Item 1.
|
Financial Statements
|
CNS Pharmaceuticals, Inc.
Balance Sheets
(Unaudited)
|
|
June
30,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,625,771
|
|
|
$
|
7,241,288
|
|
Prepaid expenses
|
|
|
1,328,720
|
|
|
|
652,622
|
|
Total current assets
|
|
|
3,954,491
|
|
|
|
7,893,910
|
|
|
|
|
|
|
|
|
|
|
Fixed Assets:
|
|
|
|
|
|
|
|
|
Furniture and equipment, net
|
|
|
31,321
|
|
|
|
18,165
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
3,985,812
|
|
|
$
|
7,912,075
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
150,513
|
|
|
$
|
243,666
|
|
Accounts payable and accrued expenses - related party
|
|
|
–
|
|
|
|
45,833
|
|
Accrued expenses
|
|
|
110,692
|
|
|
|
21,500
|
|
Total current liabilities
|
|
|
261,205
|
|
|
|
310,999
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
261,205
|
|
|
|
310,999
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 5,000,000 shares authorized and 0 shares issued and outstanding
|
|
|
–
|
|
|
|
–
|
|
Common stock, $0.001 par value, 75,000,000 shares authorized and 16,450,234 shares issued and outstanding
|
|
|
16,450
|
|
|
|
16,450
|
|
Additional paid-in capital
|
|
|
19,638,531
|
|
|
|
19,073,098
|
|
Accumulated deficit
|
|
|
(15,930,374
|
)
|
|
|
(11,488,472
|
)
|
Total Stockholders' Equity
|
|
|
3,724,607
|
|
|
|
7,601,076
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
3,985,812
|
|
|
$
|
7,912,075
|
|
See accompanying notes to the unaudited financial statements.
CNS Pharmaceuticals, Inc.
Statements of Operations
(Unaudited)
|
|
Three Months Ended
June 30, 2020
|
|
|
Three Months Ended
June 30, 2019
|
|
|
Six Months Ended June 30, 2020
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
$
|
981,486
|
|
|
$
|
372,332
|
|
|
$
|
2,336,540
|
|
|
$
|
519,115
|
|
Research and development
|
|
|
1,492,285
|
|
|
|
42,730
|
|
|
|
2,105,362
|
|
|
|
91,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,473,771
|
|
|
|
415,062
|
|
|
|
4,441,902
|
|
|
|
610,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,473,771
|
)
|
|
|
(415,062
|
)
|
|
|
(4,441,902
|
)
|
|
|
(610,152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
–
|
|
|
|
(7,480
|
)
|
|
|
–
|
|
|
|
(14,974
|
)
|
Amortization of debt discount
|
|
|
–
|
|
|
|
(9,165
|
)
|
|
|
–
|
|
|
|
(18,082
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
–
|
|
|
|
(16,645
|
)
|
|
|
–
|
|
|
|
(33,056
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,473,771
|
)
|
|
$
|
(431,707
|
)
|
|
$
|
(4,441,902
|
)
|
|
$
|
(643,208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share - basic and diluted
|
|
$
|
(0.15
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.05
|
)
|
Weighted average shares outstanding - basic and diluted
|
|
|
16,450,234
|
|
|
|
13,202,856
|
|
|
|
16,450,234
|
|
|
|
12,959,496
|
|
See accompanying notes to the unaudited financial statements.
CNS
Pharmaceuticals, Inc.
Statements
of Stockholders' Equity
(Unaudited)
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2019
|
|
|
16,450,234
|
|
|
$
|
16,450
|
|
|
$
|
19,073,098
|
|
|
$
|
(11,488,472
|
)
|
|
$
|
7,601,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
242,209
|
|
|
|
–
|
|
|
|
242,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(1,968,131
|
)
|
|
|
(1,968,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
Balance March 31, 2020
|
|
|
16,450,234
|
|
|
|
16,450
|
|
|
|
19,315,307
|
|
|
|
(13,456,603
|
)
|
|
|
5,875,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
323,224
|
|
|
|
–
|
|
|
|
323,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(2,473,771
|
)
|
|
|
(2,473,771
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2020
|
|
|
16,450,234
|
|
|
$
|
16,450
|
|
|
$
|
19,638,531
|
|
|
$
|
(15,930,374
|
)
|
|
$
|
3,724,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2018
|
|
|
12,694,504
|
|
|
$
|
12,695
|
|
|
$
|
7,049,268
|
|
|
$
|
(7,611,261
|
)
|
|
$
|
(549,298
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
44,016
|
|
|
|
–
|
|
|
|
44,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(211,501
|
)
|
|
|
(211,501
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2019
|
|
|
12,694,504
|
|
|
|
12,695
|
|
|
|
7,093,284
|
|
|
|
(7,822,762
|
)
|
|
|
(716,783
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash, net
|
|
|
767,500
|
|
|
|
767
|
|
|
|
1,406,402
|
|
|
|
–
|
|
|
|
1,407,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
75,000
|
|
|
|
75
|
|
|
|
49,105
|
|
|
|
–
|
|
|
|
49,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
69,845
|
|
|
|
–
|
|
|
|
69,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(431,707
|
)
|
|
|
(431,707
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2019
|
|
|
13,537,004
|
|
|
$
|
13,537
|
|
|
$
|
8,618,636
|
|
|
$
|
(8,254,469
|
)
|
|
$
|
377,704
|
|
See accompanying notes to the unaudited financial statements.
CNS Pharmaceuticals, Inc.
Statements of Cash Flows
(Unaudited)
|
|
Six Months Ended June 30, 2020
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,441,902
|
)
|
|
$
|
(643,208
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
565,433
|
|
|
|
113,861
|
|
Common stock issued for services
|
|
|
–
|
|
|
|
49,180
|
|
Amortization of debt discount
|
|
|
–
|
|
|
|
18,082
|
|
Write off of deferred issuance cost
|
|
|
–
|
|
|
|
102,225
|
|
Depreciation
|
|
|
4,789
|
|
|
|
167
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(676,098
|
)
|
|
|
(388,368
|
)
|
Accounts payable
|
|
|
(93,153
|
)
|
|
|
36,891
|
|
Accounts payable and accrued expenses - related party
|
|
|
(45,833
|
)
|
|
|
(794
|
)
|
Accrued expenses
|
|
|
89,192
|
|
|
|
12,391
|
|
Net cash used in operating activities
|
|
|
(4,597,572
|
)
|
|
|
(699,573
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase of furniture and equipment
|
|
|
(17,945
|
)
|
|
|
(8,377
|
)
|
Net cash used in investing activities
|
|
|
(17,945
|
)
|
|
|
(8,377
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Payment of deferred issuance cost
|
|
|
–
|
|
|
|
(38,025
|
)
|
Payments on notes payable
|
|
|
–
|
|
|
|
(35,000
|
)
|
Proceeds from sale of common stock
|
|
|
–
|
|
|
|
1,407,169
|
|
Net cash provided by financing activities
|
|
|
–
|
|
|
|
1,334,144
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents and restricted cash
|
|
|
(4,615,517
|
)
|
|
|
626,194
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash, at beginning of period
|
|
|
7,241,288
|
|
|
|
555,133
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash, at end of period
|
|
$
|
2,625,771
|
|
|
$
|
1,181,327
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
–
|
|
|
$
|
3,993
|
|
Cash paid for income taxes
|
|
$
|
–
|
|
|
$
|
–
|
|
See accompanying
notes to the unaudited financial statements.
CNS Pharmaceuticals, Inc.
Notes to the Financial Statements
(Unaudited)
Note 1 – Nature of Business
CNS Pharmaceuticals, Inc. (the “Company”) is a clinical
pharmaceutical company organized as a Nevada corporation on July 27, 2017 to focus on the development of anti-cancer drug
candidates.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation - The accompanying unaudited
financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United
Stated of America (“U.S. GAAP”) for interim unaudited financial information. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting principles for complete financial statements. The
unaudited financial statements include all adjustments (consisting of normal recurring adjustments) which are, in the opinion of
management, necessary in order to make the condensed financial statements not misleading. Operating results for the three
and six months ended June 30, 2020 are not necessarily indicative of the final results that may be expected for the year ended
December 31, 2020. For more complete financial information, these unaudited financial statements should be read in conjunction
with the audited financial statements for the period ended December 31, 2019 included in our Form 10-K filed with the SEC on March
12, 2020 (“Form 10-K”). Notes to the financial statements which would substantially duplicate the disclosures
contained in the audited financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.
Liquidity and Going Concern - These
financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets
and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent
upon the ability of the Company to obtain equity financings to continue operations. The Company has a history of and expects to
continue to report negative cash flows from operations and a net loss. Management believes that the cash on hand is sufficient
to fund its planned operations into but not beyond the near term. These factors raise substantial doubt regarding the Company’s
ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification
of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as
a going concern. The Company may seek additional funding through a combination of equity offerings, debt financings, government
or other third-party funding, commercialization, marketing and distribution arrangements, other collaborations, strategic alliances
and licensing arrangements and delay planned cash outlays or a combination thereof. Management cannot be certain that such events
or a combination thereof can be achieved.
Cash and Cash Equivalents - The
Company considers all highly liquid accounts with original maturities of three months or less at the date of acquisition to be
cash equivalents. Periodically, the Company may carry cash balances at financial institutions in excess of the federally insured
limit of $250,000. The amount in excess of the FDIC insurance at June 30, 2020 was $2,375,771.
Loss Per Common Share - Basic loss per common share is
computed by dividing net loss available to common shareholders by the weighted-average number of common shares outstanding during
the period. Diluted loss per common share is determined using the weighted-average number of common shares outstanding during the
period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average
number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. For the
six months ended June 30, 2020, the Company’s potentially dilutive shares and options, which were not included in the calculation
of net loss per share, included warrants to purchase 3,986,630 common shares, and options for 2,250,736 common shares. For the
six months ended June 30, 2019, the Company’s potentially dilutive shares and options, which were not included in the calculation
of net loss per share, included notes convertible to 200,000 common shares, warrants to purchase 3,837,880 common shares, and options
for 1,564,500 common shares.
Restricted
Cash - The following
table provides a reconciliation of cash and restricted cash reported within the balance sheet that sum to the total of the same
such amounts shown in the statement of cash flows. Restricted cash are funds related to the SAFE agreements that were released
to the Company on November 13, 2019.
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
Cash and cash equivalents
|
|
$
|
2,625,771
|
|
|
$
|
911,928
|
|
Restricted cash
|
|
|
–
|
|
|
|
269,399
|
|
Total
|
|
$
|
2,625,771
|
|
|
$
|
1,181,327
|
|
Note 3 – Equity
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 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.
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 grants
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.
On March 12, 2020, the Board of Directors approved to grant
175,000 options to one employee of the Company and two consultants. The options to the employee vest in four equal annual installments
beginning on the first anniversary following issuance. The options to the consultants vest in one annual installment on the first
anniversary following issuance. The options have a ten-year term and have an exercise price of $2.21 per share. The fair value
of the options at issuance was $337,691.
On April 6, 2020, the Board of Directors approved to grant 125,000
options to one employee of the Company. The options to the employee vest in four equal annual installments beginning on the first
anniversary following issuance. The options have a ten-year term and have an exercise price of $2.20 per share. The fair value
of the options at issuance was $242,151. On June 12, 2020, the Board of Directors approved a grant of 46,559 options each to four
directors of the Company. The options to the Board of Directors vest in one annual installment on the first anniversary of grant
date. The options have a ten-year term and have an exercise price of $2.47 per share. The fair value of the options at issuance
was $399,991.
During the six months ended June 30, 2020 and 2019, the Company
recognized $565,433 and $91,431 of stock-based compensation, respectively, related to outstanding stock options. At June 30, 2020,
the Company had $3,092,935 of unrecognized expenses related to options.
The following table summarizes the stock option activity for
the six months ended June 30, 2020:
|
|
Options
|
|
|
Weighted-Average Exercise Price Per Share
|
|
Outstanding, December 31, 2019
|
|
|
1,764,500
|
|
|
$
|
1.92
|
|
Granted
|
|
|
486,236
|
|
|
|
2.31
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
Forfeited
|
|
|
–
|
|
|
|
–
|
|
Expired
|
|
|
–
|
|
|
|
–
|
|
Outstanding, June 30, 2020
|
|
|
2,250,736
|
|
|
$
|
2.01
|
|
The following table discloses information regarding outstanding
and exercisable options at June 30, 2020:
|
|
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
|
|
|
|
|
|
|
|
9.36
|
|
|
|
–
|
|
|
|
|
|
$2.47
|
|
|
186,236
|
|
|
|
|
|
|
|
9.95
|
|
|
|
–
|
|
|
|
|
|
$2.21
|
|
|
175,000
|
|
|
|
|
|
|
|
9.70
|
|
|
|
–
|
|
|
|
|
|
$2.20
|
|
|
125,000
|
|
|
|
|
|
|
|
9.77
|
|
|
|
–
|
|
|
|
|
|
$2.00
|
|
|
789,500
|
|
|
|
|
|
|
|
9.00
|
|
|
|
197,375
|
|
|
|
|
|
$1.50
|
|
|
400,000
|
|
|
|
|
|
|
|
7.92
|
|
|
|
250,016
|
|
|
|
|
|
$0.045
|
|
|
275,000
|
|
|
|
|
|
|
|
7.39
|
|
|
|
215,292
|
|
|
|
|
|
Total
|
|
|
2,250,736
|
|
|
$
|
2.01
|
|
|
|
8.84
|
|
|
|
662,683
|
|
|
$
|
1.18
|
|
As of June 30, 2020, the aggregate intrinsic value of options
vested and outstanding was $638,679. As of June 30, 2020, there are no awards remaining to be issued under the 2017 Plan and 2,749,264
awards remaining to be issued under the 2020 Plan.
Stock Warrants
The following table summarizes the stock warrant activity for
the six months ended June 30, 2020:
|
|
Warrants
|
|
|
Weighted-Average Exercise Price Per Share
|
|
Outstanding, December 31, 2019
|
|
|
3,986,630
|
|
|
$
|
3.99
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
Forfeited
|
|
|
–
|
|
|
|
–
|
|
Expired
|
|
|
–
|
|
|
|
–
|
|
Outstanding, June 30, 2020
|
|
|
3,986,630
|
|
|
$
|
3.99
|
|
The following table discloses information regarding outstanding
and exercisable warrants at June 30, 2020
|
|
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
|
|
|
|
|
|
|
|
2.14
|
|
|
|
1,206,059
|
|
|
|
|
|
$4.00
|
|
|
148,750
|
|
|
|
|
|
|
|
4.36
|
|
|
|
148,750
|
|
|
|
|
|
$2.00
|
|
|
63,750
|
|
|
|
|
|
|
|
3.93
|
|
|
|
63,750
|
|
|
|
|
|
$1.75
|
|
|
100,000
|
|
|
|
|
|
|
|
3.79
|
|
|
|
77,784
|
|
|
|
|
|
$1.50
|
|
|
14,000
|
|
|
|
|
|
|
|
2.95
|
|
|
|
14,000
|
|
|
|
|
|
$0.70
|
|
|
2,454,071
|
|
|
|
|
|
|
|
3.50
|
|
|
|
2,454,071
|
|
|
|
|
|
Total
|
|
|
3,986,630
|
|
|
$
|
3.99
|
|
|
|
3.13
|
|
|
|
3,964,414
|
|
|
$
|
4.00
|
|
As of June 30, 2020 the aggregate intrinsic value of warrants
vested and outstanding was $3,582,083.
Note 4 – Commitments and Contingencies
Executive Employment Agreements
On September 1, 2017, the Company entered into an employment
agreement with Mr. John Climaco pursuant to which Mr. Climaco agreed to serve as Chief Executive Officer and Director of the Company
commencing on such date for an initial term of three years. The agreement provided for an initial annual salary of $150,000, which
increased at the completion of the Company’s initial public offering to an annual salary of $300,000. Pursuant to the employment
agreement, the Company agreed to issue Mr. Climaco 900,000 shares of common stock in exchange for $900, which purchase was finalized
on September 30, 2017. The common shares could have been reacquired by the Company if employment was terminated prior to the initial
public offering. After the completion of the initial public offering a portion of the shares may be reacquired by the Company if
employment is terminated prior to the expiration of the agreement. Effective March 1, 2019, the employment agreement was amended
to increase the annual salary to $186,000 and establish Mr. Climaco as a full-time employee. On June 28, 2019, the compensation
committee of the board of directors agreed to modify Mr. Climaco’s compensation to increase the annual base salary to $440,000
and Mr. Climaco will be entitled to a cash bonus with a target of 55% of his base salary following the initial public offering.
On June 28, 2019, the Company entered into employment letters
with Drs. Sandra Silberman, the Company’s chief medical officer, and Donald Picker, the Company’s chief science officer,
pursuant to which the Company agreed to the following compensation terms: (i) Dr. Silberman agreed to commit 50% of her time to
the Company’s matters in exchange for a base salary, commencing upon the successful closing of the IPO, of $175,000; commencing
at the end of 2019, an annual cash bonus target of 28% of her base salary (prorated for any partial years); and a ten-year option
to purchase 125,000 shares of common stock with an exercise price of $2.00 per share vesting annually in four equal installments;
and (ii) Dr. Picker agreed to commit 25% of his time to the Company’s matters in exchange for a base salary, commencing upon
the successful closing of the IPO, of $91,000; commencing at the end of 2019, an annual cash bonus target of 36% of his base salary
(prorated for any partial years); and a ten-year option to purchase 100,000 shares of common stock with an exercise price of $2.00
per share vesting annually in four equal installments.
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. The initial term of the Employment Agreement will continue for a period of three years.
The Employment Agreement provides for an initial annual base salary of $300,000. Mr. Downs may receive an annual bonus (pro rated
for 2019), targeted at 35% of base salary. 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.
WP744 Portfolio (Berubicin)
On November 21, 2017, the Company entered into a Collaboration
and Asset Purchase Agreement with Reata Pharmaceuticals, Inc. (“Reata”). Through this agreement, the Company purchased
all of Reata’s rights, title, interest and previously conducted research and development results in the chemical compound
commonly known as Berubicin. In exchange for these rights, the Company agreed to pay Reata an amount equal to 2.25% of the net
sales of Berubicin for a period of 10 years from the Company’s first commercial sale of Berubicin plus $10,000. Reata also
agreed to collaborate with the Company on the development of Berubicin, from time to time.
On December 28, 2017, the Company entered into a Technology
Rights and Development Agreement with Houston Pharmaceuticals, Inc. (“HPI”). HPI is affiliated with Dr. Waldemar Priebe,
our founder and largest shareholder. Pursuant to this agreement, the Company obtained a worldwide exclusive license to Berubicin,
the chemical compound commonly known as WP744. In exchange for these rights, the Company agreed to pay consideration to HPI as
follows: (i) a royalty of 2% of net sales of any product utilizing WP744 for a period of ten years after the first commercial
sale of such; and (ii) $100,000 upon beginning Phase II clinical trials; and (iii) $200,000 upon the approval by the FDA of a
New Drug Application for any product utilizing WP744; and (iv) a series of quarterly development payments totaling $750,000 beginning
immediately after the Company’s raise of $7,000,000 of investment capital. In addition, the Company issued 200,000 shares
of the Company’s common stock valued at $0.045 per share to HPI upon execution of the agreement. Our rights pursuant to
the HPI License were contingent on us raising at least $7.0 million within 12 months from the effective date of the HPI License,
a date which was extended by an additional 12 months by the payment of $40,000. On November 13, 2019, the Company closed its IPO
and as a result completed the acquisition of the intellectual property discussed in the HPI agreement. The patents we licensed
from HPI expired in March 2020, and as such, the Orphan Drug Designation discussed below represents our primary intellectual property
protections. As of June 30, 2020 and December 31, 2019, $0 and $45,833 is payable to HPI related to the above agreements, respectively.
During the six months ended June 30, 2020 and 2019, the Company recognized $100,000 and $0, respectively related to this agreement.
On August 30, 2018, we entered into a sublicense agreement with
WPD Pharmaceuticals, Inc. (“WPD”). Pursuant to the agreement, the Company granted WPD an exclusive sublicense, even
as to us, for the intellectual property rights we licensed pursuant to the HPI License within the following countries: Poland,
Estonia, Latvia, Lithuania, Belarus, Ukraine, Moldova, Romania, Bulgaria, Serbia, Macedonia, Albania, Armenia, Azerbaijan, Georgia,
Montenegro, Bosnia, Croatia, Slovenia, Slovakia, Czech Republic, Hungary, Chechnya, Uzbekistan, Kazakhstan, Kyrgyzstan, Tajikistan,
Turkmenistan, Greece, Austria, and Russia. The sublicense agreement provides that WPD must use commercially reasonable development
efforts to attempt to develop and commercialize licensed products in the above mentioned territories, which means the expenditure
of at least $2.0 million on the development, testing, regulatory approval or commercialization of the licensed products during
the three year period immediately following the date of the sublicense agreement. In the event that WPD fails to use commercially
reasonable development efforts by the foregoing three-year deadline, we have the right to terminate this sublicense agreement.
In consideration for the rights granted under the sublicense agreement, to the extent we are required to make any payments to HPI
pursuant to the HPI License as a result of this sublicense agreement, WPD agreed to advance us such payments, and to pay us a royalty
equal to 1% of such payments. WPD is a Polish corporation that is majority-owned by an entity affiliated with Dr. Priebe, our founder
and largest shareholder.
On August 31, 2018, the Company entered into a sublicense agreement
with Animal Life Sciences, LLC (“ALI”), a related party, pursuant to which we granted ALI an exclusive sublicense,
even as to us, for the intellectual property rights we licensed pursuant to the HPI License solely for the treatment of cancer
in non-human animals through any type of administration. In consideration for the rights granted under the sublicense agreement,
ALI agreed to issue us membership interests in ALI equal to 1.52% of the outstanding ALI membership interests. As additional consideration
for the rights granted, to the extent we are required to make any payments to HPI pursuant to the HPI License as a result of this
sublicense agreement, ALI agreed to advance us such payments, and to pay us a royalty equal to 1% of such payments. Dr. Priebe,
our founder and largest shareholder, is also the founder and a shareholder of ALI.
WP1244 Portfolio
On January 10, 2020, Company entered into a Patent and Technology
License Agreement (“Agreement”) with The Board of Regents of The University of Texas System, an agency of the State
of Texas, on behalf of The University of Texas M. D. Anderson Cancer Center (“UTMDACC”). Pursuant to the Agreement,
the Company obtained a royalty-bearing, worldwide, exclusive license to certain intellectual property rights, including patent
rights, related to the Company’s recently announced WP1244 drug technology. In consideration, the Company must make payments
to UTMDACC including an up-front license fee, annual maintenance fee, milestone payments and royalty payments (including minimum
annual royalties) on sales of licensed products developed under the Agreement. The term of the Agreement expires on the last to
occur of: (a) the expiration of all patents subject to the Agreement, or (b) fifteen years after execution; provided that UTMDACC
has the right to terminate this Agreement in the event that the Company fails to meet certain commercial diligence milestones.
The commercial diligence milestones are as follows (i) initiated PC toxicology to support filing of Investigational New Drug Application
(“IND”) or New Drug Application (“NDA”) for the Licensed Product within the eighteen (18) month period
following the Effective Date (ii) file and IND for the Licensed Product within three (3) year period following the Effective Date
and (iii) Commencement of Phase I Study within the five (5) year period following the Effective Date. During the six months ended
June 30, 2020, the Company paid $50,404 to UTMDACC related to this agreement. As of June 30, 2020, the Company has accrued $30,000
licensee fee to UTMDACC.
On May 7, 2020, pursuant to the WP1244 Portfolio license agreement
described above, the Company entered into a Sponsored Research Agreement with UTMDACC to perform research relating to novel anticancer
agents targeting CNS malignancies. The Company agreed to fund approximately $1,134,000 over a two-year period. The Company will
pay and record $734,000 in 2020 related to this agreement in research and development expenses in the Company’s Consolidated
Statements of Operations. The remainder will be paid and recorded in 2021. The principal investigator for this agreement is Dr.
Priebe. During the six months ended June 30, 2020, the Company paid $334,000 to UTMDACC related to this agreement.
Anti-Viral Portfolio
On March 20, 2020, the Company entered into a Development Agreement
(“Agreement”) with WPD. Pursuant to the Agreement, WPD agreed to use its commercially reasonable efforts in good faith
to develop and commercialize certain products that WPD had previously sublicensed, solely in the field of pharmaceutical drug products
for the treatment of any viral infection in humans, with a goal of eventual approval of in certain territories consisting of: Poland,
Estonia, Latvia, Lithuania, Belarus, Ukraine, Romania, Armenia, Azerbaijan, Georgia, Slovakia, Czech Republic, Hungary, Uzbekistan,
Kazakhstan, Greece, Austria, Russia, Netherlands, Turkey, Belgium, Switzerland, Sweden, Portugal, Norway, Denmark, Ireland, Finland,
Luxembourg, Iceland.
Pursuant to the Agreement, the Company agreed to pay WPD the
following payments: (i) an upfront payment of $225,000 to WPD (paid in April 2020); and (ii) within thirty days of the verified
achievement of the Phase II Milestone, (such verification shall be conducted by an independent third party mutually acceptable
to the parties hereto), the Company will make a payment of $775,000 to WPD. WPD agreed to pay the Company a development fee of
50% of the net sales for any products in the above territories; provided that Poland shall not be included as a territory after
WPD receives marketing approval for a product in one-half of the countries included in the agreed upon territories or upon the
payment by WPD to the Company of development fees of $1.0 million. The term of the Agreement will expire on the expiration of the
sublicense pursuant to which WPD has originally sublicensed the products.
ITEM 2.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
You should read the following discussion
and analysis of our financial condition and results of operations in conjunction with the financial statements and the related
notes appearing elsewhere in this Form 10-Q. This discussion contains forward-looking statements reflecting our current expectations
that involve risks and uncertainties. See Item 1A. “Risk Factors” of our Form 10-K for the year ended December 31,
2019, available on the Security and Exchange Commission's (“SEC”) EDGAR website at www.sec.gov, for a discussion of
the uncertainties, risks and assumptions associated with these statements. Actual results and the timing of events could differ
materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under
“Risk Factors” and elsewhere in this Form 10-Q.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
We make forward-looking statements under
the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in other sections
of this Form 10-Q. In some cases, you can identify these statements by forward-looking words such as “may,” “might,”
“should,” “would,” “could,” “expect,” “plan,” “anticipate,”
“intend,” “believe,” “estimate,” “predict,” “potential” or “continue,”
and the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to known
and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance based on
our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations
and projections about future events. There are important factors that could cause our actual results, level of activity, performance
or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the
forward-looking statements. In particular, you should consider the numerous risks and uncertainties described under Item 1A. “Risk
Factors” of our Form 10-K for the year ended December 31, 2019 and in other filings made by us from time to time with the
SEC.
While we believe we have identified material
risks, these risks and uncertainties are not exhaustive. Other sections of this Form 10-Q may describe additional factors that
could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing
environment. New risks and uncertainties emerge from time to time, and it is not possible to predict all risks and uncertainties,
nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any forward-looking statements.
Although we believe the expectations reflected
in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements.
Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking
statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update
any of these forward-looking statements after the date of this Form 10-Q to conform our prior statements to actual results or revised
expectations, and we do not intend to do so.
Forward-looking statements include, but
are not limited to, statements about:
·
the economic and market uncertainty caused by the COVID-19 outbreak;
·
our ability to obtain additional funding to develop our product candidates;
·
the need to obtain regulatory approval of our product candidates;
·
the success of our clinical trials through all phases of clinical development;
·
compliance with obligations under intellectual property licenses with third parties;
·
any delays in regulatory review and approval of product candidates in clinical development;
·
our ability to commercialize our product candidates;
·
market acceptance of our product candidates;
·
competition from existing products or new products that may emerge;
·
potential product liability claims;
·
our dependency on third-party manufacturers to supply or manufacture our products;
·
our ability to establish or maintain collaborations, licensing or other arrangements;
·
our ability and third parties’ abilities to protect intellectual property rights;
·
our ability to adequately support future growth; and
·
our ability to attract and retain key personnel to manage our business effectively.
We caution you not to place undue reliance
on the forward-looking statements, which speak only as of the date of this Form 10-Q in the case of forward-looking statements
contained in this Form 10-Q.
You should not rely upon forward-looking
statements as predictions of future events. Our actual results and financial condition may differ materially from those indicated
in the forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements. Although we
believe that the expectations reflected in the forward looking-statements are reasonable, we cannot guarantee future results, levels
of activity, performance or achievements. Therefore, you should not rely on any of the forward-looking statements. In addition,
with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995.
Overview
We are a clinical pharmaceutical company
organized as a Nevada corporation in July 2017 to focus on the development of anti-cancer drug candidates for the treatment of
brain and central nervous system tumors, based on intellectual property that we license under license agreements with HPI and The
University of Texas M.D. Anderson Cancer Center and own pursuant to a collaboration and asset purchase agreement with Reata.
We believe our lead drug candidate, Berubicin,
if approved by the FDA, may be a significant discovery in the treatment of glioblastoma. Glioblastoma are tumors that arise from
astrocytes, which are star-shaped cells making up the supportive tissue of the brain. These tumors are usually highly malignant
(cancerous) because the cells reproduce quickly, and they are supported by a large network of blood vessels. Berubicin is an anthracycline,
which is a class of drugs that are among the most powerful chemotherapy drugs known. Based on limited clinical data, we believe
Berubicin is the first anthracycline that appears to have crossed the blood brain barrier and target brain cancer cells. While
our current focus is solely on the development of Berubicin, we are also in the process of attempting to secure intellectual property
rights in additional compounds that may be developed into drugs to treat cancers.
Berubicin was discovered at MD Anderson
by Dr. Waldemar Priebe, the founder of the Company. Through a series of transactions, Berubicin was initially licensed to Reata.
Reata conducted a Phase I clinical trial on Berubicin but subsequently allowed their IND with the FDA to lapse for strategic reasons.
This will require us to obtain a new IND for Berubicin before beginning further clinical trials.
We do not have manufacturing facilities
and all manufacturing activities are contracted out to third parties. Additionally, we do not have a sales organization.
On November 21, 2017, we entered into a
Collaboration and Asset Purchase Agreement with Reata (the “Reata Agreement”). Pursuant to the Reata Agreement we purchased
all of Reata’s intellectual property and development data regarding Berubicin, including all trade secrets, knowhow, confidential
information and other intellectual property rights, which we refer to as the Reata Data.
On December 28, 2017, we obtained the rights
to a worldwide, exclusive royalty-bearing, license to the chemical compound commonly known as Berubicin from HPI in an agreement
we refer to as the HPI License. HPI is affiliated with Dr. Priebe, who controls a majority of our shares. Under the HPI License
we obtained the exclusive right to develop certain chemical compounds for use in the treatment of cancer anywhere in the world.
In the HPI License we agreed to pay HPI: (i) development fees of $750,000 over a three-year period beginning November 2019; (ii)
a 2% royalty on net sales; (iii) a $50,000 per year license fee; (iv) milestone payments of $100,000 upon the commencement of a
Phase II trial and $1.0 million upon the approval of an NDA for Berubicin; and (v) 200,000 shares of our common stock. The patents
we licensed from HPI expired in March 2020.
On June 10, 2020, the FDA granted Orphan
Drug Designation (“ODD”) for Berubicin for the treatment of malignant gliomas. ODD from the FDA is available for drugs
targeting diseases with less than 200,000 cases per year. ODD may enable market exclusivity of 7 years from the date of approval
of a New Drug Application (“NDA”) in the United States. During that period the FDA generally could not approve another
product containing the same drug for the same designated indication. Orphan drug exclusivity will not bar approval of another product
under certain circumstances, including if a subsequent product with the same active ingredient for the same indication is shown
to be clinically superior to the approved product on the basis of greater efficacy or safety, or providing a major contribution
to patient care, or if the company with orphan drug exclusivity is not able to meet market demand. Although the Company is exploring if there are other patents that could be filed related to Berubicin
to extend additional protections, because the extent and scope of any future patent protection for Berubicin may be limited, the
ODD now constitutes our primary intellectual property protections. If we do not maintain orphan drug exclusivity for Berubicin,
our competitors may then sell the same drug to treat the same condition sooner than if we had maintained orphan drug exclusivity,
and our revenue will be reduced.
With the Reata Agreement and the HPI License,
we believe we have obtained all rights and intellectual property necessary to develop Berubicin. As stated earlier, it is our plan
to obtain additional intellectual property covering other compounds which, subject to the receipt of additional financing, may
be developed into drugs for brain and other cancers.
On January 10, 2020, we entered into a Patent
and Technology License Agreement (the “1244 Agreement”) with The Board of Regents of The University of Texas System,
an agency of the State of Texas, on behalf of The University of Texas M. D. Anderson Cancer Center (“UTMDACC”). Pursuant
to the 1244 Agreement, we obtained a royalty-bearing, worldwide, exclusive license to certain intellectual property rights, including
patent rights, related to our WP1244 drug technology. In consideration, we must make payments to UTMDACC including an up-front
license fee, annual maintenance fee, milestone payments and royalty payments (including minimum annual royalties) for sales of
licensed products developed under the 1244 Agreement. The term of the 1244 Agreement expires on the last to occur of: (a) the expiration
of all patents subject to the 1244 Agreement, or (b) fifteen years after execution; provided that UTMDACC has the right to terminate
the 1244 Agreement in the event that we fail to meet certain commercial diligence milestones.
On March 20, 2020, we entered into a Development
Agreement with WPD Pharmaceuticals (“WPD”) (the “Development Agreement”), a company founded by Dr. Priebe.
Pursuant to the Development Agreement, WPD agreed to use its commercially reasonable efforts in good faith to develop and commercialize
certain products that WPD had previously sublicensed, solely in the field of pharmaceutical drug products for the treatment of
any viral infection in humans, with a goal of eventual approval of in certain territories consisting of: Poland, Estonia, Latvia,
Lithuania, Belarus, Ukraine, Romania, Armenia, Azerbaijan, Georgia, Slovakia, Czech Republic, Hungary, Uzbekistan, Kazakhstan,
Greece, Austria, Russia, Netherlands, Turkey, Belgium, Switzerland, Sweden, Portugal, Norway, Denmark, Ireland, Finland, Luxembourg,
Iceland. Pursuant to the Development Agreement, we agreed to pay WPD the following payments: (i) an upfront payment of $225,000
to WPD (paid in April 2020); and (ii) within thirty days of the verified achievement of the Phase II Milestone, (such verification
shall be conducted by an independent third party mutually acceptable to the parties hereto), we will make a payment of $775,000
to WPD. WPD agreed to pay us a development fee of 50% of the net sales for any products in the above territories; provided that
Poland shall not be included as a territory after WPD receives marketing approval for a product in one-half of the countries included
in the agreed upon territories or upon the payment by WPD to us of development fees of $1.0 million. The term of the Development
Agreement will expire on the expiration of the sublicense pursuant to which WPD has originally sublicensed the products.
On May 7, 2020, pursuant to the WP1244 Portfolio license agreement
described above, the Company entered into a Sponsored Research Agreement with UTMDACC to perform research relating to novel anticancer
agents targeting CNS malignancies. The Company agreed to fund approximately $1,134,000 over a two-year period. The Company will
pay and record $734,000 in 2020 related to this agreement in research and development expenses in the Company’s Consolidated
Statements of Operations. The remainder will be paid and recorded in 2021. The principal investigator for this agreement is Dr.
Priebe.
On May 1, 2020, the Securities and Exchange
Commission (“SEC”) announced a temporary suspension of trading in our securities due to statements made by us and others
in press releases issued between March 23, 2020 and April 13, 2020 concerning our business, including the status of development
of a drug candidate labeled WP1122, the status of testing WP1122's impact on COVID-19, and the ability to expedite regulatory approval
of any such treatment. Pursuant to the suspension order, the trading halt was initiated at 9:30 a.m. EDT on May 4, 2020 and terminated
at 11:59 p.m. EDT on May 15, 2020. Commencing May 18, 2020, the Nasdaq Stock Market placed a halt on the trading of our common
stock pending the receipt of additional information. This halt was lifted on May 28, 2020. We believe in the accuracy and adequacy
of our public disclosures, but can provide no assurances that we will not encounter future similar actions, which may adversely
affect the holders of our common stock.
Results of Operations for the Three Months Ended June 30,
2020 Compared to the Three Months Ended June 30, 2019
General and Administrative Expense
General and administrative expense was $981,486
for the three months ended June 30, 2020 compared to $372,332 for the comparable period in 2019. The increase in general and administrative
expense, was mainly attributable to an increase of $121,000 for stock-based compensation, an increase of $121,000 in employee compensation
and taxes, compensation to the Board of Directors of $49,000, an increase of $58,000 in professional fees, an increase of $106,000
in advertising and marketing and an increase of $145,000 in insurance expenses.
Research and Development Expense
Research and development expense was $1,492,285
for the three months ended June 30, 2020 compared to $42,730 for the comparable period in 2019. The expenses incurred during the
period were related to drug manufacturing and labor related to the preparation of our Phase II study. We expect to incur increased
research and development costs in the future as our product development activities expand.
Net Loss
The net loss for the three months ended
June 30, 2020 was $2,473,771 compared to $431,707 for the comparable period in 2019. The change in net loss is attributable to
increased personnel and activity associated with preparing for our clinical trials in 2020.
Results of Operations for the Six Months Ended June 30, 2020
Compared to the Six Months Ended June 30, 2019
General and Administrative Expense
General and administrative expense was $2,336,540
for the six months ended June 30, 2020 compared to $519,115 for the comparable period in 2019. The increase in general and administrative
expense, was mainly attributable to an increase of approximately $274,000 for stock-based compensation, an increase of $480,000
in employee compensation and taxes, compensation to the Board of Directors of $102,000, an increase of $128,000 in investor relations
services, an increase of $341,000 in advertising and marketing, an increase of $175,000 in legal and accounting expenses and an
increase of $282,000 in insurance expenses.
Research and Development Expense
Research and development expense was $2,105,362
for the six months ended June 30, 2020 compared to $91,037 for the comparable period in 2019. The expenses incurred during the
period were related to drug manufacturing and labor related to the preparation of our Phase II study. We expect to incur increased
research and development costs in the future as our product development activities expand.
Net Loss
The net loss for the six months ended June
30, 2020 was $4,441,902 compared to $643,208 for the comparable period in 2019. The change in net loss is attributable to increased
personnel and activity associated with preparing for our clinical trials in 2020.
Liquidity and Capital Resources
On June 30, 2020, we had cash of $2,625,771
and we had working capital of $3,693,286. We have historically funded our operations from proceeds from debt and equity sales.
Our plan of operations is primarily focused
on our Phase II clinical trial for Berubicin. We estimate that we will require additional financing of approximately $10.0 million
to complete the trial, approximately $2.0 million to support near-term WP1244 preclinical work, plus such additional working capital
to fund our operations during the pendency of the trial. The timing and costs of clinical trials are difficult to predict and as
such the foregoing estimates may prove to be inaccurate.
We will need to raise additional capital
in the near term in order to meet our obligations and execute our business plan. We expect such capital will be raised through
the issuance of convertible debt or equity, although we have no commitments for any financing at this time. If we issue convertible
debt or equity, our stockholders may incur dilution of their ownership interest in us, which may be material. If we are unable
to raise sufficient funds, we will be required to develop and implement an alternative plan to further extend payables, reduce
overhead or scale back our business plan until sufficient additional capital is raised to support further operations. There can
be no assurance that such a plan will be successful.
Summary of Cash Flows
Cash used in operating activities
Net cash used in operating activities was
$4,597,572 and $699,573 for the six months ended June 30, 2020 and 2019 and mainly included payments made for clinical trial preparation,
officer compensation, stock based compensation, insurance, marketing and professional fees to our consultants, attorneys and accountants.
Cash used in investing activities
Net cash used by investing activities was
$17,945 and $8,377 for the six months ended June 30, 2020 and 2019. The amount used in 2020 is related to the purchase of furniture
and equipment.
Cash provided by financing activities
Net cash provided by financing activities
was $0 and $1,334,144 for the six months ended June 30, 2020 and 2019. The amounts provided by in 2019 are related to the sale
of common stock, repayment of a loan and payment of deferred issuance costs.
Off-balance Sheet Arrangements
As of June 30, 2020, we did not have any
relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance
or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually
narrow or limited purposes.
Purchase Commitments
We do not have any material
commitments for capital expenditures, although we are required to pay certain development fees to HPI and WPD, and are
required to fund to certain research and development expenses pursuant to our sponsored research agreement with UTMDACC, in
each case as described in the section “Overview” above.
JOBS Act Accounting Election
The Jumpstart Our Business Startups Act
of 2012, or the JOBS Act, exempts an “emerging growth company” such as us from being required to comply with new or
revised financial accounting standards until private companies are required to comply with the new or revised financial accounting
standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements
that apply to non-emerging growth companies but any such election to opt out is irrevocable. We elected not to opt out of such
extended transition period which means that when a standard is issued or revised and it has different application dates for public
or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt
the new or revised standard. This may make comparison of our financial statements with another public company which is neither
an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult
or impossible because of the potential differences in accounting standards used.
Critical Accounting Policies and Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates,
assumptions and judgments that affect the amounts reported in the financial statements, including the notes thereto. We consider
critical accounting policies to be those that require more significant judgments and estimates in the preparation of our financial
statements, including the following: long lived assets; intangible assets valuations; and income tax valuations. Management relies
on historical experience and other assumptions believed to be reasonable in making its judgment and estimates. Actual results could
differ materially from those estimates.
Management believes its application of accounting
policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates are periodically
reevaluated, and adjustments are made when facts and circumstances dictate a change.
Stock-based Compensation –
Employee and non-employee share-based compensation is measured at the grant date, based on the fair value of the award, and is
recognized as an expense over the requisite service period.
Research and Development Costs -
Research and development costs are expensed as incurred.