, Lincoln Park’s maximum commitment in any single Regular Purchase may not exceed $1,000,000. In addition, after the Commencement Date, the Company may direct Lincoln Park to purchase, on two separate occasions that must be at least 30 business days apart, $1,000,000 worth of Common Stock per such purchase (each, a “Tranche Purchase”). The purchase price per share for each Regular Purchase and each Tranche Purchase will be based on prevailing market prices of the Common Stock immediately preceding the time of sale. There are no upper limits on the price per share that Lincoln Park must pay for shares of Common Stock under the Purchase Agreement. In addition to Regular Purchases and Tranche Purchases, the Company may also direct Lincoln Park to purchase other amounts as accelerated purchases or as additional accelerated purchases if the closing sale price of the Common Stock equals or exceeds the threshold price at the times set forth in the Purchase Agreement. The above-referenced share amount limitations and closing sale price thresholds are subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction as provided in the Purchase Agreement.

As consideration for entering into the purchase agreement, the Company issued 201,991 shares of common stock to Lincoln Park as a commitment fee. The shares were valued at approximately $395,902 and were recorded as deferred offering costs on the balance sheet. In addition to the commitment shares, the Company recorded $45,000 of due diligence expenses and legal fees as deferred offering costs. The deferred charges will be charged against paid-in capital upon future proceeds from the sale of common stock under this agreement. During the year ended December 31, 2020, $106,764 of deferred offering cost were charged against paid-in capital. As of December 31, 2020, unamortized deferred   offering costs totaled $334,138.

During the year ended December 31, 2020, the Company sold 1,453,926 shares of common stock to Lincoln Park under the Purchase Agreement for net proceeds of $3,632,249.

On December 22, 2020, the Company entered into an underwriting agreement with A.G.P./Alliance Global Partners (the “Underwriters”), in connection with a public offering (the “Offering”) of an aggregate of (i) 5,000,000 shares (the “Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), and (ii) warrants to purchase 2,500,000 shares of Common Stock (the “Warrants”). In addition, the Company granted the Underwriter a 45-day option to purchase up to an additional 750,000 Shares and/or 375,000 Warrants to cover over-allotments, if any. Each Share sold in the Offering was sold together with a Warrant to purchase 0.5 shares of Common Stock as a fixed combination. The Shares and accompanying Warrants were sold at a price to the public of $2.00, less underwriting discounts and commissions. The Warrants are exercisable immediately, will expire on December 28, 2025 and have an exercise price of $2.20 per share, subject to anti-dilution and other adjustments for certain stock splits, stock dividends, or recapitalizations. The Company used the Black-Scholes option valuation model to estimate the fair value of the warrants with the following assumptions: fair value of common stock on December 28, 2020, the measurement date, $1.85, exercise price of $2.20, expected term of 5 years, volatility of 130.30% and risk free interest rate of 0.38%. As of December 31, 2020, the fair value of the 2,875,000 warrants issued was $4,485,441 and recorded to additional paid in capital as a cost of capital. The Offering, including the full over-allotment securities, closed on December 28, 2020 and the Company received net proceeds of $10,590,000    after deducting underwriting discounts, commissions and underwriter expenses associated with the Offering.

Stock Options

In 2017, the Board of Directors of the Company approved the CNS Pharmaceuticals, Inc. 2017 Stock Plan (the “2017 Plan”). The 2017 Plan allows for the Board of Directors to grant various forms of incentive awards for up to 2,000,000 shares of common stock. No key employee may receive more than 500,000 shares of common stock (or options to purchase more than 500,000 shares of common stock) in a single year.

In 2020, the Board of Directors of the Company approved the CNS Pharmaceuticals, Inc. 2020 Stock Plan (the “2020 Plan”). The 2020 Plan allows for the Board of Directors to grant various forms of incentive awards for up to 3,000,000 shares of common stock. No key employee may receive more than 750,000 shares of common stock (or options to purchase more than 750,000 shares of common stock) in a single year.

During the year ended December 31, 2019, the Board of Directors approved grants of 1,189,500 options to officers and employees of the Company. The exercise price of the options ranges from $2.00 to $4.00 and expire ten-years following issuance. The total fair value of these option grants at issuance was $2,717,445. All of the issued options in 2019 vest in four equal annual installments beginning on the first anniversary following issuance.

During the year ended December 31, 2020, the Board of Directors approved grants of 561,236 options to employees, Scientific Advisory Board members and members of the Board of Directors. The exercise price of the options ranges from $2.06 to $2.47 and expire ten-years following issuance. The total fair value of these option grants at issuance was $1,115,508. 300,000 of the issued options vest in four equal annual installments beginning on the first anniversary following issuance. 261,236 of the issued options vest in one annual installment on the first anniversary of the grant date.

During the years ended December 31, 2020 and 2019, the Company recognized $1,208,154 and $400,834 of stock-based compensation, respectively, related to outstanding stock options. At December 31, 2020, the Company had $2,258,502 of unrecognized expenses related to options.

The following table summarizes the stock option activity for the years ended December 31, 2020 and 2019:

The following table discloses information regarding outstanding and exercisable options at December 31, 2020:

As of December 31, 2020, the aggregate intrinsic value of options vested and outstanding was $528,599. The aggregate fair value of the options measured during the years ended December 31, 2020 and 2019 were calculated using the Black-Scholes option pricing model based on the following assumptions:

As of December 31, 2020, there are no awards remaining to be issued under the 2017 Plan and 2,799,264 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, 2020 and 2019:

During the years ended December 31, 2020 and 2019, the Company recognized $85,238 and $76,262 of stock-based compensation, respectively, related to outstanding stock warrants. At December 31, 2020, the Company had $0 of unrecognized expenses related to warrants.

The following table discloses information regarding outstanding and exercisable warrants at December 31, 2020:

As of December 31, 2020 the aggregate intrinsic value of warrants vested and outstanding was $2,657,317.

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.