Note 4 – 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.

Common Stock

In January 2021, the Company entered into a twelve-month agreement with an investor relations firm that includes the issuance of 25,000 restricted shares of common stock. Upon signing the agreement, 6,250 shares vested immediately, and the remaining 18,750 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 25,000 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 75,000 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 2,063,059 shares of common stock to the Agent for net proceeds of $4,653,821.

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 (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 and 2021, 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, 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, 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 year ended December 30, 2021, the Board of Directors approved grants of 739,000 options to officers, employees, board of directors and a consultant. The exercise price of the options ranges from $1.80 to $3.36 and the options expire ten-years following issuance. The total fair value of these option grants at issuance was $1,969,712. Of the 739,000 options issued, 128,000 options vest on the first anniversary date of issuance, 75,000 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, 2021 and 2020, the Company recognized $1,533,092 and $1,208,154 of stock-based compensation, respectively, related to outstanding stock options. At December 31, 2021, the Company had $2,559,446 of unrecognized expenses related to options.

The following table summarizes the stock option activity for the year ended December 31, 2021 and 2020: 

The aggregate fair value of the options measured during the years ended December 31, 2021 and 2020 were calculated using the Black-Scholes option pricing model based on the following assumptions: 

As of December 31, 2021, the outstanding stock options have a weighted average remaining term of 7.77 years and the aggregate intrinsic value of options vested and outstanding were $180,675. As of December 31, 2021, there were 60,500 awards remaining to be issued under the 2017 Plan and 2,074,764 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, 2021 and 2020: 

During the years ended December 31, 2020, the Company recognized $85,238 of stock-based compensation, respectively, related to outstanding stock warrants. At December 31, 2020 and 2021, the Company had $0 of unrecognized expenses related to warrants.

During the year ended December 31, 2021, the Company received $332,750 in cash proceeds from the exercise of 151,250 warrants previously issued at an exercise price of $2.20. In addition, the Company received notices to exercise 2,495,403 warrants on a cashless basis resulting in the issuance of 1,756,307 shares of common stock.

As of December 31, 2021 the outstanding and exercisable warrants have a weighted average remaining term of 2.93 years and have no intrinsic value.