As of April 9, 2020, there were
33,693,853 shares of the registrant’s common stock outstanding.
PART
I
Item
1. Business
The
mission of the Company is to develop innovative and revolutionary treatments to combat disorders caused by disruption of neuronal
signaling. We are developing treatment options that address conditions that affect millions of people, but for which there are
limited or poor treatment options, including obstructive sleep apnea (“OSA”), attention deficit hyperactivity disorder
(“ADHD”) and recovery from spinal cord injury (“SCI”), as well as certain neurological orphan diseases
such as Fragile X Syndrome. RespireRx is developing a pipeline of new drug products based on our broad patent portfolios across
two distinct drug platforms:
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(i)
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cannabinoids,
including dronabinol (a synthetic form of Δ9-THC (or Dronabinol) as defined below) that act upon the nervous
system’s endogenous cannabinoid receptors, and
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(ii)
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(ii)
neuromodulators, which we now call Project Endeavor, including (a) ampakines, proprietary compounds that positively modulate
AMPA-type glutamate receptors to promote neuronal function and (b) positive allosteric modulators (“PAMs”) of
the gamma-amino-butyric acid type A (“GABA-A”) receptors that are the subject of an option agreement dated March
2, 2020 between the Company and the UWM Research Foundation, Inc. (“UWMRF”), an affiliate of the University of
Wisconsin-Milwaukee.
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Background
Cannabinoids
is a broad term to describe the pharmacologically active naturally occurring substances found within the cannabis (marijuana)
plant. While the liberalization of state laws regulating the use and sales of marijuana has created a major industry based on
the commercialization of marijuana for both medical and recreational use, the U.S. Food and Drug Administration (“FDA”)
has not recognized or approved the marijuana plant as medicine nor is it federally legal to sell products that contain cannabinoids
as drugs, dietary supplements or foods (edibles) without its approval. From a scientific and pharmaceutical perspective, however,
we do not think that pharmaceutical cannabinoids should suffer from the stigma that marijuana has, since it was declared a controlled
substance in the 1930’s. We believe that cannabinoids should be considered pharmaceuticals developed under FDA and comparable
international regulatory bodies that happen to have been originally derived from plants much like aspirin, theophylline or tamoxifen.
In
parallel with the widespread public attention given to the growth of the recreational, dietary supplement, health and wellness
and medical cannabis industry, an alternate approach has focused on the development of cannabinoids as pharmaceutical products.
We refer to the term “pharmaceutical cannabinoids” as cannabinoids developed according to FDA accepted regulatory
pathways by which a company receives FDA approval to market and sell any new drug. Scientific study has focused on the two major
cannabinoids, ∆9-tetrahydrocannabinol (“Δ9-THC”) and cannabidiol (“CBD”), although
additional cannabinoids are gaining attention. RespireRx has been one of the pioneers in the field of pharmaceutical cannabinoids
with its long-term commitment to developing Δ9-THC for the treatment of sleep-related breathing disorders.
To
date, the FDA has approved three cannabinoids: (1) dronabinol (Marinol® and its generic equivalent and Syndros®),
synthetically manufactured Δ9-THC, approved for the treatment of AIDS-related anorexia and chemotherapy induced nausea
and vomiting, (2) Epidiolex®, an oral formulation of plant-derived, purified CBD, approved for seizures associated
with Lennox-Gastaut syndrome or Dravet syndrome, and (3) nabilone (Cesamet®), a synthetic analogue of tetrahydrocannabinol,
approved for chemotherapy induced nausea and vomiting. Sativex®, an oral solution containing a complex botanical
mixture of tetrahydrocannabinol and CBD for the treatment of spasticity due to multiple sclerosis, is sold in Europe and
over 23 other countries, but is not approved in the U.S. Management believes that the commercialization of these pharmaceutical
cannabinoids has opened the door to a potentially large, expanding pharmaceutical cannabinoid market opportunity.
Dronabinol
is a synthetically manufactured Δ9-THC, one of the pharmacologically active substances naturally occurring in the cannabis
plant. Dronabinol, in its soft gel cap formulation, is a Schedule III, controlled drug that has been approved by the FDA for the
treatment of AIDS-related anorexia and chemotherapy-induced nausea and vomiting. Dronabinol is available in the United States
as the branded prescription drug product Marinol® capsules. Marinol®, together with numerous generic formulations, is
available in 2.5, 5, and 10 mg capsules, with a maximum labelled dosage of 20 mg/day for the AIDS indication, or 15 mg/m2 per
dose for chemotherapy-induced nausea and vomiting. Syndros® is a liquid formulation of dronabinol and is a Schedule
II, controlled drug.
OSA
and Existing Treatments
RespireRx
has sought to capitalize upon this opportunity by emphasizing its development of dronabinol for the treatment of obstructive sleep
apnea (“OSA”). OSA is a sleep-related breathing disorder that afflicts an estimated 29 million people in the United
States according to the American Academy of Sleep Medicine (“AASM”), and an additional 26 million in Germany and 8
million in the United Kingdom, as presented at the European Respiratory Society’s (“ERS”) annual Congress in
Paris, France in September 2018. OSA involves a decrease or complete halt in airflow despite an ongoing effort to breathe during
sleep. When the muscles relax during sleep, soft tissue in the back of the throat collapses and obstructs the upper airway. OSA
remains significantly under-recognized, as only 20% of cases in the United States according to the AASM and 20% of cases globally
have been properly diagnosed. About 24 percent of adult men and 9 percent of adult women have the breathing symptoms of OSA with
or without daytime sleepiness. OSA significantly impacts the lives of sufferers who do not get enough sleep; their quality of
sleep is deteriorated such that daily function is compromised and limited. OSA is associated with decreased quality of life, significant
functional impairment, and increased risk of road traffic accidents, especially in professions like transportation and shipping.
Research
has established links between OSA and several important co-morbidities, including hypertension, type II diabetes, obesity, stroke,
congestive heart failure, coronary artery disease, cardiac arrhythmias, and even early mortality. The consequences of undiagnosed
and untreated OSA are medically serious and economically costly. According to the AASM, the estimated economic burden of OSA in
the United States is approximately $162 billion annually. We believe that a new drug therapy that is effective in reducing the
medical and economic burden of OSA would have significant advantages for optimal pricing in this costly disease indication.
Continuous
Positive Airway Pressure (“CPAP”) is the most common treatment for OSA. CPAP devices work by blowing pressurized air
into the nose (or mouth and nose), which keeps the pharyngeal airway open. CPAP is not curative, and patients must use the mask
whenever they sleep. Reduction of the apnea/hypopnea index (“AHI”) is the standard objective measure of therapeutic
response in OSA. Apnea is the cessation of breathing for 10 seconds or more and hyponea is a reduction in breathing. AHI is the
sum of apnea and hypopnea events per hour. In the sleep laboratory, CPAP is highly effective at reducing AHI. However, the device
is cumbersome and difficult for many patients to tolerate. Most studies describe that 25-50% of patients refuse to initiate or
completely discontinue CPAP use within the first several months and that most patients who continue to use the device do so only
intermittently.
Oral
devices may be an option for patients who cannot tolerate CPAP. Several dental devices are available including the Mandibular
Advancement Device (“MAD”) and the Tongue Retaining Device (“TRD”). The MAD is the most widely used dental
device for sleep apnea and is similar in appearance to a sports mouth guard. It forces the lower jaw forward and down slightly
which keeps the airway more open. The TRD is a splint that holds the tongue in place to keep the airway as open as possible. Like
CPAP, oral devices are not curative for patients with OSA. The cost of these devices tends to be high and side effects associated
with them include nighttime pain, dry lips, tooth discomfort, and excessive salivation.
Patients
with clinically significant OSA who cannot be treated adequately with CPAP or oral devices can elect to undergo surgery. The most
common surgery is uvulopalatopharyngoplasty which involves the removal of excess tissue in the throat to make the airway wider.
Other possible surgeries include tracheostomies, rebuilding of the lower jaw, and nose surgery. Patients who undergo surgery for
the treatment of OSA risk complications, including infection, changes in voice frequency, and impaired sense of smell. Surgery
is often unsuccesful and, at present, no method exists to reliably predict therapeutic outcome from these forms of OSA surgery.
Recently,
another surgical option has become available based on upper airway stimulation. It is a combination of an implantable nerve stimulator
and an external remote controlled by the patient. The hypoglossal nerve is a motor nerve that controls the tongue. The implanted
device stimulates the nerve with every attempted breath, regardless of whether such stimulation is needed for that breath, to
increase muscle tone to prevent the tongue and other soft tissues from collapsing. The surgically implanted device is turned on
at night and off in the morning by the patient with the remote.
The
Company’s Cannabinoid Rights
In
order to expand RespireRx’s respiratory disorders program and develop cannabinoids for the treatment of OSA, RespireRx acquired
100% of the issued and outstanding equity securities of Pier Pharmaceuticals, Inc. (“Pier”) effective August 10, 2012
pursuant to an Agreement and Plan of Merger. Pier was a clinical stage pharmaceutical company developing a pharmacologic treatment
for OSA and had been engaged in research and clinical development activities.
Through
the merger, RespireRx gained access to an Exclusive License Agreement (as amended, the “2007 License Agreement”) that
Pier had entered into with the University of Illinois Chicago (the “UIC”) on October 10, 2007. The 2007 License Agreement
covered certain patents and patent applications in the United States and other countries claiming the use of certain compounds
referred to as cannabinoids, of which dronabinol is a specific example, for the treatment of sleep-related breathing disorders,
including sleep apnea.
The
2007 License Agreement was terminated effective March 21, 2013 and the Company entered into a new license agreement (the “2014
License Agreement”) with UIC on June 27, 2014, the material terms of which were substantially similar to the 2007 License
Agreement. The 2014 License Agreement grants the Company, among other provisions, exclusive rights: (i) to practice certain patents
in the United States, Germany and the United Kingdom, as defined in the 2014 License Agreement, that are held by UIC; (ii) to
identify, develop, make, have made, import, export, lease, sell, have sold or offer for sale any related licensed products; and
(iii) to grant sub-licenses of the rights granted in the 2014 License Agreement, subject to the provisions of the 2014 License
Agreement. The Company is required under the 2014 License Agreement, among other terms and conditions, to pay UIC a license fee,
royalties, patent costs and certain milestone payments.
The
2014 License Agreement obligates the Company to comply with various commercialization and reporting requirements that commenced
in 2015. In addition, the 2014 License Agreement provides for various royalty payments, including a royalty on net sales of 4%,
payment on sub-licensee revenues of 12.5%, and a minimum annual royalty beginning in 2015 of $100,000, which is due and payable
on December 31 of each year beginning on December 31, 2015. The minimum annual royalty obligation of $100,000 due on December
31, 2019, was extended to June 30, 2020. One-time milestone payments may become due based upon the achievement of certain
development milestones. $350,000 will be due within five days after the dosing of the first patient is a Phase III human clinical
trial anywhere in the world. $500,000 will be due within five days after the first NDA filing with the FDA or a foreign equivalent.
$1,000,000 will be due within twelve months of the first commercial sale. One-time royalty payments may also become due and payable.
Annual royalty payments may also become due. In the year after the first application for market approval is submitted to the FDA
or a foreign equivalent and until approval is obtained, the minimum annual royalty will increase to $150,000. In the year after
the first market approval is obtained from the FDA or a foreign equivalent and until the first sale of a product, the minimum
annual royalty will increase to $200,000. In the year after the first commercial sale of a product, the minimum annual royalty
will increase to $250,000. For each of the years ended December 31, 2019 and 2018, the Company recorded a charge to operations
of $100,000 with respect to its minimum annual royalty obligation, which is included in research and development expenses in the
Company’s consolidated statements of operations for the years ended December 31, 2019 and 2018, respectively.
The
Company’s Research Efforts Regarding the Treatment of OSA with Cannabinoids
The
poor tolerance and long-term adherence to CPAP, as well as the limitations of mechanical devices and surgery, make discovery of
therapeutic alternatives clinically relevant and important. RespireRx’s translational research results demonstrate that
dronabinol has the potential to become the first drug treatment for this large and underserved market.
The
Company conducted a 21-day, randomized, double-blind, placebo-controlled, dose escalation Phase 2A clinical study in 22 patients
with OSA, in which dronabinol produced a statistically significant reduction in AHI, the primary therapeutic end-point, and was
observed to be safe and well tolerated, with the frequency of side effects no different from placebo. This clinical trial provided
data allowing for the submission of patent applications claiming unique dosage strengths and controlled release formulations optimized
for use in the treatment of OSA. If approved, these pending patents would extend market exclusivity until at least 2031.
With
approximately $5 million in funding from the National Heart, Lung and Blood Institute of National Institutes of Health (“NIH”),
Dr. David Carley of UIC, along with his colleagues at UIC and Northwestern University, completed a Phase 2B multi-center, double-blind,
placebo-controlled clinical trial of dronabinol in patients with OSA. This study, named “Pharmacotherapy of Apnea with Cannabimimetic
Enhancement” (“PACE”) replicated the earlier Phase 2A study. The authors reported that, in a dose-dependent
fashion, treatment with 2.5mg and 10mg of dronabinol once a day at night, significantly reduced, compared to placebo, AHI during
sleep in 56 evaluable patients with moderate to severe OSA who completed the study. Additionally, treatment with 10mg of dronabinol
significantly improved daytime sleepiness as measured by the Epworth Sleepiness Scale and achieved the greatest overall patient
satisfaction. As in the previous Phase 2A study, dronabinol was observed to be safe and well tolerated, with the frequency of
side effects no different from placebo. The Company did not manage or fund this clinical trial which was funded by the National
Heart, Lung and Blood Institute of NIH.
We
initially believed that the most direct route to commercialization was to proceed directly to a Phase 3 pivotal clinical trial
using the currently available, FDA approved (for other indications), generically available dronabinol gel cap formulation and
to commercialize, within the present RespireRx public corporate structure, a RespireRx branded dronabinol capsule under a 505(b)(2)
FDA regulatory pathway in the US. (see “Proposed Regulatory Process” below). We planned to follow this product with
a proprietary formulation. However, several recent developments have caused us to re-evaluate this approach and to consider accelerating
the development of a new proprietary formulation, as well as implementing an internal restructuring plan that contemplates spinning
out the cannabinoid platform into what initially would be a wholly-owned subsidiary of RespireRx (“Newco”, official
name not yet determined) for the purpose of developing pharmaceutical cannabinoids. Newco’s initial primary focus will be
the re-purposing of dronabinol for the treatment of OSA, using a new proprietary formulation.
Newco
We
are considering the formation of Newco for reasons described below, among others.
We
have identified and are in discussions with an individual highly experienced in the cannabinoid industry to potentially serve
as the chief executive officer of Newco, as well as key opinion leaders to sit on Newco’s scientific advisory board (“SAB”).
However, we cannot provide assurance that this individual or the SAB candidates will join us.
A
detailed business plan with pro forma budgets has been prepared, which describes our strategy and plans for developing
and commercializing the dronabinol platform for the treatment of OSA, including a review of the market opportunity, clinical development
and regulatory pathway.
A
joint development and supply agreement that is in place with Purisys LLC (“Purisys”), a subsidiary of Noramco, Inc.,
a leading dronabinol manufacturer and our license with UIC, will need to be transferred or otherwise made available to Newco.
While Newco’s initial, primary focus will be on re-purposing dronabinol for the treatment of OSA, we believe that our broad
enabling patents and a new proprietary formulation may provide a framework for expanding into the larger burgeoning pharmaceutical
cannabinoid industry. We believe that by creating Newco, it may be possible, through separate finance channels and potential strategic
transactions, to optimize the asset value not only of the cannabinoid platform, but our neuromodulation platform as well.
Within
the last 15 months, members of senior management of RespireRx have accepted invitations to be major speakers at several international
pharmaceutical cannabinoid conferences. Due to the COVID-19 (SARS-CoV-2) pandemic, these conferences have been rescheduled
and senior management intends to speak at such events once rescheduled. We have had discussions with a number of potential cannabinoid
investors and strategic partners who have expressed interest, mostly in the development of a new, proprietary formulation with
extended patent life, with essentially no interest in our neuromodulator platform. Our assessment is that such potential investors
or strategic partners, while apparently willing to accept the risks of a cannabinoid platform, are not interested in subjecting
their cannabinoid investment or efforts to the risks of the neuromodulator platform. Alternatively, other potential investors
and strategic partners might be interested in the neuromodulators independent of the cannabinoid platform.
RespireRx
has exclusive rights to issued and pending patents claiming cannabinoid compositions and methods for treating cannabinoid-sensitive
disorders, including sleep apnea, pain, glaucoma, muscular spasticity, anorexia and other conditions. In October 2019, we filed
a continuation-in-part for our pending patent that describes and claims novel doses, controlled release compositions and methods
of use for cannabinoids, as well as a new U.S. provisional patent application further disclosing novel dosage and controlled release
compositions and methods of use for cannabinoids, alone or in combination, including with non-cannabinoid molecules. Specific
claims describe low dosage strengths and controlled release formulations for attaining a therapeutic window of cannabinoid blood
levels that produce the desired therapeutic effect(s) for a controlled period of time, while minimizing undesirable side effects.
As previously disclosed, the original patents were filed by RespireRx and are now included in an exclusive license agreement with
UIC. While no assurance can be provided that the claims in this continuation-in-part or the U.S. provisional patent application
will be allowed in whole or in part, or that the patents will ultimately issue, we believe that these new filings, if allowed,
will provide market protections through at least 2031.
We
believe our intellectual property initiatives may afford expanding strategic options and market exclusivity in the burgeoning
pharmaceutical cannabinoid business sector. New cannabinoid formulation technology is headed in the direction of enhanced absorption
and controlled release. These technologies, including nano- and micro-emulsions and thin films, have been shown to bypass the
normal route of absorption and liver metabolism of cannabinoids, thus dramatically increasing blood levels and allowing for the
use of low doses. Similarly, technologies may be used to achieve a controlled release of dronabinol. New cannabinoid formulation
technology is headed in the direction of enhanced absorption and controlled release. We believe that our pending patent priority
relating back to 2010 predates the efforts of others seeking to develop low-dose or extended release formulations of cannabinoids.
Thus, to the extent that new technologies result in lower doses and/or controlled release formulations, we believe they would
infringe on our pending patents once issued, not only for use in the treatment of OSA but potentially a wide variety of other
indications as well. For these reasons, we believe our new and continuing intellectual property initiatives may afford expanding
strategic options and market exclusivity in the burgeoning pharmaceutical cannabinoid business sector.
Data
from our Phase 2 clinical trials has allowed us to design new proprietary formulations of dronabinol, disclosed in our patent
filings and optimized for the treatment of not only OSA, but also other indications. Within the past 6 to 12 months, new formulation
technology has emerged potentially allowing for the creation of a proprietary dronabinol formulation with optimized dose and duration
of action for treating OSA. We have discussions in progress with a number of companies that have existing cannabinoid formulation
technologies, expertise, and licensure capabilities, which may lead to the development of a proprietary formulation of dronabinol
for RespireRx based on RespireRx’s pending patents for low-dose and extended release dronabinol and may lead to the development
of a marketable proprietary formulation of dronabinol. We believe that the development of a novel, proprietary formulation of
dronabinol would only extend time to market entry by approximately 12 months compared to the currently available generic soft
gel capsules, but would dramatically extend market exclusivity; however, no assurance can be provided that any of the formulation
technologies that we are currently analyzing will result in viable products or that formulation agreements will be consummated
on terms acceptable to us, if successful. The failure to consummate a formulation agreement would materially and adversely affect
the Company.
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The
Opportunity to Improve Dronabinol Formulations
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Dronabinol
is currently marketed as a soft gelatin capsule that suffers from several major deficiencies:
a.
Dronabinol exhibits poor and erratic absorption. Δ9-THC is not water soluble. The market dominant commercial gel
cap dronabinol is currently formulated as a sesame oil-based liquid within a soft gelatin capsule. The absorption of dronabinol
after oral administration is poor and highly variable with some patients achieving very high levels and others achieving very
low levels. This erratic absorption may be responsible for the variable therapeutic responses observed in dronabinol clinical
trials. Syndros®, on the other hand, is formulated as a solution in dehydrated alcohol, polyethylene glycol and
other materials and exhibits its own challenges and deficiencies, including but not limited to it being Schedule II as compared
to the capsule that is Schedule III.
b.
Dronabinol is rapidly and extensively (approximately 80%) metabolized upon first pass through the liver, resulting in low blood
levels. Additionally, dronabinol has a relatively short half-life (approximately 3 – 4 hours) and, in its present formulation,
is not optimally suited for therapeutic indications requiring blood levels to be sustained for 6 hours or longer.
c.
In order to achieve sustained, therapeutic blood levels, we have found it necessary to use higher doses of dronabinol in our OSA
clinical trials. For example, over an 8-hour period, the 2.5 and 10 mg doses produced therapeutically equivalent effects during
the first 4 hours, but only the 10 mg dose produced therapeutic effects during the second 4 hours (see below for details). Unfortunately,
the 10 mg dose produces a higher occurrence of side effects than the 2.5 mg dose (as described in the Marinol®
package insert). We anticipate focusing on new formulations that would achieve the blood levels produced by the lower doses for
a sustained time period, resulting in the desired therapeutic effect(s) while minimizing undesirable side effects.
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Large
Commercial Opportunity
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As
a serious public health issue, the important need for diagnosing and ultimately treating OSA has recently been highlighted by
the FDA clearance of several sleep apnea home test kits that are now third party reimbursed. Further highlighting this need, CVS
Health Corporation (NYSE: CVS) recently has announced the implementation of a program to diagnose and treat OSA initially within
their own in-store, walk-in MinuteClinics. If implemented throughout their HealthHUB store network, the number of people diagnosed
with sleep apnea and eligible for treatment should increase dramatically. Fitbit (NYSE: FIT), the health oriented smart watch
company is seeking clearance from the FDA to diagnose sleep apnea. We believe that the combination of more efficient and patient
friendly diagnostic procedures and, ultimately, pharmaceutical treatments such as those we are developing will encourage more
patients to seek diagnosis and treatment. As noted above, there are approximately 29 million OSA patients in the U.S. and
an additional 26 million in Germany and 8 million in the United Kingdom. There are currently no drugs approved for the treatment
of OSA.
As
noted below in “Proposed Regulatory Process,” there are several ways to achieve market exclusivity with respect to
this large and underserved patient population.
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Proposed
Regulatory Process
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The
use of dronabinol for the treatment of OSA is a novel indication for an already approved drug and, as such, the Company believes
that it would allow us or a development partner to submit a 505(b)(2) New Drug Application (“NDA”) to the FDA for
approval of a new dronabinol label, as opposed to the submission and approval of a full 505(b)(1) NDA. The 505(b)(2) NDA was created
by the Hatch-Waxman Amendments to the Federal Food, Drug and Cosmetic Act, as amended, in part, to help avoid unnecessary duplication
of studies already performed on a previously approved drug; the section gives the FDA express permission to rely on data not developed
by the NDA applicant. A 505(b)(2) NDA contains full safety and effectiveness reports but allows at least some of the information
required for NDA approval, such as safety and efficacy information on the active ingredient, to come from studies not conducted
by or for the applicant. This can result in a less expensive and faster route to approval, compared with a traditional development
path, such as 505(b)(1), while still allowing for the creation of new, differentiated products. This regulatory path offers market
protections under the Hatch-Waxman Act, as amended, and the rules promulgated thereunder, providing for market exclusivity.
Other regulatory routes are available to pursue proprietary formulations of dronabinol that will provide further market protections.
In Europe, a regulatory approval route similar to the 505(b)(2) pathway is the hybrid procedure based on Article 10 of Directive
2001/83/EC.
In
conjunction with its management and consultants, RespireRx has developed a regulatory strategy in which we intend to file a new
NDA under Section 505(b)(2) claiming the efficacy and safety of our proposed proprietary dronabinol formulation in the treatment
of OSA. We have engaged regulatory consultants who will assist with FDA filings and regulatory strategy. If we can secure sufficient
financing, of which no assurance can be provided, we anticipate requesting a pre-IND (pre-investigational new drug application)
meeting with the FDA. This meeting also could create the type of dialogue with the FDA that is normally communicated at an end-of
Phase 2 meeting. The FDA responses to this meeting will be incorporated into an IND, which we believe we could be in a position
to submit within 60 days of receiving their communication.
The
505(b)(2) process begins with a pre-IND meeting with the FDA, which will involve discussions of formulation and safety, as well
as certain required preclinical and clinical trials. If we can secure sufficient financing, of which no assurance can be provided,
we plan to propose conducting the appropriate clinical studies with our proprietary controlled release formulation in OSA patients
to determine safety, pharmacokinetics and efficacy, as well as a standard Phase 1 clinical study to determine potential abuse
liability. When a Phase 3 study is required for a 505(b)(2), usually only one study with fewer patients is necessary versus the
two, large scale, confirmatory studies generally required for the standard 505(b)(1) NDA. While no assurance can be provided,
with an extensive safety database tracking chronic, long-term use of Marinol® and generics, we believe that FDA should not
have major safety concerns with dronabinol in the treatment of OSA.
RespireRx
has worked with the PACE investigators and staff, as well as with our Clinical Advisory Panel to design a Phase 3 protocol that,
based on the experience and results from the Phase 2A and Phase 2B trials, we believe will provide sufficient data for FDA approval
of a RespireRx dronabinol controlled release formulation for OSA. The current version of the protocol is designed as a 90-day
randomized, blinded, placebo-controlled study of dronabinol in the treatment of OSA. Depending on feedback from the FDA, RespireRx
estimates that the Phase 3 trial would require between 120 and 300 patients at 15 to 20 sites, and take 18 to 24 months to complete,
at a cost of between $10 million and $14 million. Subject to raising sufficient financing, of which no assurance can be provided,
RespireRx intends to submit the Phase 3 protocol to the FDA.
Also,
subject to raising sufficient financing, of which no assurance can be provided, RespireRx intends to hire Clinilabs Drug Development
Corporation (“Clinilabs”), a full-service CRO, to consult and potentially provide clinical site management, monitoring,
data management, and centralized sleep monitoring services for the Phase 3 OSA trial. Dr. Gary Zammitt, CEO of Clinilabs, serves
on the RespireRx Clinical Advisory Panel, and his management team has provided guidance on study design and CNS drug development
that will be relevant for the Phase 3 program. For example, Clinilabs offers specialized clinical trial services for CNS drug
development through an alliance with Neuroclinics, including clinical trials examining the effects of drugs on driving, cognitive
effects of food and (medicinal) drugs, and sleep and sleep disordered breathing.
On
September 4, 2018, RespireRx entered into a dronabinol Development and Supply Agreement with Noramco Inc.(the “Noramco Agreement”),
one of the world’s major dronabinol manufacturers. Under the terms of the Agreement, Noramco agreed to (i) provide all of
the active pharmaceutical ingredient (“API”) estimated to be needed for the clinical development process for both
the first- and second- generation products (each a “Product” and collectively, the “Products”), three
validation batches for NDA filing(s) and adequate supply for the initial inventory stocking for the wholesale and retail channels,
subject to certain limitations, (ii) maintain or file valid drug master files (“DMFs”) with the FDA or any other regulatory
authority and provide the Company with access or a right of reference letter entitling the Company to make continuing reference
to the DMFs during the term of the agreement in connection with any regulatory filings made with the FDA by the Company, (iii)
participate on a development committee, and (iv) make available its regulatory consultants, collaborate with any regulatory consulting
firms engaged by the Company and participate in all FDA or Drug Enforcement Agency (“DEA”) meetings as appropriate
and as related to the API. Since entering into the Noramco Agreement, Noramco has assigned the agreement to Purisys LLC (“Purisys”),
a subsidiary of Noramco, and Purisys will provide in-kind funding for API manufacturing and supply costs prior to NDA approval
and into early commercialization pursuant Noramco’s obligations under the Noramco Agreement.
In
consideration for these supplies and services, the Company has agreed (i) to purchase exclusively from Noramco, during the commercialization
phase, all API for its Products (as defined in the Development and Supply Agreement) at a pre-determined price subject to certain
producer price adjustments and (ii) to Noramco’s participation in the economic success of the commercialized Product
or Products up to the earlier of the achievement of a maximum dollar amount or the expiration of a period of time.
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II.
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Neuromodulators
- Project Endeavor - Ampakines and GABA-A
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Neuromodulators
are chemicals released by neurons that enable neurons to communicate with one another. This process is called neurotransmission.
Neurons release neurotransmitters that attach to a very specific protein structure, termed a receptor, residing on an adjacent
neuron. This neurotransmission process can either increase or decrease the excitability of the neuron receiving the message. For
example, glutamate is the primary excitatory neurotransmitter in the brain, while gamma-amino-butyric acid (“GABA”)
is the primary inhibitory neurotransmitter. While the neurotransmitter attachment site on these receptors remains the same, the
receptor protein subunit structures can vary so that the receptors can produce a variety of effects, including ion flow into the
neurons or enzyme activity within the cells. Certain receptors for these neurotransmitters are composed of protein subunits that
assemble so as to form a pore, known as an ion channel. In the case of the alpha-amino-3-hydroxy-5-methyl-4-isoxazolepropionic
acid glutamate (“AMPA”) receptor, the binding of glutamate or an artificial agonist to its attachment site causes
a change in the structure of the AMPA receptor ion channel and increases the flow of cations (positively charged ions) into the
cell, resulting in an increased excitability. Likewise, in the case of the gamma-amino-butyric acid type A (“GABA-A”)
receptor, the binding of GABA or an artificial agonist to its attachment site causes a change in the structure of the GABA-A receptor
ion channel and increases the flow of chloride ions (anion – negatively charged) into the cell, resulting in a decreased
excitability.
Neuromodulators
do not act directly at the neurotransmitter binding site, but instead act at accessory sites that enhance (Positive Allosteric
Modulators – “PAMs”) or reduce (Negative Allosteric Modulators – “NAMs”) the actions of neurotransmitters
at their primary receptor sites. Neuromodulators have no intrinsic activity of their own. We believe that neuromodulators offer
the possibility of developing “kinder and gentler” neuropharmacological drugs with greater pharmacological specificity
and reduced side effects compared to present drugs, especially in disorders for which there is a significant unmet or poorly met
clinical need such as Attention Deficit Hyperactivity Disorder (“ADHD”), Autism Spectrum Disorder (“ASD”),
Fragile X Syndrome (“FSX”) and central nervous system (“CNS”) driven disorders. We are focused presently
on developing drugs that act as positive allosteric modulators (“PAM”) at the AMPA and GABA-A receptors.
Building
upon our ampakine platform as a foundation, we also are planning the establishment of a second business unit, Project Endeavor,
that will focus on developing novel neuromodulators for disorders due to alterations in neurotransmission. Through an extensive
series of translational studies from the cellular level up to human Phase 2 clinical trials, selected ampakines have demonstrated
target site engagement and positive results in patients with Attention Deficit Hyperactivity Disorder (see below).
Ampakines
Ampakines
development for ADHD, FXS and ASD, spinal cord injury (“SCI”) and Other CNS-driven Disorders
ADHD
ADHD
is one of the most common neurobehavioral disorders, with 6.1% of American children reportedly taking medication for treatment,
and ADHD is estimated to affect 7.8% of U.S. children aged 4 to 17 according to the U.S. Centers for Disease Control and Prevention
(“CDC”), or approximately 4.5 million children. The principal characteristics of ADHD are inattention, hyperactivity
and impulsivity, symptoms that are known to persist into adulthood. In a study published in Psychiatry Res in May 2010, up
to 78% of children affected by this disorder showed at least one of the major symptoms of ADHD when followed up 10 years later.
According to the CDC, approximately 4% of the US adult population has ADHD, which can negatively impair many aspects of daily
life, including home, school, work and interpersonal relationships.
Currently
available treatments for ADHD include amphetamine-type stimulants and non-stimulant agents targeting monoaminergic neurotransmitter
systems in the brain. However, these neurotransmitter systems are not restricted to the brain and are widely found throughout
the body. Thus, while these agents can be effective in ameliorating ADHD symptoms, they also can produce adverse cardiovascular
effects, such as increased heart rate and blood pressure. Existing treatments also affect eating habits and can reduce weight
gain and growth in children and have been associated with suicidal ideation in adolescents and adults. In addition, approved stimulant
treatments are DEA-classified as controlled substances and present logistical issues for distribution and protection from diversion.
Approved non-stimulant treatments, such as atomoxetine (Strattera® and its generic equivalents), can take four
to eight weeks to become effective and undesirable side effects also have been observed.
Various
investigators have generated data supporting the concept that alterations in AMPA receptor function might underlie the production
of some of the symptoms of ADHD. In rodent and primate models of cognition, ampakines have been demonstrated to reduce inattention
and impulsivity, two of the cardinal symptoms of ADHD. Furthermore, ampakines do not stimulate spontaneous locomotor activity
in either mice or rats, unlike the stimulants presently used for the treatment of ADHD, nor do they increase the stimulation produced
by amphetamine or cocaine. These preclinical considerations prompted us to conduct a randomized, double- blind, placebo controlled,
two period crossover study to assess the efficacy and safety of CX717 in adults with ADHD.
In
a repeated measures analysis, a statistically significant treatment effect on ADHD Rating Scale (ADHD-RS), the primary outcome
measure, was observed after a three-week administration of CX717, 800 mg BID. Differences between this dose of CX717 and placebo
were seen as early as week one of treatment and continued throughout the remainder of the study. The low dose of CX717, 200 mg
BID, did not differ from placebo. In general, results from both the ADHD-RS hyperactivity and inattentiveness subscales, which
were secondary efficacy variables, paralleled the results of the total score. CX717 was considered safe and well tolerated.
Based
on these clinical results, ampakines such as CX717 might represent a breakthrough opportunity to develop a non- stimulating therapeutic
for ADHD with the rapidity of onset normally seen with stimulants. Subject to raising sufficient financing (of which no assurance
can be provided), we are planning to continue this program with a Phase 2B clinical trial in patients with adult ADHD using one
of our two lead ampakine compounds.
FXS
and ASD
According
to the Autism Society, more than 3.5 million Americans live with an ASD, a complex neurodevelopmental disorder. FXS is the most
common identifiable single-gene cause of autism, affecting approximately 1.4 in every 10,000 males and 0.9 in every 10,000 females,
according to the CDC. Individuals with FXS and ASD exhibit a range of abnormal behaviors comprising hyperactivity and attention
problems, executive function and cognitive deficits, hyper-reactivity to stimuli, anxiety and mood instability. Also, according
the Autism Society, the prevalence rate of ASD has risen from 1 in 150 children in 2000 to 1 in 68 children in 2010, with current
estimates indicating a significant rise in ASD diagnosis to 1 in 59 births, placing a significant emotional and economic burden
on families and educational systems. The Autism Society estimates the economic cost to U.S. citizens of autism services to be
between $236 and $262 billion annually.
Since
“autistic disturbances” were first identified in children in 1943, extensive research efforts have attempted to identify
the genetic, molecular, environmental, and clinical causes of ASD, but until recently the underlying etiology of the disorder
remained elusive. Today, there are no medications that can treat ASD or its core symptoms, and only two anti-psychotic drugs,
aripiprazole and risperidone, are approved by the United States Food and Drug Administration (“FDA”) for the treatment
of irritability associated with ASD.
Thanks
to wide ranging translational research efforts, FXS and ASD are currently recognized as disorders of the synapse with alterations
in different forms of synaptic communication and neuronal network connectivity. Focusing on the proteins and subunits of the AMPA
receptor complex, autism researchers at the University of San Diego (“UCSD”) have proposed that AMPA receptor malfunction
and disrupted glutamate signal transmission may play an etiologic role in the behavioral, emotional and neurocognitive phenotypes
that remain the standard for ASD diagnosis. For example, Stargazin, also known as CACNG2 (Ca2+ channel γ2 subunit), is one
of four closely related proteins recently categorized as transmembrane AMPA receptor regulating proteins (“TARPs”).
Researchers
at UCSD have been studying genetic mutations in the AMPA receptor complex that lead to cognitive and functional deficiencies along
the autism spectrum. They work with patients and their families to conduct detailed genetic analyses in order to better understand
the underlying mechanisms of autism. In one case, they have been working with a teenage patient who has an autism diagnosis, with
a phenotype that is characterized by subtle Tourette-like behaviors, extreme aggression, and verbal and physical outbursts with
disordered thought. Despite the behaviors, his language is normal. Using next generation sequencing and genome editing technologies,
the researchers identified a specific mutation in Stargazin that alters the configuration and kinetics of the AMPA receptor. When
the aberrant sequence was introduced into C57bL6 mice using CRISPR (Clustered Regulatory Interspaced Short Palindromic Repeats),
the heterozygous allele had a dominant negative effect on the trafficking of post-synaptic AMPA receptors and produced behaviors
consistent with a glutamatergic deficit and similar to what has been observed in the teenage patient.
With
funding from the National Institutes of Health to UCSD, RespireRx is working with UCSD to explore the use of ampakines for the
amelioration of the cognitive and other deficits associated with AMPA receptor gene mutations. Because CX1739 has an open investigational
new drug (“IND”) application, subject to securing sufficient outside funding (of which no assurance can be provided),
we are considering a Phase 2A clinical trial late in 2020.
SCI
Ampakines
also may have potential utility in the treatment and management of SCI to enhance motor functions and improve the quality of life
for SCI patients. An estimated 17,000 new cases of SCI occur each year in the United States, most a result of automobile accidents.
Currently, there are roughly 282,000 people living with spinal cord injuries, which often produce impaired motor function.
SCI
can profoundly impair neural plasticity leading to significant morbidity and mortality in human accident victims. Plasticity is
a fundamental property of the nervous system that enables continuous alteration of neural pathways and synapses in response to
experience or injury. One frequently studied model of plasticity is long-term facilitation of motor nerve output (“LTF”).
A large body of literature exists regarding the ability of ampakines to stimulate neural plasticity, possibly due to an enhanced
synthesis and secretion of various growth factors.
Recently,
studies of acute intermittent hypoxia (“AIH”) in patients with SCI demonstrate that neural plasticity can be induced
to improve motor function. This LTF is based on physiological mechanisms associated with the ability of spinal circuitry to learn
how to adjust spinal and brainstem synaptic strength following repeated hypoxic bouts. Because AIH induces spinal plasticity,
the potential exists to harness repetitive AIH as a means of inducing functional recovery of motor function following SCI.
RespireRx
has been working with Dr. David Fuller, at the University of Florida with funding from the National Institutes of Health, to evaluate
the use of ampakines for the treatment of compromised motor function in SCI. Using mice that have received spinal hemisections,
CX717 was observed to increase motor nerve activity bilaterally. The effect on the hemisected side was greater than that measured
on the intact side, with the recovery approximating that seen on the intact side prior to administration of ampakine. In addition,
CX717 was observed to produce a dramatic and long-lasting effect on LTF produced by AIH. The doses of ampakines active in SCI
were comparable to those demonstrating antagonism of OIRD, indicating target engagement of the AMPA receptors.
These
animal models of motor nerve function following SCI support proof of concept for a new treatment paradigm using ampakines to improve
motor functions in patients with SCI. With additional funding granted by NIH to Dr. Fuller, RespireRx is continuing its collaborative
preclinical research with him while it is planning a clinical trial program focused on developing ampakines for the restoration
of certain motor functions in patients with SCI. The Company is working with our Clinical Advisory Panel and with researchers
at highly regarded clinical sites to finalize a Phase 2 clinical trial protocol. We believe that a clinical study could be initiated
within several months of raising sufficient financing. Currently, we do not have a source of such financing and we can provide
no assurance that we will be able to secure sufficient funding.
Other
CNS-driven Disorders
Since
its formation in 1987, the Company has been engaged in the research and clinical development of ampakines. Ampakines are PAMs
of the AMPA glutamate receptor. They enhance the excitatory actions of the neurotransmitter glutamate at the AMPA receptor complex,
which mediates most excitatory transmission in the CNS. These drugs do not have agonistic or antagonistic properties but instead
positively modulate the receptor rate constants for transmitter binding, channel opening, and desensitization. We currently are
developing two lead clinical compounds, CX717 and CX1739, and one pre-clinical compound, CX1942. These compounds belong to a new
class of ampakines that do not display the electrophysiological and biochemical effects that led to undesirable side effects,
namely convulsive activities, previously reported in animal models of earlier generations.
The
Company owns patents and patent applications, or the rights thereto, for certain families of chemical compounds, including ampakines,
which claim the chemical structures, their actions as ampakines and their use in the treatment of various disorders. Patents claiming
a family of chemical structures, including CX1739 and CX1942, as well as their use in the treatment of various disorders extend
through at least 2028. Additional patent applications claiming the use of ampakines in the treatment of certain neurological and
neuropsychiatric disorders, such as ADHD have been filed.
In
2007, we determined that expansion of our strategic development into the areas of central respiratory dysfunction, including drug-induced
respiratory dysfunction, represented cost-effective opportunities for potentially rapid development and commercialization of RespireRx’s
compounds. On May 8, 2007, RespireRx entered into a license agreement, as subsequently amended, and no longer in effect with the
University of Alberta granting RespireRx exclusive rights to method of treatment patents held by the University of Alberta claiming
the use of ampakines for the treatment of various respiratory disorders. These patents, along with RespireRx’s own patents
claiming chemical structures, comprised RespireRx’s principal intellectual property supporting RespireRx’s research
and clinical development program in the use of ampakines for the treatment of central and drug-induced respiratory disorders.
The Company is currently not pursuing respiratory indications for ampakines, at least in part because the license with the University
of Alberta is no longer in effect. Much of the work performed while the license was in effect, has informed the Company’s
new programs.
Through
an extensive translational research effort from the cellular level through Phase 2 clinical trials, the Company has developed
a family of novel, low impact ampakines, including CX717, CX1739 and CX1942 that have clinical application in the treatment of
neurobehavioral disorders, CNS-driven respiratory disorders, spinal cord injury, neurological diseases, and orphan indications.
We had been addressing CNS-driven respiratory disorders that affect millions of people, but for which there are few treatment
options and limited drug therapies, including opioid induced respiratory disorders, such as apnea (transient cessation of breathing)
or hypopnea (transient reduction in breathing). When these symptoms become severe, as in opioid overdose, they are the primary
cause of opioid lethality.
RespireRx
is committed to advancing the ampakines through the clinical and regulatory path to approval and commercialization. Until recently,
RespireRx has focused on the ampakines’ ability to antagonize opioid induced respiratory depression both as a translational
tool to verify target engagement, as well as an eventual commercial indication. We believe the loss of approximately 69,000 lives
in our country in the one year period ending February 2019 alone demands that new solutions for opioid induced deaths be developed
to ensure the public health.
RespireRx
had previously completed pre-clinical studies indicating that several of its ampakines, including CX717, CX1739 and CX1942, were
efficacious in treating drug induced respiratory depression caused by opioids or certain anesthetics without altering the analgesic
effects of the opioids or the anesthetic effects of the anesthetics. The results of our preclinical research studies have been
replicated in three separate Phase 2A human clinical trials with two ampakines, CX717 and CX1739, confirming the translational
mechanism and target site engagement and demonstrating proof of principle that ampakines act as PAMs of AMPA receptors in humans
and may be able to be used in humans for the prevention of opioid induced apnea. In addition, RespireRx has conducted a Phase
2A clinical study in which patients with sleep apnea were administered CX1739, RespireRx’s lead clinical compound. The results
suggested that CX1739 might have use as a treatment for central sleep apnea (“CSA”) and mixed sleep apnea, but not
OSA.
Based
on these initial results, the Company conducted preclinical and clinical research with CX1739, CX717 and CX1942 in the prevention,
treatment, and management of opioid induced apnea, the primary cause of overdose deaths. In particular, we had conducted several
Phase 2 clinical trials demonstrating that both CX717 and CX1739 significantly reduced opioid induced respiratory depression (“OIRD”)
without altering analgesia. Since one of the primary risk factors for opioid overdose is CSA, it is significant that a Phase 2A
clinical study with CX1739 produced data suggesting a possible reduction in central sleep apnea. Because there are neither drugs
nor devices approved to treat CSA, Company management believed there might be potential for a rapid path to commercialization.
Unfortunately,
rather than support novel approaches to opioid treatment, the recent public and governmental discourses regarding the “opioid
epidemic” has focused almost entirely on the distribution of naloxone, an opioid antagonist used for acute emergency situations,
so-called “non-abuseable” opioid formulations, means of reducing opioid consumption by limiting production of opioids
and access to legal opioid prescriptions and the development of non-opioid analgesics. It remains to be seen whether these approaches
will have an impact on the situation. Nevertheless, as a result, we believe that there is an ongoing industry-wide pullback from
opioids, as evidenced by a reduction in opioid prescriptions and a major reduction in manufacturing by two of the largest opioid
manufacturers in the United States.
These
factors have made it difficult to raise capital or find strategic partners for the development of ampakines for the treatment
of opioid induced respiratory depression and we have decided not to pursue this program at this time. We have decided not to attempt
to enter into a new license agreement with TEC Edmonton (“TEC Edmonton”), an affiliate of the University of Alberta,
at this time and are suspending the development of this program until the political climate is clarified and we are able to either
raise funding or enter into a strategic relationship for this purpose. Nevertheless, the valuable data derived from these translational
studies have established antagonism of OIRD as a biomarker for demonstrating proof of principle and target engagement in support
of continued ampakine development for other indications.
GABA-A
Receptor PAMs
In
order to expand the asset base of Project Endeavor, we have entered into an option agreement with UWMRF whereby RespireRx has
a six-month option commencing on March 2, 2020, to license, certain intellectual property regarding chemical compounds that act
as PAMs at certain sub-type specific receptors for GABA, the major inhibitory transmitter in the brain (see Note 10 in the
Notes to Consolidated Financial Statements as of December 31, 2019 and 2018, included in this report - Subsequent Events).
Certain of these compounds have shown impressive activity in a broad range of animal models of refractory/resistant epilepsy and
other convulsant disorders, as well as in brain tissue samples obtained from epileptic patients. Epilepsy is a chronic and highly
prevalent neurological disorder that affects millions of people world-wide. While many anticonvulsant drugs have been approved
to decrease seizure probability, seizures are not well controlled and, in as many as 60-70% of patients, existing drugs are not
efficacious at some point in the disease progression. We believe that the medical and patient community are in clear agreement
that there is desperate need for improved antiepileptic drugs. In addition, these compounds have shown positive activity in animal
models of migraine, inflammatory and neuropathic pain, as well as other areas of interest. Because of their GABA receptor subunit
specificity, the compounds have a greatly reduced liability to produce sedation, motor incoordination, memory impairments and
tolerance, side effects commonly associated with non-specific GABA PAMs, such as benzodiazepines.
This
program is the subject of the option to license agreement with UWMRF and would officially become a company program upon exercise
of the option on or prior to September 2, 2020. The exercise of the option is conditioned upon, among other things, contractual
commitment for at least one million dollars of aggregate financing to the Company. There is no guaranty that we will be able to
obtain such commitment.
The
GABA-A receptor is a pentameric neurotransmitter gated chloride ion channel composed of five transmembrane protein subunits. Multiple
cDNAs that encode GABA-A receptor subunits have been cloned and, based on sequence homology, eight subunit families (α,
β, γ, δ, ε, θ, π, ρ) comprising 20 distinct gene products have been identified. Based on
just the α, β and γ subunits, immunoprecipitation studies suggest the presence of perhaps 10 distinct heteropentamers,
creating a considerable degree of receptor subtype heterogeneity.
Benzodiazepines
(BDZ), such as Valium® (diazepam), Librium®
(chlordiazepoxide) and Xanax® (alprazolam) were the first
major class of drugs reported to act as GABA-A PAMs, by binding at a site distinct from the binding site for GABA. These drugs
produced a wide range of pharmacological properties, some desirable some not, including anxiety reduction, sedation, hypnosis,
anti-convulsant, muscle relaxation, respiratory depression, cognitive impairment, as well as tolerance, abuse and withdrawal.
For this reason, it was not surprising that benzodiazepines were observed to act as GABA PAMs indiscriminately across all GABA-A
receptor subtypes. Following the identification of BDZ binding sites on GABA-A receptors, Dr. Lippa described CL218,872, the first
non-BDZ to demonstrate that these receptors were heterogeneous by binding selectively to a subtype of GABA-A receptor. This demonstration
of receptor heterogeneity led to the hypothesis that the various pharmacological actions of the BDZs might be separable. In animal
testing, CL218,872 provided the proof of principle that such a separation could be achieved by displaying anti-anxiety and anti-convulsant
properties in the absence of sedation and muscular incoordination. These findings gave impetus to the search for novel therapeutic
drugs for neurological and psychiatric illnesses that display improvements in efficacy and reductions in side effects.
While
CL218,872 was not clinically tested in humans, a related derivative compound, ocinaplon, displayed similar receptor subtype selectivity
and also produced the same pharmacological profile in animal studies as did CL218,872. In Phase 1 clinical studies, ocinaplon
was safe and well-tolerated with no BDZ-like effects noted. In two Phase 2 clinical trials in patients suffering from chronic
general anxiety disorder (GAD), ocinaplon produced a rapid, highly significant reduction in anxiety scores with no evidence of
BDZ-like side effects (Lippa et al, 2005; Czobor et al, 2010). Development of ocinaplon was halted due to elevations
in liver function tests observed in a small number of patients during the conduct of a larger Phase 3 clinical trial. Nevertheless,
these results with ocinaplon greatly reinforced the hypothesis that drugs could be developed that selectively produced certain
therapeutic effects of the BDZs without displaying their undesirable side effects.
Over
the last several years, a group of scientists led by Drs. James Cook and Jeffrey Witkin, now advisors to our Project Endeavor,
have synthesized and tested a broad series of novel drugs that display GABA-A receptor subtype selectivity and pharmacological
specificity. Dr. Cook is a Distinguished Professor of Chemistry at University Wisconsin-Milwaukee with more than 40 years’
experience in organic and medicinal chemistry. He is a leading expert in GABA-A receptor drug targeting, with more than 480 scientific
publications and 50 patents. Dr. Witkin, now at the University of Wisconsin-Milwaukee, spent 17 years directing the Neuroscience
Discovery Laboratory at Lilly Research Labs where he headed biological efforts to discover multiple antidepressants and novel
glutamate and GABA-A receptor neuromodulators. Several of these compounds are in clinical development for depression and epilepsy.
Prior to working at the Lilly Research Labs, he headed the Drug Development Group for the intramural research program of the NIH
for 14 years. He is a world class scientist with over 220 peer-reviewed publications and multiple scientific awards and honors.
Certain
of these chemical compounds are the subject of an option agreement entered into on March 2, 2020, by the Company and UWMRF, an
affiliate of the University of Wisconsin-Milwaukee, pursuant to which RespireRx has a six-month option to license the intellectual
property identified in United States Patents 9,006,233, 9,597,342, and 10,259,815 and Canadian patent application serial No. 2979701,
and all other patents and patent applications in lineage with these priority applications, including PCT (Patent Cooperation Treaty)
, utility, divisional, continuation, continuation-in-part, and any corresponding patent applications filed in countries foreign
to the United States of America and Canada with priority dates prior to the effective date of the License Agreement.
Of
these compounds, we have emphasized KRM-II-81as a clinical lead. KRM-II-81 is the most advanced and druggable of a series of compounds
that display certain receptor subtype selective and pharmacological specificity.
In
studies using cell cultures, brain tissues and whole animals, KRM-II-81acts as a GABA-A PAM at selective GABA-A receptor subtypes
that we feel are intimately involved in neuronal processes underly epilepsy, pain, anxiety and certain other indications. KRM-II-81
has demonstrated highly desirable properties in animal models of epilepsy, pain, anxiety and certain other potential therapeutic
indications, in the absence of or with greatly reduced liability to produce sedation, motor incoordination, cognitive impairments,
respiratory depression, tolerance, abuse and withdrawal seizures, all side effects associated with benzodiazepines. We currently
are focused on the potential treatment of epilepsy and pain.
Epilepsy
Epilepsy
is a chronic and highly prevalent neurological disorder that affects millions of people world-wide and has serious consequences
for the life of the affected individual. A first-line approach to the control of epilepsy is through the administration of anticonvulsant
drugs. Repeated, uncontrolled seizures and the side effects arising from seizure medications have a negative effect on the developing
brain and can lead to brain cell loss and severe impairment of neurocognitive function. The continued occurrence of seizure activity
also increases the probability of subsequent epileptic events through sensitization mechanisms called seizure kindling. Seizures
that are unresponsive to anti-epileptic treatments are life-disrupting and life-threatening with broad health, life, and economic
consequences.
Like
many diseases, epilepsy is still remarkably underserved by currently available medicines. Pharmaco-resistance to anticonvulsant
therapy continues to be one of the key obstacles to the treatment of epilepsy. Although many anticonvulsant drugs are approved
to decrease seizure probability, seizures are not fully-controlled and patients are generally maintained daily on multiple antiepileptic
drugs with the hope of enhancing the probability of seizure control. Despite this polypharmacy approach, as many as 60 to 70%
of patients continue to have seizures. As a result of the lack of seizure control, pharmaco-resistant epilepsy patients, including
young children, sometimes require and elect to have invasive therapeutic procedures such as surgical resection or disconnection
(Hwang and Kim, 2019).
Despite
the availability of a host of marketed drugs of different mechanistic classes, the lack of seizure control in patients is the
primary factor driving the need for improved antiepileptic drugs emphasized by researchers and patient advocacy communities (e.g.,
http://advocacy.epilepsy.com). Increasing inhibitory tone in the central nervous system through enhancement of GABAergic inhibition
is a proven mechanism for seizure control. However, GABAergic medications also exhibit liabilities that limit their antiepileptic
potential. Tolerance develops to GABAergic drugs such as benzodiazepines, limiting their use in a chronic setting. These drugs
can produce cognitive impairment, somnolence, sedation, tolerance and withdrawal seizures that create dosing limitations such
that they are generally used only for acute convulsive episodes.
KRM-II-81
has demonstrated efficacy in multiple rodent models and measures of antiepileptic drug efficacy in vivo. This includes
9 acute seizure provocation models in mice and rats, 4 seizure sensitization models in rats and mice, 2 models of chronic epilepsy,
and 3 models specifically testing pharmaco-resistant antiepileptic drug efficacy. Because it appears to have a greatly reduced
side effect liability, it might be possible to use higher, more effective doses that standard of care medications. Predictions
of superior efficacy of KRM-II-81 over standard of care anti-epileptics comes from the efficacy of this compound across a broad
range of epileptic modeling conditions. Importantly, KRM-II-81 has been shown to be effective in models assessing pharmaco-resistant
epilepsy. Under these conditions, KRM-II-81 is efficacious in cases where standard of care medicines do not work.
In
the absence of seizure control by anti-epileptics, surgical resection of affected brain tissue and associated neural circuits
is one potential alternative to help with the control of seizures. In the process of this surgery, epileptic brain tissue can
become available for research into epileptic mechanisms and the identification of novel antiepileptic drugs. The anticonvulsant
action of KRM-II-81 was confirmed by microelectrode recordings from slices obtained from freshly excised cortex from epileptic
patients where KRM-II-81 suppressed epileptiform electrical activity. While preliminary, these translational data lend considerable
support to the further development of KRM-II-81 for the treatment of epilepsy.
Pain
It
is impossible not to be aware of the crisis that the “opioid epidemic” has created in the treatment of chronic pain.
While there is no question as to their efficacy, the clinical use of opiates is severely limited due to the rapid development
of tolerance and the production of respiratory depression, the major cause of opioid-induced lethality. Research programs are
underway nationwide to discover and develop new non-opioid drugs that are effective analgesics without the tolerance and abuse
liability ascribed to the opioids. Chronic pain is especially difficult to treat due to its complex nature with a variety of different
etiologies. For example, chronic pain may be produced by injury, surgery, the inflammation produced by arthritis or by certain
drugs such as cancer chemotherapeutics. For these reasons, management and control of chronic pain continues to be a serious gap
in medical practice with multiple alternative medicines that either lack critical efficacy and/or produce unacceptable side-effects.
Data
from both preclinical and clinical studies are consistent with the idea that GABAergic neurotransmission is an important regulatory
mechanism for the control of pain. Gabapentin (Neurontin) and pregabalin (Lyrica) two commonly used drugs for the treatment of
chronic pain are believed to produce their analgesic effects by enhancing GABAergic neurotransmission. However, although they
have received FDA approval, the clinical results have not been overwhelming. In a published review of 37 clinical trials in which
gabapentin was compared to placebo in a total of 5914 patients with neuropathic pain, 30% of patients with chronic pain caused
by shingles reported a pain reduction of >50% as compared to 30% for patients receiving placebo. icergIn patients with
neuropathic pain caused by diabetes, 40% reported a pain reduction of >50% as compared to 20% for patients receiving
placebo. The most common side effects produced by gabapentin were sedation, dizziness and problems walking. It is uncertain whether
greater efficacy was not observed because of poor intrinsic pharmacological efficacy or insufficient dosages due to dose limiting
side effects.
An
alternate approach to enhancing GAGAergic neurotransmission, is the use of GABA-A PAMs. This approach has been under-utilized
because of the general lack of efficacy of the 1,4-benzodiazepine GABA modulators. However, a strong case for the potential value
of subtype selective GABA-A PAMs for the treatment of pain can be made. First, GABA-A receptor regulated pathways are integral
to pain processing with α2/3 containing GABA-A receptor subtypes present on nerve pathways modulating pain sensation and
perception. Second, we believe that the analgesic properties of benzodiazepines may be masked by concurrent activation of other
receptor subtypes that mediate the side effects. Diazepam has been reported to produce maximal analgesia if the side effects are
attenuated by GABA-A subtype genetic manipulation. Third, predecessor compounds, made by Dr. Cook, that selectively amplify α2/3-
GABA-A receptor signaling are effective in pain models in rodents at doses lower than those producing motor side effects.
In
a number of laboratory procedures, KRM-II-81has been shown to selectively bind to α2/3- GABA-A receptors and enhance GAGAergic
neurotransmission. In rodents, KRM-II-81 facilitated GABA-A neurotransmission in the dorsal root ganglion, a primary sensory relay
in the pain pathway. In addition, oral administration of KRM-II-81 to rats attenuated formalin-induced pain behaviors and the
chronic pain engendered by chronic spinal nerve ligation. KRM-II-81 was also active against acute pain provocation (e.g., acid-induced
pain) and inflammatory pain. More recently, KRM-II-81 was shown to be effective against chronic pain induced by a chemotherapeutic
agent. Sub-chronic dosing for 22 days with KRM-II-81 and the structural analog, MP-III-80, demonstrated enduring analgesic efficacy
without tolerance development. In contrast, tolerance developed to the analgesic effects of gabapentin. At a dose that produces
maximal analgesic effect in an inflammatory chronic pain model, KRM-II-81 does not substitute for the benzodiazepine, midazolam,
in a drug discrimination assay, suggesting a reduced abuse liability. Furthermore, KRM-II-81 did not produce the respiratory depression
observed with alprazolam, a major problem with benzodiazepines leading to emergency room visits and overdose (Warner et al,
2016).
We
believe that the ability to attenuate both acute and chronic pain combined with a greatly reduced side effect profile, a lack
of tolerance and a reduced abuse potential makes KRM-II-81a promising clinical lead and a potential advance in pain therapeutics.
Results from preliminary chemistry, metabolism and pharmacokinetic studies support its further development.
Competition
The
pharmaceutical industry is characterized by intensive research efforts, rapidly advancing technologies, intense competition and
a strong emphasis on proprietary therapeutics. Our competitors include many companies, research institutes and universities that
are working in a number of pharmaceutical or biotechnology disciplines to develop therapeutic products similar to those we are
currently investigating. Most of these competitors have substantially greater financial, technical, manufacturing, marketing,
distribution and/or other resources than we do. In addition, many of our competitors have experience in performing human clinical
trials of new or improved therapeutic products and obtaining approvals from the FDA and other regulatory agencies. We have no
experience in conducting and managing later-stage clinical testing or in preparing applications necessary to obtain regulatory
approvals. We expect that competition in this field will continue to intensify.
Regulation
The
FDA and other similar agencies in foreign countries have substantial requirements for therapeutic products. Such requirements
often involve lengthy and detailed laboratory, clinical and post-clinical testing procedures and are expensive to complete. It
often takes companies many years to satisfy these requirements, depending on the complexity and novelty of the product. The review
process is also extensive, which may delay the approval process further. Failure to comply with applicable FDA or other requirements
may subject a company to a variety of administrative or judicial sanctions, such as the FDA’s refusal to approve pending
applications, a clinical hold, warning letters, recall or seizure of products, partial or total suspension of production, withdrawal
of the product from the market, injunctions, fines, civil penalties or criminal prosecution.
FDA
approval is required before any new drug or dosage form, including the new use of a previously approved drug, can be marketed
in the United States. Other similar agencies in foreign countries also impose substantial requirements.
The
process of developing drug candidates normally begins with a discovery process of potential candidates that are then initially
tested in in vitro and in vivo non-human animal (preclinical) studies which include, but are not limited to toxicity
and other safety related studies, pharmacokinetics, pharmacodynamics and ADME (absorption, distribution, metabolism, excretion).
Once sufficient preclinical data are obtained, a company must submit an IND and receive authorization from the FDA in order to
begin clinical trials in the United States. Successful drug candidates then move into human studies that are characterized generally
as Phase 1, Phase 2 and Phase 3. Phase 1 studies seeking safety and other data normally utilize healthy volunteers. Phase 2 studies
utilize one or more prospective patient populations and are designed to establish safety and preliminary measures of efficacy.
Sometimes studies may be referred to as Phase 2A and 2B depending on the size of the patient population. Phase 3 studies are large
trials in the targeted patient population, performed in multiple centers, often for longer periods of time and are designed to
establish statistically significant efficacy as well as safety in the larger population. Most often the FDA and similar regulatory
agencies in other countries require two confirmatory Phase 3 or pivotal studies. Upon completion of both the preclinical and clinical
phases, an NDA (New Drug Application) is filed with the FDA or a similar filing is made to the regulatory authority in other countries.
NDA filings are extensive and include the data from all prior studies. These filings are reviewed by the FDA and, only if approved,
may the company or its partners commence marketing of the new drug in the United States.
There
also are variations of these procedures. For example, companies seeking approval for new indications for an already approved drug
may choose to pursue an abbreviated approval process such as the filing for an NDA under Section 505(b)(2). Another example would
be a Supplementary NDA (“SNDA”). A third example would be an Abbreviated NDA (“ANDA”) claiming bio-equivalence
to an already approved drug and claiming the same indications such as in the case of generic drugs. Other opportunities allow
for accelerated review and approval based upon several factors, including potential fast-track status for serious medical conditions
and unmet medical needs, potential breakthrough therapy designation of the drug for serious conditions where preliminary evidence
shows that the drug may show substantial improvement over available therapy or orphan designation (generally, an orphan indication
in the United States is one with a patient population of less than 200,000).
As
of yet, we have not obtained any approvals to market our products. Further, we cannot assure you that the FDA or other regulatory
agency will grant us approval for any of our products on a timely basis, if at all. Even if regulatory clearances are obtained,
a marketed product is subject to continual review, and later discovery of previously unknown problems may result in restrictions
on marketing or withdrawal of the product from the market.
The
recent COVID-19 pandemic has made it very difficult to recruit subjects and patients and to conduct clinical trials in general.
Given the public health emergency during the winter and spring of 2020, the FDA issued guidance to be implemented without the
normal prior public comment period as the FDA had concluded that public participation would not be feasible or appropriate. Guidance
is not legally enforceable, but the FDA recommends the following of its guidance. Challenges are expected to arise from quarantines,
site closures, travel limitations, interruptions to the supply chain for investigational products, or other considerations if
site personnel or trial subjects become infected with COVID-19. These challenges may lead to difficulties in meeting protocol-specified
procedures. The FDA emphasized that safety of trial participants is critically important. Decisions to continue or discontinue
individual patients or the trial are expected to be made by trial sponsors in consultation with clinical investors and Institutional
Review Boards. COVID-19 screening procedures may need to be implemented. As challenging as the clinical trial process is during
normal times, the risks, strategic and operational challenges and the costs of conducting such trials has increased substantially
during the pandemic.
See
“Risk Factors—Risks related to our business—We are at an early stage of development and we may not be
able to successfully develop and commercialize our products and technologies.”
Manufacturing
We
have no experience or capability to either manufacture bulk quantities of the new compounds that we develop, or to produce finished
dosage forms of the compounds, such as tablets or capsules. We rely, and presently intend to continue to rely, on the manufacturing
and quality control expertise of contract manufacturing organizations (see below with respect to dronabinol) or current and prospective
corporate partners. There is no assurance that we will be able to enter into manufacturing arrangements to produce bulk quantities
of our compounds on favorable financial terms. There is generally, absent any disruptions that may be caused by
the current pandemic, substantial availability of both bulk chemical manufacturing and dosage form manufacturing capability throughout
the world that we believe we can readily access.
On
September 4, 2018, RespireRx entered into a dronabinol Development and Supply Agreement with Noramco Inc., one of the world’s
major dronabinol manufacturers, which Noramco subsequently assigned to its subsidiary, Purisys LLC. Under the terms of the Agreement,
Noramco agreed to (i) provide all of the active pharmaceutical ingredient (“API”) estimated to be needed for the clinical
development process for both the first- and second-generation products (each a “Product” and collectively, the “Products”),
three validation batches for New Drug Application (“NDA”) filing(s) and adequate supply for the initial inventory
stocking for the wholesale and retail channels, subject to certain limitations, (ii) maintain or file valid drug master files
(“DMFs”) with the FDA or any other regulatory authority and provide the Company with access or a right of reference
letter entitling the Company to make continuing reference to the DMFs during the term of the agreement in connection with any
regulatory filings made with the FDA by the Company, (iii) participate on a development committee, and (iv) make available its
regulatory consultants, collaborate with any regulatory consulting firms engaged by the Company and participate in all FDA or
Drug Enforcement Agency (“DEA”) meetings as appropriate and as related to the API. We now refer to the second-generation
product as our proprietary formulation or proprietary product and have de-emphasized the first-generation product.
In
consideration for these supplies and services, the Company has agreed to purchase exclusively from Noramco during the commercialization
phase all API for its Products (as defined in the Development and Supply Agreement) at a pre-determined price subject to certain
producer price adjustments and agreed to Noramco’s participation in the economic success of the commercialized Product or
Products up to the earlier of the achievement of a maximum dollar amount or the expiration of a period of time.
See
“Risk Factors—Risks related to our business—We are at an early stage of development and we may not be
able to successfully develop and commercialize our products and technologies” for a discussion of certain risks related
to the development and commercialization of our products.
Marketing
We
have no experience in the marketing of pharmaceutical products and do not anticipate having the resources to distribute and broadly
market any products that we may develop. We will therefore continue to seek commercial development arrangements with other pharmaceutical
companies for our proposed products for those indications that require significant sales forces to effectively market. In entering
into such arrangements, we may seek to retain the right to promote or co-promote products for certain of the orphan drug indications
in North America. We believe that there is a significant expertise base for such marketing and sales functions within the pharmaceutical
industry and expect that we could recruit such expertise if we choose to directly market a drug.
See
“Risk Factors—Risks related to our business—We are at an early stage of development and we may not be
able to successfully develop and commercialize our products and technologies” for a discussion of certain risks related
to the marketing of our products.
Employees
As
of December 31, 2019 and as of the date of filing of this Annual Report on Form 10-K, the Company employed three people (all officers),
two of whom were full time. The Company also engages certain contractors who provide substantial services to the Company.
Technology
Rights
University
of Illinois License Agreement
In
August 2012, RespireRx acquired Pier Pharmaceuticals, Inc. (“Pier”), which is now its wholly-owned subsidiary.
Through
the merger, RespireRx gained access to an Exclusive License Agreement (as amended, the “2007 License Agreement”) that
Pier had entered into with UIC on October 10, 2007. The 2007 License Agreement covered certain patents and patent applications
in the United States and other countries claiming the use of certain compounds referred to as cannabinoids, of which dronabinol
is a specific example, for the treatment of sleep-related breathing disorders (including sleep apnea). Pier’s business plan
was to determine whether dronabinol would significantly improve subjective and objective clinical measures in patients with OSA.
The
2007 License Agreement was terminated effective March 21, 2013 and the Company entered into a new license agreement (the “2014
License Agreement”) with UIC on June 27, 2014, the material terms of which were substantially similar to the 2007 License
Agreement. The 2014 License Agreement grants the Company, among other provisions, exclusive rights: (i) to practice certain patents
in the United States, Germany and the United Kingdom, as defined in the 2014 License Agreement, that are held by UIC; (ii) to
identify, develop, make, have made, import, export, lease, sell, have sold or offer for sale any related licensed products; and
(iii) to grant sub-licenses of the rights granted in the 2014 License Agreement, subject to the provisions of the 2014 License
Agreement. The Company is required under the 2014 License Agreement, among other terms and conditions, to pay UIC a license fee,
royalties, patent costs and certain milestone payments.
University
of Alberta License Agreement and Research Agreement
By
letter dated May 18, 2018, the Company received notice from counsel claiming to represent TEC Edmonton and The Governors of the
University of Alberta, which purported to terminate, effective December 12, 2017, the license agreement dated May 9, 2007 between
the Company and The Governors of the University of Alberta. The Company, through its counsel, disputed any grounds for termination
and notified the representative that it invoked Section 13 of that license agreement, which mandates a meeting to be attended
by individuals with decision-making authority to attempt in good faith to negotiate a resolution to the dispute. In February 2019,
the Company and TEC Edmonton tentatively agreed to terms acceptable to all parties to establish a new license agreement and the
form of a new license agreement. However, after reaching that tentative Agreement, the Company re-evaluated that portion
of its ampakine program and has decided not to enter into a new agreement at this time. The lack of entry into a new agreement
at this time does not affect the Company’s other ampakine programs and permits the Company to reallocate resources to those
programs, including, but not limited to ADHD, SCI, FXS and CNS-driven disorders.
Research
and Development Expenses
The
Company invested $599,329 and $688,285 in research and development in 2019 and 2018, respectively. Of those amounts, $490,908
and $495,638 were incurred with related parties in 2019 and 2018, respectively. See our consolidated financial statements
for the years ended December 31, 2019 and 2018 included in this Annual Report on Form 10-K.
Item
1A. Risk Factors
In
addition to the other matters set forth in this Annual Report on Form 10-K, our continuing operations and the price of our common
stock are subject to the following risks:
Risks
related to our business
Our
independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.
In
its audit opinion issued in connection with our consolidated financial statements as of December 31, 2019 and 2018, our
independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern
given our limited working capital, recurring net losses and negative cash flows from operations. The accompanying consolidated
financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might be necessary
should we be unable to continue in existence. While we have relied principally in the past on external financing to provide liquidity
and capital resources for our operations, we can provide no assurance that cash generated from our operations together with cash
received in the future from external financing, if any, will be sufficient to enable us to continue as a going concern.
We
have a history of net losses; we expect to continue to incur net losses and we may never achieve or maintain profitability.
Since
our formation on February 10, 1987 through the end of our most recent fiscal year ended December 31, 2019, we have generated only
minimal operating revenues. For the fiscal year ended December 31, 2019, our net loss was $2,115,033 and as of December 31, 2019,
we had an accumulated deficit of $166,509,085. We have not generated any revenue from product sales to date, and it is possible
that we will never generate revenues from product sales in the future. Even if we do achieve significant revenues from product
sales, we expect to continue to incur significant net losses over the next several years. As with other biotechnology companies,
it is possible that we will never achieve profitable operations.
We
will need additional capital in the near term and the future and, if such capital is not available on terms acceptable to us or
available to us at all, we may need to scale back our research and development efforts and may be unable to continue our business
operations.
We
require additional cash resources for basic operations and will require substantial additional funds to advance our research and
development programs and to continue our operations, particularly if we decide to independently conduct later-stage clinical testing
and apply for regulatory approval of any of our proposed products, and if we decide to independently undertake the marketing and
promotion of our products. Additionally, we may require additional funds in the event that we decide to pursue strategic acquisitions
of or licenses for other products or businesses. Based on our operating plan as of December 31, 2019, we estimated that our existing
cash resources will not be sufficient to meet our requirements for 2020. We also need additional capital in the near term to fund
on-going operations including basic operations. Additional funds may come from the sale of common equity, preferred equity, convertible
preferred equity or equity-linked securities, debt, including debt convertible into equity, or may result from agreements with
larger pharmaceutical companies that include the license or rights to the technologies and products that we are currently developing,
although there is no assurance that we will secure any such funding or other transaction in a timely manner, or at all.
Our
cash requirements in the future may differ significantly from our current estimates, depending on a number of factors, including:
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Our
ability to raise equity or debt capital, or our ability to obtain in-kind services which may be more difficult during the
current pandemic health crisis;
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the
results of our clinical trials;
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the
time and costs involved in obtaining regulatory approvals;
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the
costs of setting up and operating our own marketing and sales organization;
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the
ability to obtain funding under contractual and licensing agreements;
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the
costs involved in obtaining and enforcing patents or any litigation by third parties regarding intellectual property;
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the
costs involved in meeting our contractual obligations including employment agreements; and
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our
success in entering into collaborative relationships with other parties.
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To
finance our future activities, we may seek funds through additional rounds of financing, including private or public equity or
debt offerings and collaborative arrangements with corporate partners. We may also seek to exchange or restructure some of our
outstanding securities to provide liquidity, strengthen our balance sheet and provide flexibility. We cannot say with any certainty
that these measures will be successful, or that we will be able to obtain the additional needed funds on reasonable terms, or
at all. The sale of additional equity or convertible debt securities could result in additional and possibly substantial dilution
to our stockholders. If we issued preferred equity or debt securities, these securities could have rights superior to holders
of our common stock, and such instruments entered into in connection with the issuance of securities could contain covenants that
will restrict our operations. We might have to obtain funds or in-kind services through arrangements with collaborative partners
or others that may require us to relinquish rights to our technologies, product candidates or products that we otherwise would
not relinquish. If adequate funds are not available in the future, as required, we could lose our key employees and might have
to further delay, scale back or eliminate one or more of our research and development programs, which would impair our future
prospects. In addition, we may be unable to meet our research spending obligations under our existing licensing agreements and
may be unable to continue our business operations.
Our
product opportunities rely on licenses from research institutions and if we lose access to these technologies or applications,
our business could be substantially impaired.
Through
the merger with Pier, the Company gained access to a 2007 Exclusive License Agreement (as amended, the “2007 License Agreement”),
that Pier had entered into with UIC on October 10, 2007. The 2007 License Agreement covered certain patents and patent applications
in the United States and other countries claiming the use of certain compounds referred to as cannabinoids for the treatment of
sleep related breathing disorders (including sleep apnea), of which dronabinol is a specific example of one type of cannabinoid.
Dronabinol is a synthetic derivative of the naturally occurring substance in the cannabis plant, otherwise known as Δ9-THC
(Δ9-tetrahydrocannabinol). Dronabinol is currently approved by the FDA and is sold generically for use in chemotherapy-induced
nausea and vomiting, as well as for anorexia in patients with AIDS. Pier’s business plan was to determine whether dronabinol
would significantly improve subjective and objective clinical measures in patients with obstructive sleep apnea. In addition,
Pier intended to evaluate the feasibility and comparative efficacy of a proprietary formulation of dronabinol. The 2007 License
Agreement was terminated effective March 21, 2013 due to the Company’s failure to make a required payment and on June 27,
2014, the Company entered into the 2014 License Agreement with UIC that was similar, but not identical, to the 2007 License Agreement
that had been terminated. If we are unable to comply with the terms of the 2014 License Agreement, such as required payments thereunder,
the 2014 License Agreement might be terminated.
On
May 9, 2007, the Company entered into a license agreement with The Governors of the University of Alberta, as subsequently amended,
granting he Company exclusive rights to practice patents held by the University of Alberta claiming the use of ampakines for the
treatment of various respiratory disorders. By letter dated May 18, 2018, the Company received notice from counsel claiming to
represent TEC Edmonton and The Governors of the University of Alberta, which purports to terminate, effective December 12, 2017,
the license agreement dated May 9, 2007 between the Company and The Governors of the University of Alberta. The Company, through
its counsel, disputed any grounds for termination and notified the representative that it invoked Section 13 of that license agreement,
which mandates a meeting to be attended by individuals with decision-making authority to attempt in good faith to negotiate a
resolution to the dispute. In February 2019, the Company and TEC Edmonton, in February 2019, tentatively agreed to terms acceptable
to all parties to establish a new license agreement and the form of a new license agreement. However, after reaching that tentative
agreement, the Company re-evaluated that portion of its ampakine program and has decided not to enter into a new agreement at
this time. The lack of entry into a new agreement at this time does not affect the Company’s other ampakine programs and
permits the Company to reallocate resources to those programs, including, but not limited to ADHD, SCI, FXS and CNS-driven disorders.
We
may not be able to successfully develop and commercialize our proposed products and technologies.
The
development of cannabinoid products and ampakine products is subject to the risks of failure commonly experienced in the development
of products based upon innovative technologies and the expense and difficulty of obtaining approvals from regulatory agencies.
Drug discovery and development is time consuming, expensive and unpredictable. On average, only one out of many thousands of chemical
compounds discovered by researchers proves to be both medically effective and safe enough to become an approved medicine. All
of our proposed products are in the preclinical or early to mid-clinical stage of development and will require significant additional
funding for research, development and clinical testing, which may not be available on favorable terms or at all, before we are
able to submit them to any of the regulatory agencies for clearances for commercial use.
The
process from discovery to development to regulatory approval can take several years and drug candidates can fail at any stage
of the process. Late stage clinical trials often fail to replicate results achieved in earlier studies. In a recent study (in
the journal BioStatistics, Volume 20, Issue 2, April 2019, pp 273-286) covering approximately 16 years of clinical trial data
(both company sponsored clinical trials and non-company sponsored trials), the authors showed transitional success rates from
Phase 1 to Phase 2 of 66.4% (failure rate of 33.6%), from Phase 2 to Phase 3 of 58.3% (failure rate of 41.7%) and from Phase 3
to approval of 59.0% (failure rate of 41%). Other studies have shown lower success and higher failure rates. We cannot assure
you that we will be able to complete successfully any of our research and development activities including those described above
under PART I. Item 1. Business - Development Goals.
Even
if we do complete them, we may not be able to market successfully any of the products or be able to obtain the necessary regulatory
approvals or assure that healthcare providers and payors will accept our products. We also face the risk that any or all of our
products will not work as intended or that they will be unsafe, or that, even if they do work and are safe, that our products
will be uneconomical to manufacture and market on a large scale. Due to the extended testing and regulatory review process required
before we can obtain marketing clearance, we do not expect to be able to commercialize any therapeutic drug for several years,
either directly or through our corporate partners or licensees.
COVID-19
pandemic may affect our ability to successfully develop and commercialize our proposed products and technologies.
The
recent COVID-19 pandemic has made it very difficult to recruit subjects and patients and to conduct clinical trials in general.
Given the public health emergency during the winter and spring of 2020, the FDA issued guidance to be implemented without the
normal prior public comment period as the FDA had concluded that public participation would not be feasible or appropriate. Guidance
is not legally enforceable, but the FDA recommends following its guidance. Challenges are expected to arise from quarantines,
site closures, travel limitations, interruptions to the supply chain for investigational products, or other considerations if
site personnel or trial subjects become infected with COVID-19. These challenges may lead to difficulties in meeting protocol-specified
procedures. The FDA emphasized that safety of trial participants is critically important. Decisions to continue or discontinue
individual patients or the trial are expected to be made by trial sponsors in consultation with clinical investors and Institutional
Review Boards. COVID-19 screening procedures may need to be implemented. As challenging as the clinical trial process is during
normal times, the risks, strategic and operational challenges and the costs of conducting such trials has increased substantially
during the pandemic.
We
may not be able to enter into the strategic alliances necessary to fully develop and commercialize our products and technologies,
and we will be dependent on our strategic partners if we do.
We
are seeking pharmaceutical company and other strategic partners to participate with us in the development of major indications
for the cannabinoids and neuromodulator compounds. These agreements would potentially provide us with additional funds or in-kind
services in exchange for exclusive or non-exclusive license or other rights to the technologies and products that we are currently
developing. Competition between biopharmaceutical companies for these types of arrangements is intense. We cannot give any assurance
that our discussions with candidate companies will result in an agreement or agreements in a timely manner, or at all. Additionally,
we cannot assure you that any resulting agreement will generate sufficient revenues to offset our operating expenses and longer-term
funding requirements.
If
our third-party manufacturers’ facilities do not follow current good manufacturing practices, our product development and
commercialization efforts may be harmed.
There
are a limited number of manufacturers that operate under the FDA’s and European Union’s good manufacturing practices
regulations and are capable of manufacturing products like those we are developing. Third-party manufacturers may encounter difficulties
in achieving quality control and quality assurance and may experience shortages of qualified personnel. A failure of third-party
manufacturers to follow current good manufacturing practices or other regulatory requirements and to document their adherence
to such practices may lead to significant delays in the availability of products for commercial use or clinical study, the termination
of, or hold on, a clinical study, or may delay or prevent filing or approval of marketing applications for our products. In addition,
we could be subject to sanctions, including fines, injunctions and civil penalties. Changing manufacturers may require additional
clinical trials and the revalidation of the manufacturing process and procedures in accordance with FDA mandated current good
manufacturing practices and would require FDA approval. This revalidation may be costly and time consuming. If we are unable to
arrange for third-party manufacturing of our products, or to do so on commercially reasonable terms, we may not be able to complete
development or marketing of our products.
Our
ability to use our net operating loss carry forwards will be subject to limitations upon a change in ownership, which could reduce
our ability to use those loss carry forwards following any change in Company ownership.
Generally,
a change of more than 50% in the ownership of a Company’s stock, by value, over a three-year period constitutes an ownership
change for U.S. federal income tax purposes. An ownership change may limit our ability to use our net operating loss carry forwards
attributable to the period prior to such change. We have sold or otherwise issued shares of our common stock in various transactions
sufficient to constitute an ownership change. As a result, if we earn net taxable income in the future, our ability to use our
pre-change net operating loss carry forwards to offset U.S. federal taxable income will be subject to limitations, which would
restrict our ability to reduce future tax liability. Future shifts in our ownership, including transactions in which we may engage,
may cause additional ownership changes, which could have the effect of imposing additional limitations on our ability to use our
pre-change net operating loss carry forwards.
Risks
related to our industry
If
we fail to secure adequate intellectual property protection, it could significantly harm our financial results and ability to
compete.
Our
success will depend, in part, on our ability to obtain and maintain patent protection for our products and processes in the United
States and elsewhere. We have filed and intend to continue to file patent applications as we need them. However, additional patents
that may issue from any of these applications may not be sufficiently broad to protect our technology. Also, any patents issued
to us or licensed by us may be designed around or challenged by others, and if such design or challenge is effective, it may diminish
our rights and negatively affect our financial results.
If
we are unable to obtain and maintain sufficient protection of our proprietary rights in our products or processes prior to or
after obtaining regulatory clearances, our competitors may be able to obtain regulatory clearance and market similar or competing
products by demonstrating at a minimum the equivalency of their products to our products. If they are successful at demonstrating
at least the equivalency between the products, our competitors would not have to conduct the same lengthy clinical tests that
we have or will have conducted.
We
also rely on trade secrets and confidential information that we protect by entering into confidentiality agreements with other
parties. Those confidentiality agreements could be breached, and our remedies may be insufficient to protect the confidential
information. Further, our competitors may independently learn our trade secrets or develop similar or superior technologies. To
the extent that our consultants, key employees or others apply technological information independently developed by them or by
others to our projects, disputes may arise regarding the proprietary rights to such information or developments. We cannot assure
you that such disputes will be resolved in our favor.
We
may be subject to potential product liability claims. One or more successful claims brought against us could materially adversely
affect our business and financial condition.
The
clinical testing, manufacturing and marketing of our products may expose us to product liability claims. We have never been subject
to a product liability claim, and we require each patient in our clinical trials to sign an informed consent agreement that describes
the risks related to the trials, but we cannot assure you that the coverage limits of our insurance policies will be adequate
or that one or more successful claims brought against us would not have a material adverse effect on our business, financial condition
and result of operations. Further, if one of our cannabinoid or ampakine compounds is approved by the FDA for marketing, we cannot
assure you that adequate product liability insurance will be available, or if available, that it will be available at a reasonable
cost. Any adverse outcome resulting from a product liability claim could have a material adverse effect on our business, financial
condition and results of operations.
We
face intense competition, and our competitors may develop products that are superior to those we are developing.
Our
business is characterized by intensive research efforts. Our competitors include many companies, research institutes and universities
that are working in a number of pharmaceutical or biotechnology disciplines to develop therapeutic products similar to those we
are currently investigating. Most of these competitors have substantially greater financial, technical, manufacturing, marketing,
distribution and/or other resources than we do. In addition, many of our competitors have experience in performing human clinical
trials of new or improved therapeutic products and obtaining approvals from the FDA and other regulatory agencies. We have limited
experience in conducting and managing later-stage clinical testing or in preparing applications necessary to obtain regulatory
approvals. Although we have engaged regulatory consultants and contract research organizations to assist us in such endeavors,
it is possible that our competitors may succeed in developing products, or may obtain FDA approvals for their products faster
than we can and/or such competitors may develop products that are safer or more effective than those that we are developing. We
expect that competition in this field will continue to intensify.
We
may be unable to recruit and retain our senior management and other key technical personnel on whom we are dependent.
We
are highly dependent upon senior management and key technical personnel and currently do not carry any insurance policies on such
persons. In particular, we are highly dependent on Arnold S. Lippa, Ph.D., our Interim Chief Executive Officer, Interim President,
Chief Scientific Officer and Executive Chairman, Jeff E. Margolis, our Senior Vice President, Chief Financial Officer, Treasurer
and Secretary, and Richard Purcell, our Senior Vice President of Research and development. Competition for qualified employees
among pharmaceutical and biotechnology companies is intense. The loss of any of our senior management or other key employees,
or our inability to attract, retain and motivate the additional or replacement highly skilled employees and consultants that our
business requires, could substantially hurt our business prospects.
The
regulatory approval process is expensive, time consuming, uncertain and may prevent us from obtaining required approvals for the
commercialization of some of our products.
The
FDA and other similar agencies in foreign countries have substantial requirements for therapeutic products. Such requirements
often involve lengthy and detailed laboratory, clinical and post-clinical testing procedures and are expensive to complete. It
often takes companies many years to satisfy these requirements, depending on the complexity and novelty of the product. The review
process is also extensive, which may delay the approval process even more.
As
of yet, we have not obtained any approvals to market our products. Further, we cannot assure you that the FDA or other regulatory
agency will grant us approval for any of our products on a timely basis, if at all. Even if regulatory clearances are obtained,
a marketed product is subject to continual review, and later discovery of previously unknown problems may result in restrictions
on marketing or withdrawal of the product from the market.
Risks
related to capital structure
Our
stock price is volatile and our common stock could decline in value.
The
market price of securities of life sciences companies in general has been very unpredictable. The range of sales prices of our
common stock for the fiscal years ended December 31, 2019 and 2018, as quoted on the OTC QB, was $0.0771 to $0.8500 and $0.4000
to $2.9000, respectively. The following factors, in addition to factors that affect that market generally, could significantly
affect our business, and the market price of our common stock could decline:
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competitors
announcing technological innovations or new commercial products;
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competitors’
publicity regarding actual or potential products under development;
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regulatory
developments in the United States and foreign countries;
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legal
developments regarding cannabinoids and cannabis products in the United States and foreign countries
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developments
concerning proprietary rights, including patent litigation;
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public
concern over the safety of therapeutic products; and
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changes
in healthcare reimbursement policies and healthcare regulations.
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Our
common stock is thinly traded and you may be unable to sell some or all of your shares at the price you would like, or at all,
and sales of large blocks of shares may depress the price of our common stock.
Our
common stock has historically been sporadically or “thinly-traded,” meaning that the number of persons interested
in purchasing shares of our common stock at prevailing prices at any given time may be relatively small or nonexistent. As a consequence,
there may be periods of several days or more when trading activity in shares of our common stock is minimal or non-existent, as
compared to a seasoned issuer that has a large and steady volume of trading activity that will generally support continuous sales
without an adverse effect on share price. This could lead to wide fluctuations in our share price. You may be unable to sell your
common stock at or above your purchase price, which may result in substantial losses to you. Also, as a consequence of this lack
of liquidity, the trading of relatively small quantities of shares by our stockholders may disproportionately influence the price
of shares of our common stock in either direction. The price of shares of our common stock could, for example, decline precipitously
in the event a large number of shares of our common shares are sold on the market without commensurate demand, as compared to
a seasoned issuer which could better absorb those sales without adverse impact on its share price.
There
is a large number of shares of the Company’s common stock that may be issued or sold, and if such shares are issued or sold,
the market price of our common stock may decline.
As
of December 31, 2019, we had 4,175,072 shares of our common stock outstanding.
If
all warrants and options outstanding as of December 31, 2019 were exercised prior to their respective expiration dates, up to
6,478,652 additional shares of our common stock could become freely tradable. The issuance of such shares would dilute the interests
of the current stockholders and sales of substantial amounts of common stock in the public market could adversely affect the prevailing
market price of our common stock and could also make it more difficult for us to raise funds through future offerings of common
stock.
As
of December 31, 2019, there were remaining outstanding convertible notes totaling $551,591 inclusive of accrued interest. Of that
amount, $343,615 was convertible into 7,017,898 shares of common stock and the remainder into an indeterminate number of
shares of common stock as such notes may convert, at the option of each note holder, acting separately and independently of the
other note holders, into the next exempt private securities offering of equity securities.
On
March 22, 2020, four holders of convertible notes convertible into a previously indeterminate number of shares, exchanged $172,911
principal and accrued interest through March 21, 2020, into 11,527,407 shares of common stock. On March 22, 2020, one holder of
a convertible note totaling $82,875 of principal and accrued interest exchanged such holder’s note into 5,525,017 shares
of common stock. On March 22, 2020, two executive officers, each forgave $153,000 of accrued compensation for an aggregate of
$306,000 and received an aggregate of 9,000,000 shares of common stock. As a result, a total of 26,052,424 shares of common stock
were issued on that date.
If
we issue additional equity or equity-based securities, the number of shares of our common stock outstanding could increase substantially,
which could adversely affect the prevailing market price of our common stock and could also make it more difficult for us to raise
funds through future offerings of common stock.
Our
charter document and other governing documents may prevent or delay an attempt by our stockholders to replace or remove management.
Certain
provisions of our restated certificate of incorporation, as amended, could make it more difficult for a third party to acquire
control of our business, even if such change in control would be beneficial to our stockholders. Our restated certificate of incorporation,
as amended, allows the Board of Directors of the Company to issue, as of December 31, 2019, up to 5,000,000 shares of preferred
stock, with characteristics to be determined by the board, without stockholder approval. The ability of our Board of Directors
to issue additional preferred stock may have the effect of delaying or preventing an attempt by our stockholders to replace or
remove existing directors and management.
Historically,
warrants to purchase common stock have been issued as compensation for professional services, typically related to fund raising
or have been issued in connection with the issuance of certain notes.
In
addition, on at least two occasions, certain executive officers, members of the Board of Directors and certain vendors have offered
to forgive accrued compensation and other amounts due to them, and the Board of Directors accepted such offers in exchange for
either shares of common stock or options to purchase common stock. In particular, if executive officers offered and if the Board
of Directors accepts such offer(s) in the future, a significant number of shares of common stock or one or more options to purchase
a significant number of shares of common stock could be issued or granted. The ability of our Board of Directors to issue additional
shares of common stock or options to purchase shares of common stock, or warrants to purchase shares of common stock, may have
the effect of delaying or preventing an attempt by our stockholders to replace or remove existing directors and management.
If
our common stock is determined to be a “penny stock,” a broker-dealer may find it more difficult to trade our common
stock and an investor may find it more difficult to acquire or dispose of our common stock in the secondary market.
In
addition, our common stock may be subject to the so-called “penny stock” rules. The United States Securities and Exchange
Commission (“SEC”) has adopted regulations that define a “penny stock” to be any equity security that
has a market price per share of less than $5.00, subject to certain exceptions, such as any securities listed on a national securities
exchange. For any transaction involving a “penny stock,” unless exempt, the rules impose additional sales practice
requirements on broker-dealers, subject to certain exceptions. If our common stock is determined to be a “penny stock,”
a broker-dealer may find it more difficult to trade our common stock and an investor may find it more difficult to acquire or
dispose of our common stock on the secondary market.
Item
1B. Unresolved Staff Comments
None.
Item
2. Properties
As
of December 31, 2019, the Company did not own any real property or maintain any leases with respect to real property. The Company
periodically contracts for services provided at the facilities owned by third parties and may, from time-to-time, have employees
who work in these facilities.
Item
3. Legal Proceedings
On
March 10, 2020, Sharp Clinical Services, Inc. filed a complaint and summons dated February 21, 2020 in the Superior
Court of New Jersey Law Division, Bergen Count against the Company related to a December 16, 2019 demand for payment of past
due invoices of a vendor inclusive of late fees totaling $103,890 of which $3,631 relates to late fees. The complaint and
summons seeks $100,259 plus 1.5% interest per month on outstanding unpaid invoices. On Friday March 13, 2020, the RespireRx and
its counsel communicated with counsel to this vendor and discussed why a settlement of such matter would be in the best
interests of both parties, but has not yet received a response from this vendor or it’s counsel. As of December 31,
2019, the Company had recorded accounts payable of $99,959 to such vendor an amount considered by the Company to be reasonable
given the ongoing settlement discussions.
On
December 16, 2019, RespireRx and Salamandra, LLC (“Salamandra”) entered into an amendment (the “Amendment”)
to the settlement agreement and release, executed August 21, 2019 (the “Original Settlement Agreement” and as amended,
the “Amended Settlement Agreement”) regarding $202,395 in amounts owed by the Company to Salamandra (as reduced by
any further payments by the Company to Salamandra, the “Full Amount”) in connection with an arbitration award previously
granted in favor of Salamandra in the Superior Court of New Jersey. Under the terms of the Original Settlement Agreement, dated
August 21, 2019, the Company was to pay Salamandra $125,000 on or before November 30, 2019 in full satisfaction of the Full Amount
owed, subject to conditions regarding the Company’s ability to raise certain dollar amounts of working capital. Under the
Amended Settlement Agreement, (i) the Company must pay and the Company paid to Salamandra $25,000 on or before December 21, 2019,
(ii) upon such payment, Salamandra ceased all collection efforts against the Company until March 31, 2020 (the “Threshold
Date”), and (iii) the Company must pay to Salamandra $100,000 on or before the Threshold Date if the Company has at that
time raised $600,000 in working capital. Such payments by the Company would constitute satisfaction of the Full Amount owed and
would serve as consideration for the dismissal of the action underlying the arbitration award and the mutual releases set forth
in the Amended Settlement Agreement. If the Company raises less than $600,000 in working capital before the Threshold Date, the
Company may pay to Salamandra an amount equal to 21% of the working capital amount raised, in which case such payment will reduce
the Full Amount owed on a dollar-for-dollar basis, and Salamandra may then seek collection on the remainder of the debt. The Company
did not make the payment due by March 31, 2020 and has commenced further discussions with Salamandra.
Related
to the above matter, and preceding the settlement discussions, by
letter dated February 5, 2016, the Company received a demand from a law firm representing Salamandra alleging an amount
due and owing for unpaid services rendered. On January 18, 2017, following an arbitration proceeding, an arbitrator awarded the
vendor the full amount sought in arbitration of $146,082. Additionally, the arbitrator granted the vendor attorneys’ fees
and costs of $47,937. All such amounts have been accrued at December 31, 2019 and December 31, 2018, including accrued interest
at 4.5% annually from February 26, 2018, the date of the judgment, through December 31, 2019, totaling $7,470.
We
are periodically subject to various pending and threatened legal actions and claims. See Note 9 in the Notes to our Consolidated
Financial Statements for the years ended December 31, 2019 and 2018—Commitments and Contingencies—Pending
or Threatened Legal Actions and Claims for additional details regarding these matters.
Item
4. Mine Safety Disclosures
Not
applicable.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
Ended December 31, 2019 and 2018
1.
Organization and Basis of Presentation
Organization
RespireRx
Pharmaceuticals Inc. (“RespireRx,” the “Company,” “we” or “our” includes our wholly-owned
subsidiary, Pier Pharmacuticals, Inc., unless the context indicates otherwise) was formed in 1987 under the name Cortex
Pharmaceuticals, Inc. to engage in the discovery, development and commercialization of innovative pharmaceuticals for the treatment
of neurological and psychiatric disorders. On December 16, 2015, RespireRx filed a Certificate of Amendment to its Second Restated
Certificate of Incorporation with the Secretary of State of the State of Delaware to amend its Second Restated Certificate of
Incorporation to change its name from Cortex Pharmaceuticals, Inc. to RespireRx Pharmaceuticals Inc. While previously developing
potential applications for respiratory disorders, RespireRx has retained and expanded its neuromodulator intellectual property
and data with respect to neurological and psychiatric disorders and is considering developing certain potential products in this
platform, if it is able to obtain additional financing and/or strategic relationships.
In
August 2012, RespireRx acquired Pier Pharmaceuticals, Inc. (“Pier”), which is now its wholly-owned subsidiary.
In
March 2020, RespireRx and UWM Research Foundation, an affiliate of the University of Wisconsin-Milwaukee, entered
into an option agreement (“UWMRF Option Agreement”) pursuant to which RespireRx has a six-month option to license
the identified intellectual property pursuant to license terms substantially in the Form of a Patent License Agreement (“UWMRF
License Agreement”) that is attached to the UWMRF Option Agreement as Appendix I. The UWMRF License Agreement, if it becomes
effective, will expand the Company’s neuromodulator program which has historically included the Company’s ampakine
program to include a GABA-A program as well. See Note 10. Subsequent Events.
Basis
of Presentation
The
consolidated financial statements are of RespireRx and its wholly-owned subsidiary, Pier.
2.
Business
The
mission of the Company is to develop innovative and revolutionary treatments to combat disorders caused by disruption of neuronal
signaling. We are developing treatment options that address conditions that affect millions of people, but for which there are
few or poor treatment options, including obstructive sleep apnea (“OSA”), attention deficit hyperactivity disorder
(“ADHD”) and recovery from spinal cord injury (“SCI”), as well as certain neurological orphan diseases
such as Fragile X Syndrome. RespireRx is developing a pipeline of new drug products based on our broad patent portfolios for two
drug platforms: (i) cannabinoids, including dronabinol (a synthetic form of Δ9-THC) that act upon the nervous system’s
endogenous cannabinoid receptors and (ii) neuromodulators, which we now call Project Endeavor, including (a) ampakines, proprietary
compounds that positively modulate AMPA-type glutamate receptors to promote neuronal function and (b) positive allosteric modulators
(“PAMs”) of the gamma-amino-butyric acid subunit A (“GABA-A”) receptors that are the subject of an option
agreement dated March 2, 2020 between the Company and the UWM Research Foundation, Inc. (“UWMRF”), an affiliate of
the University of Wisconsin-Milwaukee. See Note 10. Subsequent Events.
Cannabinoids
With
respect to the cannabinoid platform, two Phase 2 clinical trials have been completed demonstrating the ability of dronabinol to
statistically significantly reduce the symptoms of OSA, which management believes is potentially a multi-billion-dollar market.
Subject to raising sufficient financing (of which no assurance can be provided), we believe that we have put most of the necessary
pieces into place to rapidly initiate a Phase 3 clinical trial program. By way of definition, when a new drug is allowed by the
United States Food and Drug Administration (“FDA”) to be tested in humans, Phase 1 clinical trials are conducted in
healthy people to determine safety and pharmacokinetics. If successful, Phase 2 clinical trials are conducted in patients to determine
safety and preliminary efficacy. Phase 3 trials, large scale studies to determine efficacy and safety, are the final step prior
to seeking FDA approval to market a drug.
With
the cannabinoid platform, we plan to create a wholly-owned private subsidiary of RespireRx (“Newco”, official name
not yet determined) with its own management team and board of directors.
Neuromodulators
– Project Endeavor - Ampakines and GABA-A
Neuromodulators
are chemicals released by neurons that enable neurons to communicate with one another. This process is called neurotransmission.
Neurons release neurotransmitters that attach to a very specific protein structure, termed a receptor, residing on an adjacent
neuron. This neurotransmission process can either increase or decrease the excitability of the neuron receiving the message.
Neuromodulators
do not act directly at the neurotransmitter binding site, but instead act at accessory sites that enhance (Positive Allosteric
Modulators – “PAMs”) or reduce (Negative Allosteric Modulators – “NAMs”) the actions of neurotransmitters
at their primary receptor sites. Neuromodulators have no intrinsic activity of their own. We believe that neuromodulators offer
the possibility of developing “kinder and gentler” neuropharmacological drugs with greater pharmacological specificity
and reduced side effects compared to present drugs, especially in disorders for which there is a significant unmet or poorly met
clinical need such as Attention Deficit Hyperactivity Disorder (“ADHD”), Autism Spectrum Disorder (“ASD”),
Fragile X Syndrome (“FSX”) and CNS-driven disorders. We are focused presently on developing drugs that act as positive
allosteric modulators (“PAM”) at the AMPA and GABA-A receptors.
Building
upon our ampakine platform as a foundation, we also are planning the establishment of a second business unit, which we now call
collectively with the ampakines, Project Endeavor, that will focus on developing novel neuromodulators for disorders due to alterations
in neurotransmission. Through an extensive series of translational studies over a number of years, but numerous researchers and
from the cellular level up to human Phase 2 clinical trials, selected ampakines have demonstrated target site engagement and positive
results in patients with Attention Deficit Hyperactivity Disorder (see below).
Through
an extensive ampakine translational research effort from the cellular level through Phase 2 clinical trials, the Company has developed
a family of novel, low impact ampakines, including CX717, CX1739 and CX1942 that may have clinical application in the treatment
of CNS-driven neurobehavioral and cognitive disorders, spinal cord injury, neurological diseases, and certain orphan indications.
From our ampakine platform, our lead clinical compounds, CX717 and CX1739, have successfully completed multiple Phase 1 safety
trials. Both compounds have also completed Phase 2 efficacy trials demonstrating target engagement, by antagonizing the ability
of opioids to induce respiratory depression. CX717 has successfully completed a Phase 2 trial demonstrating the ability to statistically
significantly reduce the symptoms of adult ADHD. In an early Phase 2 study, CX1739 improved breathing in patients with central
sleep apnea. Preclinical studies have highlighted the potential ability of these ampakines to improve motor function in animals
with spinal injury. Subject to raising sufficient financing (of which no assurance can be provided), we believe that we will be
able to rapidly initiate a human Phase 2 study with CX1739 and/or CX717 in patients with spinal cord injury and a human Phase
2B study in patients with ADHD with either CX717 or CX1739.
In
order to expand the asset base of Project Endeavor, we have entered into an option agreement with UWMRF whereby RespireRx has
a six-month option commencing on March 2, 2020, to license, certain intellectual property regarding chemical compounds that act
as positive allosteric modulators (“PAMs”) at certain specific receptors for gamma-amino-butyric acid type A (“GABA-A”),
a major inhibitory transmitter in the brain (see Subsequent Events). Certain of these compounds have shown impressive activity
in a broad range of animal models of refractory/resistant epilepsy and other convulsant disorders, as well as in brain tissue
samples obtained from epileptic patients in pre-clinical research conducted at the University of Wisconsin-Milwaukee by Drs.
James Cook and Jeffrey Witkin among others and at collaborating institutions. Epilepsy is a chronic and highly prevalent neurological
disorder that affects millions of people world-wide. While many anticonvulsant drugs have been approved to decrease seizure probability,
seizures are not well controlled and, in as many as 60-70% of patients, existing drugs are not efficacious at some point in the
disease progression. We believe that the medical and patient community are in clear agreement that there is desperate need for
improved antiepileptic drugs. In addition, these compounds have shown positive activity in animal models of migraine, inflammatory
and neuropathic pain, as well as other areas of interest. Because of their GABA receptor subunit specificity, the compounds have
a greatly reduced liability to produce sedation, motor incoordination, memory impairments and tolerance, side effects commonly
associated with non-specific GABA PAMs, such as benzodiazepines.
Our
major challenge has been to raise substantial equity or equity-linked financing to support research and development programs for
our two drug platforms, while minimizing the dilutive effect to pre-existing stockholders. At present, we believe that we are
hindered primarily by our public corporate structure, our OTCQB listing, limited float and low market capitalization as a result
of our low stock price. For this reason, RespireRx is considering an internal restructuring plan that contemplates spinning out
our two drug platforms into separate operating businesses.
We
believe that by creating Newco and Project Endeavor, it may be possible, through separate finance channels, to optimize the asset
values of both the cannabinoid platform and the neuromodulation platform.
Going
Concern
The
Company’s consolidated financial statements have been presented on the basis that it is a going concern, which contemplates
the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred net losses
of $2,115,033 and $2,591,790 for the fiscal years ended December 31, 2019 and 2018, respectively, and negative operating cash
flows of $487,745 and $427,368 for the fiscal years ended December 31, 2019 and 2018, respectively. The Company also had
a stockholders’ deficiency of $7,444,819 at December 31, 2019 and expects to continue to incur net losses and negative operating
cash flows for at least the next few years. As a result, management has concluded that there is substantial doubt about the Company’s
ability to continue as a going concern, and the Company’s independent registered public accounting firm, in its report on
the Company’s consolidated financial statements for the year ended December 31, 2019, expressed substantial doubt about
the Company’s ability to continue as a going concern.
The
Company is currently, and has for some time, been in significant financial distress. It has extremely limited cash resources and
current assets and has no ongoing source of sustainable revenue. Management is continuing to address various aspects of the Company’s
operations and obligations, including, without limitation, debt obligations, financing requirements, intellectual property, licensing
agreements, legal and patent matters and regulatory compliance, and has taken steps to continue to raise new debt and equity capital
to fund the Company’s business activities from both related and unrelated parties.
The
Company is continuing its efforts to raise additional capital in order to be able to pay its liabilities and fund its business
activities on a going forward basis, including the pursuit of the Company’s planned research and development activities.
The Company regularly evaluates various measures to satisfy the Company’s liquidity needs, including development and other
agreements with collaborative partners and, when necessary, seeking to exchange or restructure the Company’s outstanding
securities. The Company is evaluating certain changes to its operations and structure to facilitate raising capital from sources
that may be interested in financing only discrete aspects of the Company’s development programs. Such changes could include
a significant reorganization, which may include the formation of one or more subsidiaries into which one or more programs may
be contributed. As a result of the Company’s current financial situation, the Company has limited access to external sources
of debt and equity financing. Accordingly, there can be no assurances that the Company will be able to secure additional financing
in the amounts necessary to fully fund its operating and debt service requirements. If the Company is unable to access sufficient
cash resources, the Company may be forced to discontinue its operations entirely and liquidate.
3.
Summary of Significant Accounting Policies
Principles
of Consolidation
The
accompanying consolidated financial statements are prepared in accordance with United States generally accepted accounting principles
(“GAAP”) and include the financial statements of RespireRx and its wholly-owned subsidiary, Pier. Intercompany balances
and transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates
and assumptions affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates
include, among other things, accounting for potential liabilities, and the assumptions used in valuing stock-based compensation
issued for services. Actual amounts may differ from those estimates.
Concentrations
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents.
The Company limits its exposure to credit risk by investing its cash with high quality financial institutions. The Company’s
cash balances may periodically exceed federally insured limits. The Company has not experienced a loss in such accounts to date.
Fair
Value of Financial Instruments
The
authoritative guidance with respect to fair value of financial instruments established a fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value into three levels and requires that assets and liabilities carried
at fair value be classified and disclosed in one of three categories, as presented below. Disclosure as to transfers into and
out of Levels 1 and 2, and activity in Level 3 fair value measurements, is also required.
Level
1. Observable inputs such as quoted prices in active markets for an identical asset or liability that the Company has the ability
to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active-exchange traded
securities and exchange-based derivatives.
Level
2. Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly
observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include
fixed income securities, non-exchange-based derivatives, mutual funds, and fair-value hedges.
Level
3. Unobservable inputs in which there is little or no market data for the asset or liability which requires the reporting entity
to develop its own assumptions. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded, non-exchange-based
derivatives and commingled investment funds, and are measured using present value pricing models.
The
Company determines the level in the fair value hierarchy within which each fair value measurement falls in its entirety, based
on the lowest level input that is significant to the fair value measurement in its entirety. In determining the appropriate levels,
the Company performs an analysis of the assets and liabilities at each reporting period end.
The
carrying amounts of financial instruments (consisting of cash, advances on research grants and accounts payable and accrued expenses)
are considered by the Company to be representative of the respective fair values of these instruments due to the short-term nature
of those instruments. With respect to the note payable to SY Corporation and the convertible notes payable, management does not
believe that the credit markets have materially changed for these types of borrowings since the original borrowing date. The Company
considers the carrying amounts of the notes payable to officers, inclusive of accrued interest, to be representative of the respective
fair values of such instruments due to the short-term nature of those instruments and their terms.
Deferred
Financing Costs
Costs
incurred in connection with ongoing debt and equity financings, including legal fees, are deferred until the related financing
is either completed or abandoned.
Costs
related to abandoned debt or equity financings are charged to operations in the period of abandonment. Costs related to completed
equity financings are netted against the proceeds.
Capitalized
Financing Costs
The
Company presents debt issuance costs related to debt liability in its consolidated balance sheet as a direct deduction from the
carrying amount of that debt liability, consistent with the presentation for debt discounts.
Convertible
Notes Payable
Convertible
notes are evaluated to determine if they should be recorded at amortized cost. To the extent that there are associated warrants,
commitment shares or a beneficial conversion feature, the convertible notes and warrants are evaluated to determine if there are
embedded derivatives to be identified, bifurcated and valued at fair value in connection with and at the time of such financing.
Extinguishment
of Debt
The
Company accounts for the extinguishment of debt in accordance with GAAP by comparing the carrying value of the debt to the fair
value of consideration paid or assets given up and recognizing a loss or gain in the consolidated statement of operations in the
amount of the difference in the period in which such transaction occurs.
Prepaid
Insurance
Prepaid
insurance represents the premium paid in March 2019 for directors’ and officers’ insurance as well as the amount paid
in April 2019 for office-related insurances and clinical trial coverage. Directors’ and officers’ insurance tail coverage,
purchased in March 2013 and which is a seven-year policy, is being amortized on a straight-line basis over the policy period and
all amounts due within one year are reclassified as current prepaid insurance. The amount amortizable in the ensuing twelve-month
period is recorded as prepaid insurance in the Company’s consolidated balance sheet at each reporting date and amortized
to the Company’s consolidated statement of operations for each reporting period. Amounts due after the ensuing year are
recorded as long-term prepaid insurance.
Stock-Based
Awards
The
Company periodically issues common stock and stock options to officers, directors, Scientific Advisory Board members, consultants
and other vendors for services rendered. Such issuances vest and expire according to terms established at the issuance date of
each grant.
The
Company accounts for stock-based payments to officers and directors by measuring the value of the equity awards
based on the grant date fair value of the awards, with the cost recognized as compensation expense on the straight-line basis
in the Company’s consolidated financial statements over the vesting period of the awards.
Stock
grants, which are sometimes subject to time-based vesting, are measured at the grant date fair value and charged to operations
ratably over the vesting period.
Stock
options granted to members of the Company’s outside consultants and other vendors are valued on the grant date. As the stock
options vest, the Company recognizes this expense over the period in which the services are provided.
The
fair value of stock options granted as stock-based compensation is determined utilizing the Black-Scholes option-pricing model,
and is affected by several variables, the most significant of which are the life of the equity award, the exercise price of the
stock option as compared to the fair value of the common stock on the grant date, and the estimated volatility of the common stock
over the estimated life of the equity award. Estimated volatility is based on the historical volatility of the Company’s
common stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The fair value
of common stock is determined by reference to the quoted market price of the Company’s common stock.
Stock
options and warrants issued to non-employees as compensation for services to be provided to the Company or in settlement of debt
are accounted for based upon the fair value of the services provided or the estimated fair value of the stock option or warrant,
whichever can be more clearly determined. Management uses the Black-Scholes option-pricing model to determine the fair value of
the stock options and warrants issued by the Company. The Company recognizes this expense over the period in which the services
are provided.
During
the fiscal year ended December 31, 2019, there were no stock options granted to officers, directors, Scientific Advisory Board
members, consultants or other vendors. During fiscal year ended December 31, 2018, there were stock grants totaling 283,643 shares
of common stock to designees of one vendor with a value on the date of the grant of $198,550 which amount paid $198,550 of account
payable to that vendor. There was no gain or loss on such stock grant.
For
stock options requiring an assessment of value during the fiscal years ended December 31, 2019 and 2018, the fair value of each
stock option award was estimated using the Black-Scholes option-pricing model using the following assumptions:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
-
|
%
|
|
|
2.64-2.89
|
%
|
Expected
dividend yield
|
|
|
-
|
%
|
|
|
0
|
%
|
Expected
volatility
|
|
|
-
|
%
|
|
|
186.07-222.64
|
%
|
Expected
life at date of issuance
|
|
|
-
|
|
|
|
5
years
|
|
The
expected life is estimated to be equal to the term of the common stock options issued in 2018.
The
Company recognizes the fair value of stock-based awards in general and administrative costs and in research and development costs,
as appropriate, in the Company’s consolidated statements of operations. The Company issues new shares of common stock to
satisfy stock option and warrant exercises. There were no stock options exercised during the fiscal years ended December 31, 2019
and 2018.
There
were no warrants issued as compensation or for services during the fiscal years ended December 31, 2019 and 2018 requiring such
assessment. Warrants, if issued for services, are typically issued to placement agents or brokers for fund raising services
and are not issued from any of the Company’s stock and option plans, from which options issued to non-employees for services
are typically issued.
Income
Taxes
The
Company accounts for income taxes under an asset and liability approach for financial accounting and reporting for income taxes.
Accordingly, the Company recognizes deferred tax assets and liabilities for the expected impact of differences between the financial
statements and the tax basis of assets and liabilities.
The
Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized.
In the event the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of
its recorded amount, an adjustment to the deferred tax assets would be credited to operations in the period such determination
was made. Likewise, should the Company determine that it would not be able to realize all or part of its deferred tax assets in
the future, an adjustment to the deferred tax assets would be charged to operations in the period such determination was made.
Pursuant
to Internal Revenue Code Sections 382 and 383, use of the Company’s net operating loss and credit carryforwards may be limited
if a cumulative change in ownership of more than 50% occurs within any three-year period since the last ownership change. The
Company may have had a change in control under these Sections. However, the Company does not anticipate performing a complete
analysis of the limitation on the annual use of the net operating loss and tax credit carryforwards until the time that it anticipates
it will be able to utilize these tax attributes.
As
of December 31, 2019, the Company did not have any unrecognized tax benefits related to various federal and state income tax matters
and does not anticipate any material amount of unrecognized tax benefits within the next 12 months.
The
Company is subject to U.S. federal income taxes and income taxes of various state tax jurisdictions. As the Company’s net
operating losses have yet to be utilized, all previous tax years remain open to examination by Federal authorities and other jurisdictions
in which the Company currently operates or has operated in the past.
The
Company accounts for uncertainties in income tax law under a comprehensive model for the financial statement recognition, measurement,
presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns as prescribed by GAAP.
The tax effects of a position are recognized only if it is “more-likely-than-not” to be sustained by the taxing authority
as of the reporting date. If the tax position is not considered “more-likely-than-not” to be sustained, then no benefits
of the position are recognized. As of December 31, 2019, the Company had not recorded any liability for uncertain tax positions.
In subsequent periods, any interest and penalties related to uncertain tax positions will be recognized as a component of income
tax expense.
Foreign
Currency Transactions
The
note payable to SY Corporation, which is denominated in a foreign currency (the South Korean Won), is translated into the Company’s
functional currency (the United States Dollar) at the exchange rate on the balance sheet date. The foreign currency exchange gain
or loss resulting from translation is recognized in the related consolidated statements of operations.
Research
and Development
Research
and development costs include compensation paid to management directing the Company’s research and development activities,
including but not limited to compensation paid to our Interim Chief Executive Officer and Interim President who is also our Chief
Scientific Officer and fees paid to consultants and outside service providers and organizations (including research institutes
at universities), and other expenses relating to the acquisition, design, development and clinical testing of the Company’s
treatments and product candidates.
License
Agreements
Obligations
incurred with respect to mandatory payments provided for in license agreements are recognized ratably over the appropriate period,
as specified in the underlying license agreement, and are recorded as liabilities in the Company’s consolidated balance
sheet, with a corresponding charge to research and development costs in the Company’s consolidated statement of operations.
Obligations incurred with respect to milestone payments provided for in license agreements are recognized when it is probable
that such milestone will be reached and are recorded as liabilities in the Company’s consolidated balance sheet, with a
corresponding charge to research and development costs in the Company’s consolidated statement of operations. Payments of
such liabilities are made in the ordinary course of business.
Patent
Costs
Due
to the significant uncertainty associated with the successful development of one or more commercially viable products based on
the Company’s research efforts and any related patent applications, all patent costs, including patent-related legal and
filing fees, are expensed as incurred and are charged to general and administrative expenses.
Earnings
per Share
The
Company’s computation of earnings per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as
the income (loss) attributable to common stockholders divided by the weighted average common shares outstanding for the period.
Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., warrants
and options) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common
shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded
from the calculation of diluted EPS.
Net
income (loss) attributable to common stockholders consists of net income or loss, as adjusted for actual and deemed preferred
stock dividends declared, amortized or accumulated.
Loss
per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during
the respective periods. Basic and diluted loss per common share is the same for all periods presented because all warrants and
stock options outstanding are anti-dilutive.
At
December 31, 2019 and 2018, the Company excluded the outstanding securities summarized below, which entitle the holders thereof
to acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Series
B convertible preferred stock
|
|
|
11
|
|
|
|
11
|
|
Convertible
notes payable
|
|
|
7,017,896
|
|
|
|
16,319
|
|
Common
stock warrants
|
|
|
2,191,043
|
|
|
|
1,783,229
|
|
Common
stock options
|
|
|
4,344,994
|
|
|
|
4,344,994
|
|
Total
|
|
|
13,553,944
|
|
|
|
6,144,553
|
|
Reclassifications
Certain
comparative figures in 2018 have been reclassified to conform to the current year’s presentation. These reclassifications
were immaterial, both individually and in the aggregate.
Recent
Accounting Pronouncements
In
March 2020, The FASB issued Accounting Standards Update No. 2020-03, Codification Improvements to Financial Instruments. There
are seven issues addressed in this update. Issues 1 – 5 were clarifications and codifications of previous updates. Issue
3 relates only to depository and lending institutions and therefore would not be applicable to the Company. Issue 6 was a clarification
on determining the contractual term of a net investment in a lease for purposes of measuring expected credit losses, an issue
not applicable to the Company. Issue 7 relates to the regaining control of financial assets sold and the recordation of an allowance
for credit losses. The amendment related to issues 1, 2, 4 and 5 become effective immediately upon adoption of the update. Issue
3 becomes effective for fiscal years beginning after December 15, 2019. Issues 6 and 7 become effective on varying dates that
relate to the dates of adoption other updates. Management’s initial analysis is that it does not believe the new guidance
will substantially impact the Company’s financial statements.
In
November 2019, the FASB issued Accounting Standards Update No. 2019-08, “Compensation-Stock Compensation (Topic 718) and
Revenue from Contracts with Customers (Topic 606)-Codification Improvements-Share-Based Consideration Payable to a Customer.
The update provides measurement guidance that when share-based consideration is granted to a customer, it is treated as a reduction
is the transaction price and that the amount recorded as the reduction should be based on the grant-date fair value of the share-based
payment award. For entities that have not yet adopted the amendments in Accounting Standards Update 2018-07, the amendments of
this update are effective for public entities in fiscal years beginning after December 14, 2019, and interim periods within those
fiscal years. Management’s initial analysis is that it does not believe the new guidance will substantially impact the Company’s
financial statements.
In
August 2018, the FASB issued Accounting Standards Update No. 2018-13, “Fair Value Measurement (Topic 820), Disclosure Framework—Changes
to the Disclosure Requirements for Fair Value Measurement.” The amendments in this update modify the disclosure requirements
on fair value measurements in Topic 820, Fair Value Measurement. These amendments affect the disclosures of the fair value of
financial instruments. See Note 3. Summary of Significant Account Policies – Fair Value of Financial Instruments. The
amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019, including
interim periods within that fiscal year. Management has not concluded its evaluation of the guidance. Its initial analysis is
that it does not believe the new guidance will substantially impact the Company’s financial statements.
In
June 2018, the FASB issued Accounting Standards Update No. 2018-07 (“ASU 2018-07”), Compensation-Stock Compensation
(Topic 718)—Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 are amendments to Topic 718 that
become effective for public entities like the Company for fiscal years beginning after December 15, 2018, including interim periods
within that fiscal year. This update applies to nonemployee share-based awards within the scope of Topic 718. Consistent with
the accounting requirement for employee share-based payment awards, nonemployee share-based payment awards are measured at grant-date
fair value of the equity instruments that an entity is obligated to issue when the good has been delivered or the service has
been rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied. Equity-
classified nonemployee share- based payment awards are measured at the grant date. The definition of the term grant date has been
amended to generally state the date at which a grantor and a grantee reach a mutual understanding of the key terms and conditions
of a share- based payment award. An entity considers the probability of satisfying performance conditions when nonemployee share-based
payment awards contain such conditions. This is consistent with the treatment for employee-based awards. Generally, the classification
of equity- classified nonemployee share-based payment awards will continue to be subject to the requirements of Topic 718 unless
modified after the good has been delivered, the service has been rendered, any other conditions necessary to earn the right to
benefit from the instruments have been satisfied, and the nonemployee is no longer providing goods or services. This eliminates
the requirement to reassess classification of such awards upon vesting. This standard will change the valuation of applicable
awards granted in subsequent periods.
4.
Notes Payable
Convertible
Notes Payable
On
November 4, 2019, the Company issued a convertible note (the “November 2019 Convertible Note”) bearing interest
at 10% per year. The maturity amount is $170,000 and it matures on November 4, 2020. The Company incurred debt
issuance costs of $14,000, which included $8,500 of lender legal fees and $5,500 in placement agency fees paid to
Aurora Capital LLC, a registered broker-dealer and an affiliate of the Company. The transaction included a $13,600 original
issue discount. The transaction did not include any warrants or commitment shares. The net proceeds to the Company directly
from the lender was $147,900, from which the Company then directly paid the $5,500 placement agency fee for final net
proceeds of $142,400. Subject to certain limitations and adjustments as described in the November 2019 Convertible Note,
the holder may convert the November 2019 Convertible Note at a fixed conversion price of $0.50 per share of common stock,
provided that from the date that is six months after the issuance date, the conversion price shall be 60% multiplied by the
lowest closing price of the common stock during the twenty (20) consecutive trading days prior to conversion. The Company
evaluated all of the terms of the November 2019 Convertible Note and determined that, in accordance with ASC 815, there were
no derivatives to be bifurcated or separately valued. However, there were three features of the November 2019 Convertible
Note and the related securities purchase agreement that required valuation. They were: (i) the debt issuance costs of
$14,000, (ii) the intrinsic value of the beneficial conversion feature, and (iii) the original issue discount of $13,600. The
amount to be recorded initially as the amount of the November 2019 Convertible Note was calculated by determining the
relative values as percentages of the net proceeds of the November 2019 Convertible Note ($142,400), the beneficial
conversion feature ($142,400) The debt issuance costs, original issue discount and the amount recorded as the intrinsic value
of the beneficial conversion feature each are being amortized to interest expense on a straight-line basis over the life the
November 2019 Convertible Note.
The
table below provides a summary of the November 2019 Convertible Note as of December 31, 2019.
Principal amount of note
payable
|
|
$
|
170,000
|
|
Debt discounts, net of amortization
of $26,940
|
|
|
(143,060
|
)
|
Accrued coupon
interest
|
|
|
2,701
|
|
|
|
$
|
29,641
|
|
On
October 22, 2019, the Company issued a convertible note (the “October 2019 Convertible Note”) bearing interest at
10% per year. The maturity amount is $60,000 and it matures on July 22, 2020. The Company incurred debt issuance costs of $3,750
for lender legal fees and due diligence fees. The transaction included a $1,750 original issue discount, a warrant to purchase
175,000 shares of common stock and 10,000 Commitment Shares (as such term is defined in the definitive transaction documents),
which were issued in connection with the October 2019 Convertible Note. The net proceeds to the Company were $54,500. Subject
to certain limitations and adjustments as described in the October 2019 Convertible Note, the holder may convert the October 2019
Convertible Note at a fixed conversion price of $0.50 per share of common stock, provided that from the date that is six months
after the issuance date, the conversion price shall be 60% multiplied by the lowest trading price of the common stock during the
twenty (20) consecutive trading days prior to conversion considering only trades of 100 shares of common stock or more. The Company
evaluated all of the terms of the October 2019 Convertible Note and determined that, in accordance with ASC 815, there were no
derivatives to be bifurcated or separately valued. However, there were five features of the October 2019 Convertible Note and
the related securities purchase agreement that required valuation. They were: (i) the debt issuance costs of $3,750, (ii) the
intrinsic value of the beneficial conversion feature, (iii) the value of the warrant, (iv) the original issue discount of $1,750,
and (v) the value of the Commitment Shares. The Company valued the warrant using the Black-Scholes valuation method utilizing
the following assumptions: (i) exercise price of $0.50, (ii) stock price of $0.31, (iii) life of five years, (iv) five-year risk
free rate of 1.60% and (v) volatility of 476.01% that results in the value of one warrant of $0.310 and a total warrant value
of $54,250. The amount to be recorded initially as the amount of the October 2019 Convertible Note was then calculated by determining
the relative values as percentages of the net proceeds of the October 2019 Convertible Note ($54,500), and the warrant (46.23%
or $27,738) and the Commitment Shares (2.64% or $1,585). The intrinsic value of the beneficial conversion feature was then
calculated based on the value attributed to the October 2019 Convertible Note. The debt issuance costs, original issue discount
and the amount recorded as the intrinsic value of the beneficial conversion feature each are being amortized to interest expense
on a straight-line basis over the life the October 2019 Convertible Note.
The
table below provides a summary of the October 2019 Convertible Note as of December 31, 2019.
Principal amount of note
payable
|
|
$
|
60,000
|
|
Debt discounts, net of amortization
of $16,490
|
|
|
(47,512
|
)
|
Accrued coupon
interest
|
|
|
1,167
|
|
|
|
$
|
13,655
|
|
On
August 19, 2019, the Company issued a convertible note (the “August 2019 Convertible Note”) bearing interest at 10%
per year. The maturity amount is $55,000 and it matures on May 19, 2020. The Company incurred debt issuance costs of $2,500 for
lender legal fees. The transaction included a $5,000 original issue discount, a warrant to purchase 150,000 shares of common stock
and 7,500 Commitment Shares (as such term is defined in the definitive transaction documents), which were issued in connection
with the August 2019 Convertible Note. The net proceeds to the Company were $47,500. Subject to certain limitations and adjustments
as described in the August 2019 Convertible Note, the holder may convert the August 2019 Convertible Note at a fixed conversion
price of $0.50 per share of common stock, provided that from the date that is six months after the issuance date, the conversion
price shall be the lower of (a) $0.50 or (b) 60% multiplied by the lowest closing price of the common stock during the twenty
(20) consecutive trading days prior to conversion. The Company evaluated all of the terms of the August 2019 Convertible Note
and determined that, in accordance with ASC 815, there were no derivatives to be bifurcated or separately valued. However, there
were five features of the August 2019 Convertible Note and the related securities purchase agreement that required valuation.
They were: (i) the debt issuance costs of $2,500, (ii) the intrinsic value of the beneficial conversion feature, (iii) the value
of the warrant, (iv) the original issue discount of $5,000, and (v) the value of the Commitment Shares. The Company amortizes
each of these five on a straight-line basis over the life of the August 2019 Convertible Note. The Company valued the warrant
using the Black-Scholes valuation method utilizing the following assumptions: (i) exercise price of $0.50, (ii) stock price of
$0.65, (iii) life of five years, (iv) five-year risk free rate of 1.47% and (v) volatility of 175.5% that results in the value
of one warrant of $0.623 and a total warrant value of $93,450. The amount to be recorded initially as the amount of the August
2019 Convertible Note was then calculated by determining the relative values as percentages of the net proceeds of the August
2019 Convertible Note ($47,500) and the warrant (64.08% or $30,440) and the Commitment Shares (3.34% or $1,588). The intrinsic
value of the beneficial conversion feature was then calculated based on the value attributed to the August 2019 Convertible Note.
The debt issuance costs, original issue discount and the amount recorded as the intrinsic value of the beneficial conversion
feature each are being amortized to interest expense on a straight-line basis over the life the August 2019 Convertible Note.
The
table below provides a summary of the August 2019 Convertible Note as of December 31, 2019.
Principal amount of note
payable
|
|
$
|
55,000
|
|
Debt discounts, net of amortization
of $27,781
|
|
|
(27,218
|
)
|
Accrued coupon
interest
|
|
|
2,034
|
|
|
|
$
|
29,816
|
|
On
May 17, 2019, the Company issued a master convertible note (the “May 2019 Convertible Note”) issuable in tranches,
bearing interest at 10% per year, bearing a maximum maturity amount of $150,000. The first tranche has a maturity amount of $50,000
and matures on May 17, 2020. There was a stated original issue discount of $5,000 and the Company incurred debt issuance costs
of $2,000 for lender legal fees. The net proceeds to the Company were $43,000. Subject to certain limitations and adjustments
as described in the May 2019 Convertible Note, the holder may convert from the date of issuance to the maturity date, part or
all of the May 2019 Convertible Note, inclusive of accrued interest, into the Company’s common stock at a variable conversion
price that is the lesser of (i) lowest trading price as such term is defined in the May 2019 Convertible Note (the lowest closing
bid price) in the twenty five day trading period prior to the date of the May 2019 Convertible Note (which price is now fixed
at $0.25, the closing bid price on May 16, 2019), or (ii) the variable conversion price (as defined in the May 2019 Convertible
Note) which is 61% of the market price (as defined in the May 2019 Convertible Note). The market price is the lowest trading price
(closing bid) in the twenty-five day trading day period up to the day prior to the conversion. If at any time while the May 2019
Convertible Note is outstanding, the conversion price is equal to or lower than $0.35, then an additional eleven percent (11%)
discount is to be factored into the conversion price until the May 2019 Convertible Note is no longer outstanding (resulting in
a discount rate of 50% assuming no other adjustments are triggered). The lowest trading price on the date of inception of the
May 2019 Convertible Note ($0.25) and the lowest market price were both below $0.35, the effective conversion rate on the inception
date was $0.125. Therefore, on the inception date, the first tranche would have converted into 400,000 shares of the Company’s
common stock. The Company evaluated all of the terms of the May 2019 Convertible Note and determined that, in accordance with
Accounting Standard Codification (ASC) 815, there were no derivatives to be bifurcated or separately valued. However, there were
four features of the May 2019 Convertible Note, the related securities purchase agreement and the warrant that was issued in connection
therewith that required valuation. They were: (i) the original issue discount of $5,000, (ii) the debt issuance costs of $2,000,
(iii) the beneficial conversion feature and (iv) the value of the warrant. The Company evaluated (iii) the intrinsic value of
the beneficial conversion feature for a calculated value of $286,000 (($0.84 closing price minus $0.125 conversion price) x 400,000
shares). The Company calculated the warrant value using the Black-Scholes valuation method, utilizing the following assumptions:
(a) exercise price of $1.18 per share, (b) stock price $0.84, (c) three year life (d) three year risk free rate of 2.15% and (e)
volatility of 210.19% and determined that the value of one warrant was $0.774 and the total warrant value was $32,796 for the
warrant exercisable into 42,373 shares of the Company’s common stock, par value $0.001. The amount to be recorded initially
as the amount of the May 2019 Convertible Note was then calculated by determining the relative values as percentages of the net
proceeds of the May 2019 Convertible Note ($50,000)
and the warrant ($32,796). The intrinsic value
of the beneficial conversion feature was then calculated based on the value attributed to the May 2019 Convertible Note. The
original issue discount, debt issuance costs, the intrinsic value of the beneficial conversion feature and proceeds allocated
to the value of the warrant are being amortized to interest expense on a straight-line basis over the life the May 2019 Convertible
Note. On December 9, 2019 the holder of the May 2019 Convertible Note converted $4,554 of principal amount into 130,000 shares
of the Company’s common stock ($0.0408 per share).
The
table below provides a summary of the May 2019 Convertible Note as of December 31, 2019.
Principal amount of note
payable after payment of $4,554 of principal
|
|
$
|
45,446
|
|
Debt discounts, net of amortization
of $33,040
|
|
|
(17,181
|
)
|
Accrued coupon
interest
|
|
|
3,108
|
|
|
|
$
|
31,373
|
|
On
April 24, 2019, the Company issued a convertible note (“the April 2019 Convertible Note”) bearing interest at 10%
per year. The maturity amount is $58,500 and matures on the one-year anniversary which is April 24, 2020. The Company incurred
debt issuance costs of $3,500 for lender legal and due diligence fees. There was no stated original issue discount and no warrants
were issued in connection with the April 2019 Convertible Note. The net proceeds to the Company were $55,000. Subject to
certain limitations and adjustments as described in the April 2019 Convertible Note, the holder may, from the date that is one
hundred eighty (180) days after the issuance to the maturity date, convert part or all of the April 2019 Convertible Note, inclusive
of accrued interest, into the Company’s common stock at a variable conversion price that is 61% of the market price as defined
in the April 2019 Convertible Note. The market price is the lowest trading price, which in turn is the lowest closing bid price
in the twenty (20) trading days prior to conversion. The lowest closing bid price in the twenty (20) day period prior to inception
was $0.65 which would calculate to a $0.3964 conversion price and further calculate to 147,541 conversion shares to be issued.
The Company evaluated all of the terms of the April 2019 Convertible Note and determined that, in accordance with ASC 815, there
were no derivatives to be bifurcated or separately valued. However, there were two features of the April 2019 Convertible Note
and the related securities purchase agreement that required valuation. They were: (i) the debt issuance costs of $3,500, and (ii)
the intrinsic value of the beneficial conversion feature. The Company evaluated (ii) as the closing price on the inception date
minus the conversion price multiplied by the number of conversion shares and determined that the beneficial conversion feature
had an intrinsic value of $44,950 (($0.701 closing price minus $0.3964 conversion price) x 147,541 shares). The debt issuance
costs and the amount recorded as the intrinsic value of the beneficial conversion feature are each being amortized to interest
expense on a straight-line basis over the life the April 2019 Convertible Note. On November 12, 2019 the holder of the April 2019
Convertible Note converted $10,000 of principal amount into 81,967 shares of the Company’s common stock ($0.1220 per share).
On October 28, 2019 the same holder converted $10,000 of principal amount of the April 2019 Convertible Note into 73,529 shares
of the Company’s common stock ($0.1360 per share). (See Note 10. Subsequent Events).
The
table below provides a summary of the April 2019 Convertible Note as of December 31, 2019.
Principal amount of note
payable after payment of $20,000 of principal
|
|
$
|
38,500
|
|
Debt discounts, net of amortization
of $37,762
|
|
|
(10,688
|
)
|
Accrued coupon
interest
|
|
|
4,257
|
|
|
|
$
|
32,069
|
|
On
January 2, 2019, February 27, 2019, March 6, 2019 and March 14, 2019, the Company issued convertible notes (each a “2019
Q1 Convertible Note and collectively, the “2019 Q1 Convertible Notes”) bearing interest at 10% per year. The 2019
Q1 Convertible Notes issued on January 2, 2019 matured on February 28, 2019 with a face amount of $10,000. The 2019 Q1 Convertible
Notes issued on February 27, 2019, March 6, 2019 and March 14, 2019 matured on April 30, 2019 with an aggregate face amount of
$100,000. Investors who purchased 2019 Q1 Convertible Notes also received an aggregate of 110,000 common stock purchase warrants.
The warrants were valued using the Black Scholes option pricing model calculated on the date of each grant and had an aggregate
value of $78,780. Total value received by the investors was $188,780, the sum of the face value of the convertible note and the
value of the warrant. Therefore, the Company recorded a debt discount associated with the warrant issuance of $45,812 and an initial
value of the convertible notes of $64,188 using the relative fair value method. An additional $9,464 of interest expense was recorded
based upon the 10% annual rate for the year ended December 31, 2019. As of December 31, 2019, none of the 2019 Q1 Convertible
Notes were paid and each remained outstanding and continued to accrue interest. Although the 2019 Q1 Convertible Notes are in
default, the Company has not received any notices of default from any of the note holders. The 2019 Q1 Convertible Notes have
no reset rights or other protections based on subsequent equity transactions, equity-linked transactions or other events other
than the right, but not the obligation, for each investor to convert or exchange his or her 2019 Q1 Convertible Note, but not
the warrant, into the next exempt private securities offering. The April 2019 Convertible Note, the May 2019 Convertible Note,
the August 2019 Convertible Note, the October 2019 Convertible Note and the November 2019 Convertible Note, which the Company
does not consider to have arisen from offerings, may be interpreted in such a way that the 2019 Q1 Convertible Note Holders have
the right to convert or exchange. However, no holders of 2019 Q1 Convertible Notes requested a conversion or exchange in connection
with the issuance of such notes. The Company does not believe that an offering occurred as of December 31, 2019 or as of the date
of the issuance of these financial statements. Therefore, the number of shares of common stock (or preferred stock) into which
the 2019 Q1 Convertible Notes may convert is not determinable and the Company has not accounted for any additional consideration.
The warrants to purchase 110,000 shares of common stock issued in connection with the sale of the 2019 Q1 Convertible Notes are
exercisable at a fixed price of $1.50 per share of common stock, provide no right to receive a cash payment, and included no reset
rights or other protections based on subsequent equity transactions, equity-linked transactions or other events. The Company determined
that there were no embedded derivatives to be identified, bifurcated and valued in connection with the 2019 Q1 Convertible Notes.
During
December 2018, convertible notes (“2018 Convertible Notes”) bearing interest at 10% per year and maturing on February
28, 2019 and warrants were sold to investors with an aggregate face amount of $80,000. Investors also received 80,000 common stock
purchase warrants. The warrants were valued using the Black Scholes option pricing model calculated on the date of each grant
and had an aggregate value of $68,025. Total value received by the investors was $148,025, the sum of the face value of the 2018
Convertible Notes and the value of the warrant. Therefore, the Company recorded a debt discount associated with the issuance of
the warrants of $36,347 and an initial value of the 2018 Convertible Notes of $43,653 using the relative fair value method. An
additional $8,111 and $401 of interest expense was recorded based upon the 10% annual rate for the years ended December 31, 2019
and 2018 respectively. The 2018 Convertible Notes matured on February 28, 2019, were not paid, remain outstanding and continue
to accrue interest. Although the 2018 Convertible Notes are in default, the Company has not received any notices of default from
any of the note holders. The 2018 Convertible Notes have no reset rights or other protections based on subsequent equity transactions,
equity-linked transactions or other events other than the right, but not the obligation for each investor to convert or exchange
his or her 2018 Convertible Note, but not the warrant, into the next exempt private securities offering. The May 2019 Convertible
Note and April 2019 Convertible Note, which the Company does not consider to have arisen from an offering, may be interpreted
in such a way that the 2019 Q1 Convertible Note Holders have the right to convert or exchange. However, no holders of such notes
have requested a conversion or exchange. The Company does not believe that an offering occurred as of December 31, 2019 or as
of the date of the issuance of these financial statements. Therefore, the number of shares of common stock (or preferred stock)
into which the 2018 Convertible Notes may convert is not determinable and the Company has not accounted for any additional consideration.
The warrants to purchase 80,000 shares of common stock issued in connection with the sale of the 2018 Convertible Notes are exercisable
at a fixed price of $1.50 per share of common stock, provide no right to receive a cash payment, and included no reset rights
or other protections based on subsequent equity transactions, equity-linked transactions or other events. The Company determined
that there were no embedded derivatives to be identified, bifurcated and valued in connection with this financing.
The
2018 Convertible Notes and 2019 Q1 Convertible Notes consist of the following at December 31, 2019 and December 31, 2018:
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Principal
amount of notes payable
|
|
$
|
190,000
|
|
|
$
|
80,000
|
|
Discount
associated with issuance of warrants net of amortization of $82,159 as of December 31, 2019 and $8,379 as of December 31,
2018
|
|
|
-
|
|
|
|
(27,968
|
)
|
Accrued
interest payable
|
|
|
17,976
|
|
|
|
401
|
|
|
|
$
|
207,976
|
|
|
$
|
52,433
|
|
Convertible
notes were also sold to investors in 2014 and 2015 (“Original Convertible Notes), which aggregated a total of $579,500,
had a fixed interest rate of 10% per annum and those that remain outstanding are convertible into common stock at a fixed price
of $11.3750 per share. The Original Convertible Notes have no reset rights or other protections based on subsequent equity transactions,
equity-linked transactions or other events. The warrants to purchase 50,945 shares of common stock issued in connection with the
sale of the convertible notes have either been exchanged as part of April and May 2016 note and warrant exchange agreements or
expired on September 15, 2016.
The
maturity date of the Original Convertible Notes was extended to September 15, 2016 and included the issuance of 27,936 additional
warrants to purchase common stock, exercisable at $11.375 per share of common stock, which expired on September 15, 2016.
The
remaining outstanding Original Convertible Notes (including those for which default notices have been received) consist of the
following at December 31, 2019 and December 31, 2018:
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Principal amount of notes
payable
|
|
$
|
125,000
|
|
|
$
|
125,000
|
|
Accrued interest
payable
|
|
|
82,060
|
|
|
|
62,233
|
|
|
|
$
|
207,060
|
|
|
$
|
187,233
|
|
As
of December 31, 2019, principal and accrued interest on the Original Convertible Note that is subject to a default notice
accrues annual interest at 12% instead of 10%, totaled $43,666, of which $18,666 was accrued interest. As of December 31, 2018,
principal and accrued interest on Original Convertible Notes subject to default notices totaled $38,292 of which $13,292 was accrued
interest.
As
of December 31, 2019 all of the outstanding Original Convertible Notes, inclusive of accrued interest, were convertible into an
aggregate of 18,204 shares of the Company’s common stock, including 7,217 shares attributable to accrued interest of $82,060
payable as of such date. As of December 31, 2018, the outstanding Original Convertible Notes were convertible into 16,460 shares
of the Company’s common stock, including 5,471 shares attributable to accrued interest of $62,233 payable as of such date.
Such Original Convertible Notes will continue to accrue interest until exchanged, paid or otherwise discharged. There can be no
assurance that any of the additional holders of the remaining Original Convertible Notes will exchange their notes.
Note
Payable to SY Corporation Co., Ltd.
On
June 25, 2012, the Company borrowed 465,000,000 Won (the currency of South Korea, equivalent to approximately $400,000 United
States Dollars) from and executed a secured note payable to SY Corporation Co., Ltd., formerly known as Samyang Optics Co. Ltd.
(“SY Corporation”), an approximately 20% common stockholder of the Company at that time. SY Corporation was a significant
stockholder and a related party at the time of the transaction, but has not been a significant stockholder or related party of
the Company subsequent to December 31, 2014. The note accrues simple interest at the rate of 12% per annum and had a maturity
date of June 25, 2013. The Company has not made any payments on the promissory note. At June 30, 2013 and subsequently, the promissory
note was outstanding and in default, although SY Corporation has not issued a notice of default or a demand for repayment. The
Company believes that SY Corporation is in default of its obligations under its January 2012 license agreement, as amended, with
the Company, but the Company has not yet issued a notice of default. The Company intends to continue efforts towards a comprehensive
resolution of the aforementioned matters involving SY Corporation.
The
promissory note is secured by collateral that represents a lien on certain patents owned by the Company, including composition
of matter patents for certain of the Company’s high impact ampakine compounds and the low impact ampakine compounds CX2007
and CX2076, and other related compounds. The security interest does not extend to the Company’s patents for its ampakine
compounds CX1739 and CX1942, or to the patent for the use of ampakine compounds for the treatment of respiratory depression.
Note
payable to SY Corporation consists of the following at December 31, 2019 and 2018:
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Principal amount of note
payable
|
|
$
|
399,774
|
|
|
$
|
399,774
|
|
Accrued interest payable
|
|
|
363,280
|
|
|
|
315,307
|
|
Foreign currency
transaction adjustment
|
|
|
3,182
|
|
|
|
29,360
|
|
|
|
$
|
766,236
|
|
|
$
|
744,441
|
|
Interest
expense with respect to this promissory note was $47,971 and $47,973 for years ended December 31, 2019 and 2018, respectively.
Advances
from and Notes Payable to Officers
On
January 29, 2016, Dr. Arnold S. Lippa, the Company’s Interim President, Interim Chief Executive Officer, Chief Scientific
Officer and Chairman of the Board of Directors, advanced $52,600 to the Company for working capital purposes under a demand promissory
note with interest at 10% per annum. On September 23, 2016, Dr. Lippa advanced $25,000 to the Company for working capital purposes
under a second demand promissory note with interest at 10% per annum. The notes are secured by the assets of the Company. Additionally,
on April 9, 2018, Dr. Lippa advanced another $50,000 to the Company as discussed in more detail below. In connection with the
loans, Dr. Lippa was issued fully vested warrants to purchase 15,464 shares of the Company’s common stock, 10,309 of which
have an exercise price of $5.1025 per share and 5,155 of which have an exercise price of $4.85 which were the closing prices of
the Company’s common stock on the respective dates of grant. The warrants expired on January 29, 2019 and September 23,
2019, respectively.
On
February 2, 2016, Dr. James S. Manuso, the Company’s then Chief Executive Officer and Vice Chairman of the Board of Directors,
advanced $52,600 to the Company for working capital purposes under a demand promissory note with interest at 10% per annum. On
September 22, 2016, Dr. Manuso, advanced $25,000 to the Company for working capital purposes under a demand promissory note with
interest at 10% per annum. The notes are secured by the assets of the Company. Additionally, on April 9, 2018, Dr. Manuso advanced
another $50,000 to the Company as discussed in more detail below. In connection with the loans, Dr. Manuso was issued fully vested
warrants to purchase 13,092 shares of the Company’s common stock, 8,092 of which have an exercise price of $6.50 per share
and 5,000 of which have an exercise price of $5.00, which were the closing market prices of the Company’s common stock on
the respective dates of grant. The warrants expired on February 2, 2019 and September 22, 2019, respectively.
On
April 9, 2018, Dr. Arnold S. Lippa, the Company’s Interim President, Interim Chief Executive Officer, Chief Scientific Officer
and Chairman of the Board of Directors and Dr. James S. Manuso, the Company’s then Chief Executive Officer and Vice Chairman
of the Board of Directors, advanced $50,000 each, for a total of $100,000, to the Company for working capital purposes. Each note
is payable on demand after June 30, 2018. Each note was subject to a mandatory exchange provision that provided that the principal
amount of the note would be mandatorily exchanged into a board approved offering of the Company’s securities, if such offering
held its first closing on or before June 30, 2018 and the amount of proceeds from such first closing was at least $150,000, not
including the principal amounts of the notes that would be exchanged, or $250,000 including the principal amounts of such notes.
Upon such exchange, the notes would be deemed repaid and terminated. Any accrued but unpaid interest outstanding at the time of
such exchange will be (i) repaid to the note holder or (ii) invested in the offering, at the note holder’s election. A first
closing did not occur on or before June 30, 2018. Dr. Arnold S. Lippa agreed to exchange his note into the board approved offering
that had its initial closing on September 12, 2018. Accrued interest on Dr. Lippa’s note was not exchanged. As of December
31, 2019, Dr. James S. Manuso had not exchanged his note.
During
the year ended December 31, 2019, Dr. Lippa advanced on an interest free basis the Company $38,000 of which $13,000 was
repaid to Dr. Lippa. The outstanding balance of the advance is payable on demand.
During
the year ended December 31, 2019, the Company repaid $1,000 to Jeff Margolis related to $6,500 of interest free advances
Mr. Margolis made to the Company during the year ended December 2018. The outstanding balance of the advance is payable on
demand.
For
the fiscal years ended December 31, 2019 and 2018, $10,272 and $11,268 was charged to interest expense with respect to Dr. Lippa’s
notes, respectively.
For
the fiscal years ended December 31, 2019 and 2018, $15,416 and $12,769 was charged to interest expense with respect to Dr. James
S. Manuso’s notes, respectively.
As
of September 30, 2018, Dr. James S. Manuso resigned his executive officer positions and as a member of the Board of Directors
of the Company. All of the interest expense noted above for 2019 was incurred while Dr. Manuso was no longer an officer. With
respect to the year ended December 31, 2019, of the $12,769 of interest expense noted above, $3,564 was incurred while Dr. Manuso
was no longer an officer.
Other
Short-Term Notes Payable
Other
short-term notes payable at December 31, 2019 and December 31, 2018 consisted of premium financing agreements with respect to
various insurance policies. At December 31, 2019, a premium financing agreement was payable in the initial amount of $61,746,
with interest at 9% per annum, in ten monthly installments of $7,120, and another premium financing arrangement was payable in
the initial amount of $9,322 payable in equal quarterly installments. At December 31, 2019 and 2018, the aggregate amount of the
short-term notes payable was $4,635 and $8,907 respectively.
5.
Settlement and Payment Agreements
On
December 16, 2019, RespireRx and Salamandra, LLC (“Salamandra”) entered into an amendment (the “Amendment”)
to the settlement agreement and release, executed August 21, 2019 (the “Original Settlement Agreement” and as amended,
the “Amended Settlement Agreement”) regarding $202,395 owed by the Company to Salamandra (as reduced by any further
payments by the Company to Salamandra, the “Full Amount”) in connection with an arbitration award previously granted
in favor of Salamandra in the Superior Court of New Jersey. Under the terms of the Original Settlement Agreement, the Company
was to pay Salamandra $125,000 on or before November 30, 2019 in full satisfaction of the Full Amount owed, subject to conditions
regarding the Company’s ability to raise certain dollar amounts of working capital. Under the Amended Settlement Agreement,
(i) the Company must pay and the Company paid to Salamandra $25,000 on or before December 21, 2019, (ii) upon such payment, Salamandra
ceased all collection efforts against the Company until March 31, 2020 (the “Threshold Date”), and (iii) the Company
must pay to Salamandra $100,000 on or before the Threshold Date if the Company has at that time raised $600,000 in working capital.
Such payments by the Company would constitute satisfaction of the Full Amount owed and would serve as consideration for the dismissal
of the action underlying the arbitration award and the mutual releases set forth in the Amended Settlement Agreement. If the Company
raises less than $600,000 in working capital before the Threshold Date, the Company may pay to Salamandra an amount equal to 21%
of the working capital amount raised, in which case such payment will reduce the Full Amount owed on a dollar-for-dollar basis,
and Salamandra may then seek collection on the remainder of the debt. The Company did not make the requirement payment on March
31, 2020 and has initiated further discussions with the intent of reaching a revised settlement agreement which cannot be assured.
In
February 2020, the Company and a vendor agreed to discuss amendments to an agreement in principal reached on September 23, 2019,
whereby the Company and a vendor agreed in principle to a proposed settlement agreement, which has not resulted in a formal
agreement. The discussions included, among other things, an extension of time to raise the amount discussed below. The September
23, 2019 agreement in principal calls for no reduction in the overall amount to be paid by the Company, which amount is not in
dispute, but addresses only a payment schedule. The agreement in principal calls for a payment of a minimum of $100,000 on or
before November 30, 2019 assuming the Company has raised at least $600,000 by that date and thereafter calls for a payment of
$50,000 per month until paid in full. If the Company does not make a scheduled payment, the agreement in principal would be deemed
null and void.
On
April 5, 2018, the Company issued 185,388 common stock purchase options to Robert N. Weingarten, the Company’s former Chief
Financial Officer and 125,000 common stock purchase options to Pharmaland Executive Consulting Services LLC (“Pharmaland”)
exercisable until April 5, 2023 at $1.12 per share of common stock, which was the closing price of the common stock as quoted
on the OTC QB on that date. All of these common stock purchase options vested immediately. Each of the common stock purchase options
were valued on the issuance date based upon a Black-Scholes valuation method at $1.081. Mr. Weingarten simultaneously with the
issuance of the common stock purchase options, agreed to forgive $200,350 of accrued compensation owed to him. The value of the
options granted to Mr. Weingarten was $200,404. The resulting loss on extinguishment of the accrued liability was $54. The common
stock purchase options issued to Pharmaland was in partial payment of accounts payable owed. The common stock purchase options
issued to Pharmaland had a value of $135,125 and the accounts payable extinguished was $124,025. The loss on extinguishment of
this accounts payable was $11,100.
On
November 21, 2018, the Company issued 283,643 shares of common stock with a value of $198,550 to designees of one of its intellectual
property law firms as partial settlement of accounts payable due to the law firm. There was no gain or loss on the settlement
of this accounts payable.
On
November 21, 2018, the Company granted a non-qualified stock option (“NQSO”) to purchase 21,677 shares of common stock
to a vendor to settle $15,000 of accounts payable due to that vendor. The NQSO vested immediately with respect to 14,452 shares
of common stock and on November 30, 2018 with respect to an additional 7,225 shares of common stock. As of December 31, 2018,
the NQSO has vested with respect to all shares. The NQSO has a term of 5 years and have an exercise price of $0.70 per share,
which was the closing price on the trading day of the grant date. The NQSO was valued using the Black-Scholes option pricing model
resulting value was $0.692 per NQSO. There was no gain or loss on the extinguishment of the accounts payable.
The
Company continues to explore ways to reduce its obligations and indebtedness and might in the future enter into additional settlement
and payment agreements.
6.
Stockholders’ Deficiency
Preferred
Stock
The
Company has authorized a total of 5,000,000 shares of preferred stock, par value $0.001 per share. As of December 31, 2019 and
2018, 1,250,000 shares were designated as 9% Cumulative Convertible Preferred Stock (non-voting, “9% Preferred Stock”);
37,500 shares were designated as Series B Convertible Preferred Stock (non-voting, “Series B Preferred Stock”); 205,000
shares were designated as Series A Junior Participating Preferred Stock (non-voting, “Series A Junior Participating Preferred
Stock”); and 1,700 shares were designated as Series G 1.5% Convertible Preferred Stock. Accordingly, as of December 31,
2019, 3,505,800 shares of preferred stock were undesignated and may be issued with such rights and powers as the Board of Directors
may designate.
There
were no shares of 9% Preferred Stock or Series A Junior Participating Preferred Stock or Series G 1.5% Convertible Preferred Stock
outstanding as of December 31, 2019 and 2018.
Series
B Preferred Stock outstanding as of December 31, 2019 and 2018 consisted of 37,500 shares issued in a May 1991 private placement.
Each share of Series B Preferred Stock is convertible into approximately 0.00030 shares of common stock at an effective conversion
price of $2,208.375 per share of common stock, which is subject to adjustment under certain circumstances. As of December 31,
2019 and 2018, the shares of Series B Preferred Stock outstanding are convertible into 11 shares of common stock. The Company
may redeem the Series B Preferred Stock for $25,001, equivalent to $0.6667 per share, an amount equal to its liquidation preference,
at any time upon 30 days prior notice.
Common
Stock
There
are 4,175,072 shares of the Company’s Common Stock outstanding as of December 31, 2019. After reserving for conversions
of convertible debt as well as common stock purchase options and warrants exercises, there were 42,831,291 shares of the Company’s
Common Stock available for future issuances as of December 31, 2019. After accounting for excess reserves required by the April
2019 Convertible Note, the May 2019 Convertible Note, the August 2019 Convertible Note, the October 2019 Convertible Note and
the November 2019 Convertible Note, there were 3,438,021 available for future issuances as of December 31, 2019. Each conversion
of such 2019 Convertible Notes reduces the excess reserve requirements.
2018
Unit Offering
On
September 12, 2018, the Company consummated an initial closing on an offering (“2018 Unit Offering”) of Units comprised
of one share of the Company’s common stock and one common stock purchase warrant. The 2018 Unit Offering was for up to $1.5
million and had a final termination date of October 15, 2018. The initial closing was for $250,750 of which $200,750 was the gross
cash proceeds. The additional $50,000 was represented by the conversion into the 2018 Unit Offering of the principal amount of
the Arnold S. Lippa, Demand Promissory Note described below. With the exchange of Dr. Lippa’s Demand Promissory Note into
the 2018 Unit Offering, 47,620 warrants exercisable at 150% of the unit price ($1.575) per share of common stock and expiring
on April 30, 2023 were issued with a value of $49,975 which amount was considered a loss on the extinguishment of that officer
note and which amount was credited to additional paid-in capital. Units were sold for $1.05 per unit and the warrants issued in
connection with the units are exercisable through April 30, 2023 at a fixed price of 150% of the unit purchase price. The warrants
contain a cashless exercise provision and certain blocker provisions preventing exercise if the investor would beneficially own
more than 4.99% of the Company’s outstanding shares of common stock as a result of such exercise. The warrants are also
subject to redemption by the Company at $0.001 per share upon ten (10) days written notice if the Company’s common stock
closes at $3.00 or more for any five (5) consecutive trading days. In total, 238,814 shares of the Company’s common stock
and 238,814 common stock purchase warrants were purchased. Other than Arnold S. Lippa, the investors in the offering were not
affiliates of the Company. Investors also received an unlimited number of piggy-back registration rights in respect to the shares
of common stock and the shares of common stock underlying the common stock purchase warrants, unless such common stock is eligible
to be sold with volume limits under an exemption from registration under any rule or regulation of the SEC that permits the holder
to sell securities of the Company to the public without registration and without volume limits (assuming the holder is not an
affiliate).
The
shares of common stock and common stock purchase warrants were offered and sold without registration under the Securities Act
of 1933, as amended (the “Securities Act”) in reliance on the exemptions provided by Section 4(a)(2) of the Securities
Act as provided in Rule 506(b) of Regulation D promulgated thereunder. None of the shares of common stock issued as part of the
units, the common stock purchase warrants, the Common Stock issuable upon exercise of the common stock purchase warrants or any
warrants issued to a qualified referral source (of which there were none in the initial closing) have been registered under the
Securities Act or any other applicable securities laws, and unless so registered, may not be offered or sold in the United States
except pursuant to an exemption from the registration requirements of the Securities Act.
In
addition, as set forth in the Purchase Agreements, each Purchaser had an unlimited number of exchange rights, which were options
and not obligations, to exchange such Purchaser’s entire investment as defined (but not less than the entire investment)
into one or more subsequent equity financings (consisting solely of convertible preferred stock or common stock or units containing
preferred stock or common stock and warrants exercisable only into preferred stock or common stock) that would be considered as
“permanent equity” under United States Generally Accepted Accounting Principles and the rules and regulations of the
United States Securities and Exchange Commission, and therefore classified within stockholders’ equity, and excluding any
form of debt or convertible debt or preferred stock redeemable at the discretion of the holder (each such financing a “Subsequent
Equity Financing”). The exchange rights expired on December 31, 2018.
Common
Stock Warrants
In
October 2019, the Company issued a warrant to purchase 175,000 shares of common stock in conjunction with the issuance of the
October 2019 Convertible Note exercisable at $0.50 per share and expiring on October 22, 2024.
In
August 2019, the Company issued a warrant to purchase 150,000 shares of common stock in conjunction with the issuance of the August
2019 Convertible Note exercisable at $0.50 per share and expiring on August 19, 2024.
In
May 2019, the Company issued a warrant to purchase 42,372 shares of common stock in conjunction with the issuance of the May 2019
Convertible Note exercisable at $1.18 per share and expiring on May 17, 2022.
In
January 2019, February 2019 and March 2019, the Company issued warrants to purchase 110,000 shares of common stock in conjunction
with the issuance of the 2019 Q1 Convertible Notes exercisable at $1.50 per share and expiring on December 30, 2023.
During
the year ended December 31, 2019, warrants to purchase 69,558 shares of common stock expired.
In
December 2018, the Company issued warrants to purchase 80,000 of common stock in conjunction with the issuance of the December
2018 10% Convertible Notes exercisable at $1.50 per share and expiring on December 30, 2023.
Although
not considered stock-based compensation, the Company issued a warrant to purchase 47,620 shares of common stock at an exercise
price of $1.50 per share and expiring on December 30, 2023 as part of an officer note exchange into the 2018 Unit Offering. The
warrants were valued at $49,925 as of September 12, 2018, the date of issuance and were accounted for in Additional paid-in capital
as of December 31, 2018.
A
summary of warrant activity for the year ended December 31, 2019 is presented below.
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in Years)
|
|
Warrants outstanding at December 31, 2018
|
|
|
1,783,229
|
|
|
$
|
2.20393
|
|
|
|
3.06
|
|
Issued
|
|
|
477,372
|
|
|
|
0.79079
|
|
|
|
4.36
|
|
Expired
|
|
|
(69,558
|
)
|
|
|
2.98989
|
|
|
|
-
|
|
Warrants outstanding at December
31, 2019
|
|
|
2,191,043
|
|
|
$
|
1.87109
|
|
|
|
3.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable at December
31, 2018
|
|
|
1,783,229
|
|
|
$
|
2.20393
|
|
|
|
3.06
|
|
Warrants exercisable at December
31, 2019
|
|
|
2,191,043
|
|
|
$
|
1.87109
|
|
|
|
3.44
|
|
The
exercise prices of common stock warrants outstanding and exercisable are as follows at December 31, 2019:
Exercise
Price
|
|
|
Warrants
Outstanding
(Shares)
|
|
|
Warrants
Exercisable
(Shares)
|
|
|
Expiration
Date
|
$
|
0.5000
|
|
|
|
175,000
|
|
|
|
175,000
|
|
|
October 22, 2024
|
$
|
0.5000
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
August 19, 2024
|
$
|
1.0000
|
|
|
|
916,217
|
|
|
|
916,217
|
|
|
September 20, 2022
|
$
|
1.1800
|
|
|
|
42,372
|
|
|
|
42,372
|
|
|
May 17, 2022
|
$
|
1.5000
|
|
|
|
190,000
|
|
|
|
190,000
|
|
|
December 30, 2023
|
$
|
1.5620
|
|
|
|
130,284
|
|
|
|
130,284
|
|
|
December 31, 2021
|
$
|
1.5750
|
|
|
|
238,814
|
|
|
|
238,814
|
|
|
April 30, 2023
|
$
|
2.7500
|
|
|
|
8,000
|
|
|
|
8000
|
|
|
September 20, 2022
|
$
|
4.8750
|
|
|
|
108,594
|
|
|
|
108,594
|
|
|
September 30, 2020
|
$
|
6.8348
|
|
|
|
145,758
|
|
|
|
145,758
|
|
|
September 30, 2020
|
$
|
7.9300
|
|
|
|
86,004
|
|
|
|
86,004
|
|
|
February 28,
2021
|
|
|
|
|
|
2,191,043
|
|
|
|
2,191,043
|
|
|
|
Based
on a fair value of $0.10 per share on December 31, 2019, there were no exercisable in-the money common stock warrants as of December
31, 2019.
A
summary of warrant activity for the year ended December 31, 2018 is presented below.
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in Years)
|
|
Warrants
outstanding at December 31, 2017
|
|
|
1,464,415
|
|
|
$
|
2.68146
|
|
|
|
3.73
|
|
Issued
|
|
|
318,814
|
|
|
|
1.55618
|
|
|
|
4.50
|
|
Warrants
outstanding at December 31, 2018
|
|
|
1,783,229
|
|
|
$
|
2.20393
|
|
|
|
3.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
exercisable at December 31, 2017
|
|
|
1,464,415
|
|
|
$
|
2,68146
|
|
|
|
3.73
|
|
Warrants
exercisable at December 31, 2018
|
|
|
1,783,229
|
|
|
$
|
2.20393
|
|
|
|
3.06
|
|
Stock
Options
On
March 18, 2014, the stockholders of the Company holding a majority of the votes to be cast on the issue approved the adoption
of the Company’s 2014 Equity, Equity-Linked and Equity Derivative Incentive Plan (the “2014 Plan”), which had
been previously adopted by the Board of Directors of the Company, subject to stockholder approval. The Plan permits the grant
of options and restricted stock with respect to up to 325,025 shares of common stock, in addition to stock appreciation rights
and phantom stock, to directors, officers, employees, consultants and other service providers of the Company.
On
June 30, 2015, the Board of Directors adopted the 2015 Stock and Stock Option Plan (the “2015 Plan”). The 2015 Plan
initially provided for, among other things, the issuance of either or any combination of restricted shares of common stock and
non-qualified stock options to purchase up to 461,538 shares of the Company’s common stock for periods up to ten years to
management, members of the Board of Directors, consultants and advisors. The Company has not and does not intend to present the
2015 Plan to stockholders for approval. On December 28, 2018, the Board of Directors further increased the number of shares that
may be issued under the 2015 Plan to 8,985,260 shares of the Company’s common stock.
During
fiscal year ended December 31, 2018, there were three grants of options to purchase an aggregate of 348,827 shares of the Company’s
common stock to a vendor. The value of these options on the grant date was approximately equal to the amount payable to the vendor
that was to be paid with the options. The cumulative loss on extinguishment of three liabilities totaling $353,623 was $11,154.
The remaining amount payable to the vendor is due in cash.
Information
with respect to the Black-Scholes variables used in connection with the evaluation of the fair value of stock-based compensation
costs and fees is provided at Note 3.
A
summary of stock option activity for the year ended December 31, 2019 is presented below.
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in Years)
|
|
Options outstanding at December 31, 2018
|
|
|
4,344,994
|
|
|
$
|
3.5414
|
|
|
|
5.90
|
|
Expired
|
|
|
(57,385
|
)
|
|
|
15.6139
|
|
|
|
-
|
|
Options outstanding at December
31, 2019
|
|
|
4,287,609
|
|
|
$
|
3.3798
|
|
|
|
4.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December
31, 2018
|
|
|
4,344,994
|
|
|
$
|
3.5414
|
|
|
|
5.90
|
|
Options exercisable at December
31, 2019
|
|
|
4,287,609
|
|
|
$
|
3.3789
|
|
|
|
4.98
|
|
The
exercise prices of common stock options outstanding and exercisable were as follows at December 31, 2019:
Exercise
Price
|
|
|
Options
Outstanding (Shares)
|
|
|
Options
Exercisable (Shares)
|
|
|
Expiration
Date
|
$
|
0.7000
|
|
|
|
21,677
|
|
|
|
21,677
|
|
|
November 21, 2023
|
$
|
1.1200
|
|
|
|
310,388
|
|
|
|
310,388
|
|
|
April 5, 2023
|
$
|
1.2500
|
|
|
|
16,762
|
|
|
|
16,762
|
|
|
December 7, 2022
|
$
|
1.3500
|
|
|
|
34,000
|
|
|
|
34,000
|
|
|
July 28, 2022
|
$
|
1.4500
|
|
|
|
1,849,418
|
|
|
|
1,849,418
|
|
|
December 9, 2027
|
$
|
1.4500
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
December 9, 2027
|
$
|
2.0000
|
|
|
|
285,000
|
|
|
|
285,000
|
|
|
June 30, 2022
|
$
|
2.0000
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
July 26, 2022
|
$
|
3.9000
|
|
|
|
395,000
|
|
|
|
395,000
|
|
|
January 17, 2022
|
$
|
4.5000
|
|
|
|
7,222
|
|
|
|
7,222
|
|
|
September 2, 2021
|
$
|
5.6875
|
|
|
|
89,686
|
|
|
|
89,686
|
|
|
June 30, 2020
|
$
|
5.7500
|
|
|
|
2,608
|
|
|
|
2,608
|
|
|
September 12, 2021
|
$
|
6.4025
|
|
|
|
27,692
|
|
|
|
27,692
|
|
|
August 18, 2020
|
$
|
6.4025
|
|
|
|
129,231
|
|
|
|
129,231
|
|
|
August 18, 2022
|
$
|
6.4025
|
|
|
|
261,789
|
|
|
|
261,789
|
|
|
August 18, 2025
|
$
|
6.8250
|
|
|
|
8,791
|
|
|
|
8,791
|
|
|
December 11, 2020
|
$
|
7.3775
|
|
|
|
523,077
|
|
|
|
523,077
|
|
|
March 31, 2021
|
$
|
8.1250
|
|
|
|
169,231
|
|
|
|
169,231
|
|
|
June 30, 2022
|
$
|
13.9750
|
|
|
|
3,385
|
|
|
|
3,385
|
|
|
March 14, 2024
|
$
|
15.4700
|
|
|
|
7,755
|
|
|
|
7,755
|
|
|
April 8, 2020
|
$
|
15.9250
|
|
|
|
2,462
|
|
|
|
2,462
|
|
|
February 28, 2024
|
$
|
16.6400
|
|
|
|
1,538
|
|
|
|
1,538
|
|
|
January 29, 2020
|
$
|
19.5000
|
|
|
|
9,487
|
|
|
|
9,487
|
|
|
July 17, 2022
|
$
|
19.5000
|
|
|
|
6,410
|
|
|
|
6,410
|
|
|
August 10,
2022
|
|
|
|
|
|
4,287,609
|
|
|
|
4,287,609
|
|
|
|
There
was no deferred compensation expense for the outstanding and unvested stock options at December 31, 2019.
Based
on a fair value of $0.10 per share on December 31, 2019, there were no exercisable in-the-money common stock options as of December
31, 2019.
A
summary of stock option activity for the year ended December 31, 2018 is presented below.
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in Years)
|
|
Options outstanding at December 31, 2017
|
|
|
3,996,167
|
|
|
$
|
3.7634
|
|
|
|
6.30
|
|
Granted
|
|
|
348,827
|
|
|
|
1.1002
|
|
|
|
4.29
|
|
Options outstanding at December
31, 2018
|
|
|
4,344,994
|
|
|
$
|
3.5414
|
|
|
|
5.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December
31, 2017
|
|
|
3,996,167
|
|
|
$
|
3.7634
|
|
|
|
6.30
|
|
Options exercisable at December
31, 2018
|
|
|
4,344,994
|
|
|
$
|
3.5414
|
|
|
|
5.90
|
|
The
exercise prices of common stock options outstanding and exercisable were as follows at December 31, 2018:
Exercise
Price
|
|
|
Options
Outstanding (Shares)
|
|
|
Options
Exercisable (Shares)
|
|
|
Expiration
Date
|
$
|
0.7000
|
|
|
|
21,677
|
|
|
|
21,677
|
|
|
November 21, 2023
|
$
|
1.1200
|
|
|
|
310,388
|
|
|
|
310,388
|
|
|
April 5, 2023
|
$
|
1.2500
|
|
|
|
16,762
|
|
|
|
16,762
|
|
|
December 7, 2022
|
$
|
1.3500
|
|
|
|
34,000
|
|
|
|
34,000
|
|
|
July 28, 2022
|
$
|
1.4500
|
|
|
|
1,849,418
|
|
|
|
1,849,418
|
|
|
December 9, 2027
|
$
|
1.4500
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
December 9, 2027
|
$
|
2.0000
|
|
|
|
285,000
|
|
|
|
285,000
|
|
|
June 30, 2022
|
$
|
2.0000
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
July 26, 2022
|
$
|
3.9000
|
|
|
|
395,000
|
|
|
|
395,000
|
|
|
January 17, 2022
|
$
|
4.5000
|
|
|
|
7,222
|
|
|
|
7,222
|
|
|
September 2, 2021
|
$
|
5.6875
|
|
|
|
89,686
|
|
|
|
89,686
|
|
|
June 30, 2020
|
$
|
5.7500
|
|
|
|
2,608
|
|
|
|
2,608
|
|
|
September 12, 2021
|
$
|
6.4025
|
|
|
|
27,692
|
|
|
|
27,692
|
|
|
August 18, 2020
|
$
|
6.4025
|
|
|
|
129,231
|
|
|
|
129,231
|
|
|
August 18, 2022
|
$
|
6.4025
|
|
|
|
261,789
|
|
|
|
261,789
|
|
|
August 18, 2025
|
$
|
6.8250
|
|
|
|
8,791
|
|
|
|
8,791
|
|
|
December 11, 2020
|
$
|
7.3775
|
|
|
|
523,077
|
|
|
|
523,077
|
|
|
March 31, 2021
|
$
|
8.1250
|
|
|
|
169,231
|
|
|
|
169,231
|
|
|
June 30, 2022
|
$
|
13.0000
|
|
|
|
7,385
|
|
|
|
7,385
|
|
|
March 13, 2019
|
$
|
13.0000
|
|
|
|
3,846
|
|
|
|
3,846
|
|
|
April 14, 2019
|
$
|
13.9750
|
|
|
|
3,385
|
|
|
|
3,385
|
|
|
March 14, 2024
|
$
|
15.4700
|
|
|
|
7,755
|
|
|
|
7,755
|
|
|
April 8, 2020
|
$
|
15.9250
|
|
|
|
2,462
|
|
|
|
2,462
|
|
|
February 28, 2024
|
$
|
16.0500
|
|
|
|
46,154
|
|
|
|
46,154
|
|
|
July 17, 2019
|
$
|
16.6400
|
|
|
|
1,538
|
|
|
|
1,538
|
|
|
January 29, 2020
|
$
|
19.5000
|
|
|
|
9,487
|
|
|
|
9,487
|
|
|
July 17, 2022
|
$
|
19.5000
|
|
|
|
6,410
|
|
|
|
6,410
|
|
|
August 10,
2022
|
|
|
|
|
|
4,344,994
|
|
|
|
4,344,994
|
|
|
|
There
was no deferred compensation expense for the outstanding and unvested stock options at December 31, 2018.
Based
on a fair value of $0.65 per share on December 31, 2018, there were no exercisable in-the-money common stock options as of December
31, 2018.
For
the years ended December 31, 2019 and 2018, stock-based compensation costs and fees included in the consolidated statements of
operations consisted of general and administrative expenses of $0 and $14,248 respectively, and research and development expenses
of $0 and $15,000, respectively.
Pier
Contingent Stock Consideration
In
connection with the merger transaction with Pier effective August 10, 2012, RespireRx issued 179,747 newly issued shares of its
common stock with an aggregate fair value of $3,271,402 ($18.2000 per share), based upon the closing price of RespireRx’s
common stock on August 10, 2012. The shares of common stock were distributed to stockholders, convertible note holders, warrant
holders, option holders, and certain employees and vendors of Pier in satisfaction of their interests and claims. The common stock
issued by RespireRx represented approximately 41% of the 443,205 common shares outstanding immediately following the closing of
the transaction.
The
Company concluded that the issuance of any of the contingent shares to the Pier Stock Recipients was remote, as a result of the
large spread between the exercise prices of these stock options and warrants as compared to the common stock trading range, the
subsequent expiration or forfeiture of most of the options and warrants, the Company’s distressed financial condition and
capital requirements, and that these stock options and warrants have remained significantly out-of-the-money through December
31, 2019. Accordingly, the Company considered the fair value of the contingent consideration to be immaterial and therefore did
not ascribe any value to such contingent consideration. If any such shares are ultimately issued to the former Pier stockholders,
the Company will recognize the fair value of such shares as a charge to operations at that time.
Reserved
and Unreserved Shares of Common Stock
On
January 17, 2017, the Board of Directors of the Company approved the adoption of an amendment of the Amended and Restated RespireRx
Pharmaceuticals, Inc. 2015 Stock and Stock Option Plan (as amended, the “2015 Plan”). That amendment increases the
shares issuable under the plan by 1,500,000, from 1,538,461 to 3,038,461. On December 9, and December 28, 2018, the Board
of Directors further amended the 2015 Plan to increase the number of shares that may be issued under the 2015 Plan to 6,985,260
and 8,985,260 shares of the Company’s common stock.
Other
than the change in the number of shares available under the 2015 Plan, no other changes were made to the 2015 Plan by these amendments
noted above.
At
December 31, 2019, the Company had 65,000,000 shares of common stock authorized and 4,175,072 shares of common stock issued and
outstanding. The Company has reserved 11 shares of common stock for the conversion of the Series B Preferred Stock. The Company
has reserved an aggregate of 7,035,706 for the calculated amount of shares of common stock into which convertible notes may convert
and an additional 39,375,462 shares of common stock for contractual reserves. In addition, The Company has reserved 6,478,652
shares of the Company’s common stock for exercises of common stock purchase options granted and warrants issued. There are
4,490,578 shares reserved for future issuances under the Company’s 2014 Plan and 2015 Plan. Accordingly, after taking into
consideration the shares of common stock reserved for all conversions, exercises and contingent share issuances, there were 42,813,484
shares of the Company’s common stock available for future issuances as of December 31, 2019. After accounting for additional
contractual reserves, which amount declines with each actual conversion, there are 3,438,022 shares of the Company’s common
stock available for future issuances as of December 31, 2019. The Company has taken steps to increase the number of authorized
shares. See Note 10. Subsequent Events. The Company expects to satisfy its future common stock commitments through the issuance
of authorized but unissued shares of common stock.
7.
Income Taxes
Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets
as of December 31, 2019 and 2018 are summarized below.
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Capitalized research and
development costs
|
|
$
|
-
|
|
|
$
|
183,000
|
|
Research and development credits
|
|
|
3,017,000
|
|
|
|
3,017,000
|
|
Stock-based compensation
|
|
|
3,787,000
|
|
|
|
3,787,000
|
|
Stock options issued in connection with
the payment of debt
|
|
|
202,000
|
|
|
|
202,000
|
|
Net operating loss carryforwards
|
|
|
19,982,000
|
|
|
|
20,424,000
|
|
Accrued compensation
|
|
|
586,000
|
|
|
|
367,000
|
|
Accrued interest due to related party
|
|
|
217,000
|
|
|
|
103,000
|
|
Other, net
|
|
|
8,000
|
|
|
|
8,000
|
|
Total deferred tax assets
|
|
|
27,799,000
|
|
|
|
28,091,000
|
|
Valuation allowance
|
|
|
(27,799,000
|
)
|
|
|
(28,091,000
|
)
|
Net deferred
tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
In
assessing the potential realization of deferred tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon
the Company attaining future taxable income during the periods in which those temporary differences become deductible. As of December
31, 2019 and 2018, management was unable to determine that it was more likely than not that the Company’s deferred tax assets
will be realized, and has therefore recorded an appropriate valuation allowance against deferred tax assets at such dates.
No
federal tax provision has been provided for the years ended December 31, 2019 and 2018 due to the losses incurred during such
periods. Reconciled below is the difference between the income tax rate computed by applying the U.S. federal statutory rate and
the effective tax rate for the years ended December 31, 2019 and 2018.
|
|
Years
Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
U. S. federal statutory
tax rate
|
|
|
(21.0
|
)%
|
|
|
(21.0
|
)%
|
Forgiveness of indebtedness
|
|
|
-
|
%
|
|
|
-
|
%
|
Change in valuation allowance
|
|
|
(1.0
|
)%
|
|
|
(14.4
|
)%
|
Adjustment to deferred tax asset
|
|
|
22.0
|
%
|
|
|
35.4
|
%
|
Other
|
|
|
-
|
%
|
|
|
-
|
%
|
Effective tax
rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
As of December 31, 2019,
the Company had federal and state tax net operating loss carryforwards of approximately $102,216,000 and $46,645,000,
respectively. The state tax net operating loss carryforward consists of $19,673,000 for California purposes and $26,972,000
for New Jersey purposes. The difference between the federal and state tax loss carryforwards was primarily attributable to
the capitalization of research and development expenses for California franchise tax purposes. The federal net operating loss
carryforwards will expire at various dates from 2020 through 2039. State net operating losses expire at various dates from 2020
through 2029 for California and through 2039 for New Jersey. The Company also had federal and California research and development
tax credit carryforwards that totaled approximately $1,871,000 and $1,146,000, respectively, at December 31, 2019. The
federal research and development tax credit carryforwards will expire at various dates from 2020 through 2031. The California
research and development tax credit carryforward does not expire and will carryforward indefinitely until utilized.
While
the Company has not performed a formal analysis of the availability of its net operating loss carryforwards under Internal Revenue
Code Sections 382 and 383, management expects that the Company’s ability to use its net operating loss carryforwards will
be limited in future periods.
The
Company did not file its federal or state tax returns for the year ended December 31, 2017 or 2018 and has not yet filed such
returns for the year ended December 31, 2019. The Company does not expect there to be any material non-filing penalties. The Company
intends to file such returns as soon as practical.
8.
Related Party Transactions
Dr.
Arnold S. Lippa and Jeff E. Margolis, officers and directors of the Company since March 22, 2013, have indirect ownership interests
and managing memberships in Aurora Capital LLC (“Aurora”) through interests held in its members, and Jeff. E. Margolis
is also an officer of Aurora. Aurora is a boutique investment banking firm specializing in the life sciences sector that is also
a full-service brokerage firm.
A
description of advances and notes payable to officers is provided at Note 4. Notes Payable – Advances from and Notes
Payable to Officer.
Dr.
James S. Manuso resigned as the Company’s President and Chief Executive Officer as well as Vice Chairman and member of the
Board of Directors effective as of September 30, 2018. Having been the principal executive officer of the Company during the fiscal
year ended December 31, 2018, Dr. Manuso is considered a named executive officer for the year ended December 31, 2018, but not
for the year ended December 31, 2019. Dr. Manuso remains an affiliate due to his equity ownership and option grants.
9.
Commitments and Contingencies
Pending
or Threatened Legal Action and Claims
On
March 10, 2020, Sharp Clinical Services, Inc. filed a complaint and summons dated February 21, 2020 in Superior Court of New Jersey
Law Division, Bergen County against the Company related to a December 16, 2019 demand for payment of past due invoices inclusive
of late fees totaling $103,890 of which $3,631 relates to late fees. The complaint and summons seeks $100,259 plus 1.5% interest
per month on outstanding unpaid invoices. On Friday On Friday March 13, 2020, the RespireRx and its counsel communicated with
counsel to this vendor and discussed why a settlement of such matter would be in the best interests of both parties, but has not
yet received a response from this vendor or it’s counsel. As of December 31, 2019, the Company had recorded accounts payable
of $99,959 to such vendor an amount considered by the Company to be reasonable given the ongoing settlement discussions.
By
letter dated May 18, 2018, the Company received notice from counsel claiming to represent TEC Edmonton and The Governors of the
University of Alberta, which purports to terminate, effective December 12, 2017, the license agreement dated May 9, 2007 between
the Company and The Governors of the University of Alberta. The Company, through its counsel, disputed any grounds for termination
and notified the representative that it invoked Section 13 of that license agreement, which mandates a meeting to be attended
by individuals with decision-making authority to attempt in good faith to negotiate a resolution to the dispute. In February 2019,
the Company and TEC Edmonton tentatively agreed to terms acceptable to all parties to establish a new license agreement and the
form of a new license agreement. However, the Company has re-evaluated that portion of its ampakine program and has decided not
to enter into a new agreement at this time. The lack of entry into a new agreement at this time does not affect the Company’s
other ampakine programs and permits the Company to reallocate resources to those programs, including, but not limited to ADHD,
SCI, FXS and others.
By
e-mail dated July 21, 2016, the Company received a demand from an investment banking consulting firm that represented the Company
in 2012 in conjunction with the Pier transaction alleging that $225,000 is due and payable for investment banking services rendered.
Such amount has been included in accrued expenses at December 31, 2019 and 2018.
The
Company is periodically the subject of various pending and threatened legal actions and claims. In the opinion of management of
the Company, adequate provision has been made in the Company’s consolidated financial statements as of December 31, 2019
and 2018 with respect to such matters, including, specifically, the matters noted above. The Company intends to vigorously defend
itself if any of the matters described above results in the filing of a lawsuit or formal claim. See Note 5. Settlement and
Payment Agreements for additional items and details.
Significant
Agreements and Contracts
Consulting
Agreement
Richard
Purcell, the Company’s Senior Vice President of Research and Development since October 15, 2014, provides his services to
the Company on a month-to-month basis through his consulting firm, DNA Healthlink, Inc., through which the Company has contracted
for his services, for a monthly cash fee of $12,500. Additional information with respect to shares of common stock that have been
issued to Mr. Purcell is provided at Note 6. Cash compensation expense pursuant to this agreement totaled $150,000 for the fiscal
years ended December 31, 2019 and 2018, which is included in research and development expenses in the Company’s consolidated
statements of operations for such periods.
Employment
Agreements
Employment
Agreements
On
October 12, 2018, after the resignation of Dr. James Manuso effective September 30, 2018, Dr. Lippa was named Interim President
and Interim Chief Executive Officer (see Note 9 to the Company’s consolidated financial statements for the fiscal years
ended December 31, 2019 and 2018). Dr. Lippa has continued to serve as the Company’s Executive Chairman and as a member
of the Board of Directors. On August 18, 2015, Dr. Lippa was named Chief Scientific Officer of the Company, and the Company entered
into an employment agreement with Dr. Lippa in that capacity. Pursuant to the agreement, which was for an initial term through
September 30, 2018 (and which automatically extended on September 30, 2018 and 2019 and will automatically extend annually, upon
the same terms and conditions, for successive periods of one year, unless either party provides written notice of its intention
not to extend the term of the agreement at least 90 days prior to the applicable renewal date), Dr. Lippa earned an annual base
salary of $300,000. Dr. Lippa is also eligible to earn a performance-based annual bonus award of up to 50% of his base salary,
based upon the achievement of annual performance goals established by the Board of Directors in consultation with the executive
prior to the start of such fiscal year, or any amount at the discretion of the Board of Directors. Additionally, Dr. Lippa has
been granted stock options on several occassions and is eligible to receive additional awards under the Company’s Plans
at the discretion of the Board of Directors. Dr. Lippa did not receive any option to purchase shares of common stock during fiscal
year ended December 31, 2019. Dr. Lippa is also entitled to receive, until such time as the Company establishes a group health
plan for its employees, $1,200 per month, on a tax-equalized basis, as additional compensation to cover the cost of health coverage
and up to $1,000 per month, on a tax-equalized basis, as reimbursement for a term life insurance policy and disability insurance
policy. Dr. Lippa is also entitled to be reimbursed for business expenses. Additional information with respect to the stock options
granted to Dr. Lippa is provided at Note 6 to the Company’s consolidated financial statements for the fiscal years ended
December 31, 2019 and 2018. Cash compensation inclusive of employee benefits accrued pursuant to this agreement totaled $339,600
for each of the fiscal years ended December 31, 2019 and 2018, respectively, which amounts are included in accrued compensation
and related expenses in the Company’s consolidated balance sheet at December 31, 2019 and 2018, and in research and development
expenses in the Company’s consolidated statement of operations for the fiscal years ended December 31, 2019 and 2018. Dr.
Lippa does not receive any additional compensation for serving as Executive Chairman and on the Board of Directors.
On
August 18, 2015, the Company also entered into an employment agreement with Jeff E. Margolis, in his role at that time as Vice
President, Secretary and Treasurer. Pursuant to the agreement, which was for an initial term through September 30, 2016 and later
amended (and which automatically extended on September 30, 2016, 2017, 2018 and 2019 and will automatically extend annually, upon
the same terms and conditions for successive periods of one year, unless either party provides written notice of its intention
not to extend the term of the agreement at least 90 days prior to the applicable renewal date), Mr. Margolis currently receives
an annual base salary of $300,000, and is eligible to receive performance-based annual bonus awards based upon the achievement
of annual performance goals established by the Board of Directors in consultation with the executive prior to the start of such
fiscal year. Additionally, Mr. Margolis has granted stock options on several occasions and is eligible to receive additional awards
under the Company’s Plans at the discretion of the Board of Directors. Mr. Margolis is also entitled to receive, until such
time as the Company establishes a group health plan for its employees, $1,200 per month, on a tax-equalized basis, as additional
compensation to cover the cost of health coverage and up to $1,000 per month, on a tax-equalized basis, as reimbursement for a
term life insurance policy and disability insurance policy. Mr. Margolis is also entitled to be reimbursed for business expenses.
Additional information with respect to the stock options granted to Mr. Margolis is provided at Note 6 to the Company’s
consolidated financial statements for fiscal years ended December 31, 2019 and 2018. Recurring cash compensation accrued pursuant
to this amended agreement totaled $321,600 for the fiscal year ended December 31, 2019 and 2018 which amounts are included in
accrued compensation and related expenses in the Company’s consolidated balance sheet December 31, 2019 and 2018, and in
general and administrative expenses in the Company’s consolidated statement of operations.
The
employment agreements between the Company and Dr. Lippa, and Mr. Margolis (prior to the 2017 amendment), respectively, provided
that the payment obligations associated with the first year base salary were to accrue, but no payments were to be made, until
at least $2,000,000 of net proceeds from any offering or financing of debt or equity, or a combination thereof, was received by
the Company, at which time scheduled payments were to commence. Dr. Lippa, and Mr. Margolis (who are each also directors of the
Company) have each agreed, effective as of August 11, 2016, to continue to defer the payment of such amounts indefinitely, until
such time as the Board of Directors of the Company determines that sufficient capital has been raised by the Company or is otherwise
available to fund the Company’s operations on an ongoing basis.
University
of Illinois 2014 Exclusive License Agreement
On
June 27, 2014, the Company entered into an Exclusive License Agreement (the “2014 License Agreement”) with the University
of Illinois, the material terms of which were similar to a License Agreement between the parties that had been previously terminated
on March 21, 2013. The 2014 License Agreement became effective on September 18, 2014, upon the completion of certain conditions
set forth in the 2014 License Agreement, including: (i) the payment by the Company of a $25,000 licensing fee, (ii) the payment
by the Company of outstanding patent costs aggregating $15,840, and (iii) the assignment to the University of Illinois of rights
the Company held in certain patent applications, all of which conditions were fulfilled.
The
2014 License Agreement granted the Company (i) exclusive rights to several issued and pending patents in numerous jurisdictions
and (ii) the non-exclusive right to certain technical information that is generated by the University of Illinois in connection
with certain clinical trials as specified in the 2014 License Agreement, all of which relate to the use of cannabinoids for the
treatment of sleep related breathing disorders. The Company is developing dronabinol (Δ9-tetrahydrocannabinol), a cannabinoid,
for the treatment of OSA, the most common form of sleep apnea.
The
2014 License Agreement provides for various commercialization and reporting requirements commencing on June 30, 2015. In addition,
the 2014 License Agreement provides for various royalty payments, including a royalty on net sales of 4%, payment on sub-licensee
revenues of 12.5%, and a minimum annual royalty beginning in 2015 of $100,000, which is due and payable on December 31 of each
year beginning on December 31, 2015. The minimum annual royalty obligation of $100,000 due on December 31, 2019, was extended
to June 30, 2020. One-time milestone payments may become due based upon the achievement of certain development milestones. $350,000
will be due within five days after the dosing of the first patient is a Phase III human clinical trial anywhere in the world.
$500,000 will be due within five days after the first NDA filing with FDA or a foreign equivalent. $1,000,000 will be due within
twelve months of the first commercial sale. One-time royalty payments may also become due and payable. Annual royalty payments
may also become due. In the year after the first application for market approval is submitted to the FDA or a foreign equivalent
and until approval is obtained, the minimum annual royalty will increase to $150,000. In the year after the first market approval
is obtained from the FDA or a foreign equivalent and until the first sale of a product, the minimum annual royalty will increase
to $200,000. In the year after the first commercial sale of a product, the minimum annual royalty will increase to $250,000.
During
the fiscal years ended December 31, 2019 and 2018, the Company recorded charges to operations of $100,000, respectively, with
respect to its 2019 and 2018 minimum annual royalty obligation, which is included in research and development expenses in the
Company’s consolidated statement of operations for the fiscal years ended December 31, 2019 and 2018. The Company
did not pay the amount due on December 31, 2019 for which the Company was granted an extension until June 30,
2020.
University
of Alberta License Agreement
On
May 18, 2018, the Company received a letter from counsel claiming to represent TEC Edmonton and The Governors of the University
of Alberta, which purported to terminate, effective December 12, 2017, the license agreement dated May 9, 2007 (as subsequently
amended) between the Company and The Governors of the University of Alberta. The Company, through its counsel, disputed any grounds
for termination and notified the representative that it invoked Section 13 of that license agreement, which mandates a meeting
to be attended by individuals with decision-making authority to attempt in good faith to negotiate a resolution to the dispute.
In February 2019, the Company and TEC Edmonton tentatively agreed to terms acceptable to all parties to establish a new license
agreement and the form of a new license agreement. However, after reaching that tentative agreement, the Company has re-evaluated
that portion of its ampakine program and has decided not to enter into a new agreement at this time. The lack of entry into a
new agreement at this time does not affect the Company’s other ampakine programs and permits the Company to reallocate resources
to those programs, including, but not limited to ADHD, FXS, SCI and CNS-driven Disorders.
Noramco
Inc. - Dronabinol Development and Supply Agreement
On
September 4, 2018, RespireRx entered into a dronabinol Development and Supply Agreement with Noramco Inc., one of the world’s
major dronabinol manufacturers. Under the terms of the Agreement, Noramco agreed to (i) provide all of the active pharmaceutical
ingredient (“API”) estimated to be needed for the clinical development process for both the first- and second-generation
products (each a “Product” and collectively, the “Products”), three validation batches for New Drug Application
(“NDA”) filing(s) and adequate supply for the initial inventory stocking for the wholesale and retail channels, subject
to certain limitations, (ii) maintain or file valid drug master files (“DMFs”) with the FDA or any other regulatory
authority and provide the Company with access or a right of reference letter entitling the Company to make continuing reference
to the DMFs during the term of the agreement in connection with any regulatory filings made with the FDA by the Company, (iii)
participate on a development committee, and (iv) make available its regulatory consultants, collaborate with any regulatory consulting
firms engaged by the Company and participate in all FDA or Drug Enforcement Agency (“DEA”) meetings as appropriate
and as related to the API.
In
consideration for these supplies and services, the Company has agreed to purchase exclusively from Noramco during the commercialization
phase all API for its Products as defined in the Development and Supply Agreement at a pre-determined price subject to certain
producer price adjustments and agreed to Noramco’s participation in the economic success of the commercialized Product or
Products up to the earlier of the achievement of a maximum dollar amount or the expiration of a period of time.
Transactions
with Biovail Laboratories International SRL
Beginning
in March 2010, the Company entered into a series of asset purchase and license agreements with Biovail Laboratories International
SRL later merged with Valeant Pharmaceuticals International, Inc. which was later renamed Bausch Health Companies Inc. (“Biovail”).
In
March 2011, the Company entered into a new agreement with Biovail to reacquire the ampakine compounds, patents and rights that
Biovail had acquired from the Company in March 2010. The new agreement provided for potential future payments of up to $15,150,000
by the Company based upon the achievement of certain developments, including new drug application submissions and approval milestones
pertaining to an intravenous dosage form of the ampakine compounds for respiratory depression, a therapeutic area not currently
pursued by the Company. Biovail is also eligible to receive additional payments of up to $15,000,000 from the Company based upon
the Company’s net sales of an intravenous dosage form of the compounds for respiratory depression.
At
any time following the completion of Phase 1 clinical studies and prior to the end of Phase 2A clinical studies, Biovail retains
an option to co-develop and co-market intravenous dosage forms of an ampakine compound as a treatment for respiratory depression
and vaso-occlusive crises associated with sickle cell disease. In such an event, the Company would be reimbursed for certain development
expenses to date and Biovail would share in all such future development costs with the Company. If Biovail makes the co-marketing
election, the Company would owe no further milestone payments to Biovail and the Company would be eligible to receive a royalty
on net sales of the compound by Biovail or its affiliates and licensees.
Summary
of Principal Cash Obligations and Commitments
The
following table sets forth the Company’s principal cash obligations and commitments for the next five fiscal years as of
December 31, 2019, aggregating $995,900. Employment agreement amounts included in the 2020 column represent amounts contractually
due at from January 1, 2020 through September 30, 2020 when such contracts expire unless extended pursuant to the terms of the
contracts.
|
|
|
|
|
Payments
Due By Year
|
|
|
|
Total
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
License agreements
|
|
$
|
500,000
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
Employment agreements
(1)
|
|
|
495,900
|
|
|
|
495,900
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
995,900
|
|
|
$
|
595,900
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
(1)
The payment of such amounts has been deferred indefinitely, as described above at “Employment Agreements”.
10.
Subsequent Events
On
March 10, 2020, RespireRx was served a complaint and summons dated February 21, 2020 related to a December 16, 2019 demand for
payment of past due invoices inclusive of late fees totaling $103,890 of which $3,631 relates to late fees which seeks $100,259
plus 1.5% interest per month on outstanding unpaid invoices. On Friday March 13, 2020, RespireRx and its counsel communicated
with vendor’s counsel and discussed why a settlement of such matter would be in the best interests of both parties. As of
December 31, 2019, the Company had recorded accounts payable of $99,959 to such vendor an amount considered by the Company to
be reasonable given the ongoing settlement discussions.
The
due date of the $100,000 annual amount payable to the University of Illinois that was originally due on December 31, 2019 pursuant
to the 2014 License Agreement, was extended to June 30, 2020.
On
March 2, 2020, RespireRx and UWM Research Foundation, an affiliate of the University of Wisconsin-Milwaukee, entered
into an option agreement (“UWMRF Option Agreement”) pursuant to which RespireRx has a six-month option to license
the identified intellectual property pursuant to license terms substantially in the Form of a Patent License Agreement (“UWMRF
License Agreement”) that is attached to the UWMRF Option Agreement as Appendix I. The UWMRF License Agreement, if it becomes
effective, will expand the Company’s neuromodulator program which has historically included the Company’s ampakine
program to include a GABA-A program as well.
On
March 20, 2020, the holder of the August 2019 Convertible Note converted $1,000 of principal and $866 of reimbursable costs into
200,000 shares of the Company’s common stock. On March 16, 2020 the same holder converted $1,000 principal amount
and $866 of reimbursable conversion costs into 200,000 shares of the Company’s common stock. On February 24, 2020 the same
holder converted $6,150 principal amount and $1,200 of reimbursable costs into 175,000 shares of the Company’s common stock.
There remains $46,850 of principal amount plus accrued interest due on the August 2019 Convertible Note (See Note 4. Notes Payable
– Convertible Notes Payable).
On
March 20, 2020, the holder of the May 2019 Convertible Note converted $493 of principal and $750 of reimbursable costs into 259,000
shares of the Company’s common stock. There remains $44,953 of principal amount plus accrued interest due on the May 2019
Convertible Note. (See Note 4. Notes Payable – Convertible Notes Payable).
On
March 26, 2020 the holder of the April 2019 Convertible Note converted $5,600 principal amount and $3,510 of interest into 1,247,945
shares of the Company’s common stock which resulted in the full repayment of all amounts owed pursuant to the April 2019
Convertible Note. On March 24, 2020 and March 20, 2019, the holder of the April 2019 Convertible Note converted $1,800 principal
amount on each date into 246,575 shares of the Company’s common stock on each date. Similarly, on March 19, 2020 the holder
of the April 2019 Convertible Note converted $1,800 principal amount into 246,575 shares of the Company’s common stock.
On January 6, 2020, February 18, 2020 and March 4, 2020 the holder of the April 2019 Convertible Note converted $9,800, $9,400
and $8,300 respectively, of principal amount into 200,820, 217,090 and 226,776 shares of the Company’s common stock respectively.
There remains no principal amount or accrued interest due on the April 2019 Convertible Note. (See Note 4. Notes Payable –
Convertible Notes Payable).
On
March 21, 2020, the Company entered into five separately negotiated Exchange Agreements (each an “Exchange Agreement”
and collectively, the “Exchange Agreements”) with certain existing holders (the “Noteholders”) of Convertible
Promissory Notes of the Company (the “Notes”). On March 22, 2020 (the “Closing Date”), each Noteholder
exchanged his, her or its Note or Notes for shares of common stock of the Company as contemplated by the respective Exchange Agreement.
The Noteholders were issued the Notes by the Company on one or more of the following dates: December 31, 2014, December
6, 2018, December 7, 2018, February 27, 2019, March 6, 2019 and March 14, 2019. Under the Exchange Agreements, an aggregate of
$255,786.37 principal amount and accrued interest with respect to the Notes were exchanged and cancelled in return for an aggregate
of 17,052,424 shares of Common Stock.
On
March 21, 2020, two directors and officers of the Company, agreed to forgive a portion of the accrued but unpaid compensation
to which each was entitled pursuant to his employment agreement with the Company, equal to $153,000 each. On March 22, 2020, the
Company issued to each of them 4,500,000 shares of Common Stock in exchange for this forgiveness, which equates to a per share
value of $0.034 per share, the closing share price of Common Stock on Friday, March 20, 2020, the last business day prior to the
transaction.
Under
the terms of the April 2019 Convertible Note, the May 2019 Convertible Note, the August 2019 Convertible Note, the October 2019
Convertible Note and the November 2019 Convertible Note (each a “Subsequent Note” and collectively, the “Subsequent
Notes”), the Company is subject to covenants to maintain a number of reserved shares of common stock with respect to these
Subsequent Notes. The reserve requirement is generally a multiple of the number of shares of common stock that would be issued
if there were a conversion pursuant to the terms of the applicable Subsequent Note. A breach by the Company of these covenants
is an event of default under the terms of the April, August and October Subsequent Notes that generally increases the applicable
note’s principal amount and interest rate, and accelerates its maturity date, making the debt immediately due and payable.
For the May Subsequent Note, the provisions are similar, but a notice of default is required before such increases and acceleration.
For the November Subsequent Note, an event of default will only occur if the holder requests replenishment of the reserves, and
that request is not met within three days or a subsequent five-day cure period. The holder of the November Subsequent Note has
not yet made such request. (See Note 4. Notes Payable – Convertible Notes Payable).
On
March 21 and 22, 2020, the board of directors of Company approved, and on March 22, 2020 the holders of a majority of the outstanding
shares of the Company’s common stock executed written consents approving a Certificate of Amendment to the Company’s
Certificate of Incorporation. When filed with the Secretary of State of Delaware, the Certificate of Amendment will
increase the number of authorized shares of Common Stock of the Company from 65,000,000 to 1,000,000,000. The Company
as required, filed a Form DEF 14C Information Statement with the Securities and Exchange Commission.
The filing was made on April 10, 2020. The Company is required to provide (generally by mail), the DEF 14C to its shareholders
who did not consent to the action. Twenty days after the commencement of the distribution of the Form DEF 14C, the Company is
eligible to file the Certificate of Amendment with the Secretary of State of Delaware. The Company has taken this action primarily
to increase the number of authorized shares available and to bring it back into compliance with the covenants in the Subsequent
Notes regarding the required number of reserved shares of common stock. As described above, the outstanding principal of certain
of the Subsequent Notes has been reduced as the holders of these notes have converted a portion of the outstanding principal in
exchange for Common Shares, pursuant to the term of the applicable Subsequent Note. With respect to those Subsequent Notes for
which conversions have occurred, interest continues to accrue based upon the reduced principal amount of the relevant Subsequent
Note. The Company has received waivers of the reserve requirements from several of the Subsequent Note holders until April 30,
2020. The Company is in discussions with the relevant remaining holders of the Subsequent Notes with respect to this recent action,
seeking waivers regarding the technical breach of the reserve provisions until such time as the increase in authorized shares
is effective, which the Company currently expects will be on or about April 30, 2020, at which time the Company
expects that the number of reserved shares will again be in compliance with the applicable covenants.
Dr. Lippa and Mr.
Margolis have made advances to the Company on April 13, 2020 totaling $18,500 in the aggregate, which funds were utilized to make
a payment of $18,000 to the Company’s auditors.
RespireRx
Pharmaceuticals Inc.
Annual
Report on Form 10-K
Year
Ended December 31, 2019