NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
Organization and Basis of Presentation
Organization
RespireRx Pharmaceuticals Inc. (“RespireRx”) 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 (as amended, the “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. In August 2012, RespireRx acquired Pier Pharmaceuticals, Inc. (“Pier”),
which is now a wholly owned subsidiary. Pier was a clinical stage biopharmaceutical company developing a pharmacologic treatment
for obstructive sleep apnea (“OSA”) and had been engaged in research and clinical development activities which activities
are now in RespireRx.
While developing potential
applications for respiratory disorders, notably dronabinol (a cannabinoid that is a synthetic form of ∆9-tetrahydrocannabinol
(“Δ9-THC”)), for the treatment of OSA, the Company has retained and expanded its ampakine intellectual property
and data with respect to neurological and psychiatric disorders and is considering developing certain potential products in this
platform, subject to raising additional financing and/or entering into strategic relationships, of which no assurance can be provided.
On August 1, 2020, RespireRx and the University of Wisconsin-Milwaukee Research Foundation, Inc. (“UWMRF”), an affiliate
of the University of Wisconsin-Milwaukee, entered into a Patent License Agreement (the “UWMRF Patent License Agreement”),
pursuant to which UWMRF licensed to RespireRx certain patent and technology rights held by UWMRF for RespireRx’s use in
developing commercial products (See Note 9. Subsequent Events). The licensed intellectual property is associated with a program
involving GABAkines, positive allosteric modulators (“PAMs”) of the Type A gamma-amino-butyric acid (“GABAA”)
receptors. Together, the ampakine and GABAkine programs are the foundation of the Company’s neuromodulator platform called
Project EndeavourRx.
Basis
of Presentation
The condensed consolidated financial statements are of RespireRx
and its wholly owned subsidiary, Pier (collectively referred to herein as the “Company,” “we” or “our,”
unless the context indicates otherwise). The condensed consolidated financial statements of the Company at June 30, 2020 and for
the three-months and six-months ended June 30, 2020 and 2019, are unaudited. In the opinion of management, all adjustments (including
normal recurring adjustments) have been made that are necessary to present fairly the condensed consolidated financial position
of the Company as of June 30, 2020, the results of its condensed consolidated operations for the three-months and six-months ended
June 30, 2020 and 2019, changes in its condensed consolidated statements of stockholders’ deficiency for the six-months ended
June 30, 2020 and 2019 and its condensed consolidated cash flows for the six-months ended June 30, 2020 and 2019. Condensed consolidated
operating results for the interim periods presented are not necessarily indicative of the results to be expected for a full fiscal
year. The consolidated balance sheet at December 31, 2019 has been derived from the Company’s audited consolidated financial
statements at such date.
The
condensed consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission (the “SEC”). Accordingly, certain information and note disclosures normally included
in financial statements prepared in accordance with United States generally accepted accounting principles (“GAAP”)
have been omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and other information included in the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2019, as filed with the SEC.
2.
Business
The mission of the
Company is to develop innovative and revolutionary treatments to combat disorders caused by disruption of neuronal signalling.
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
(“FXS”). With the addition of the GABAkine program we have added development programs for treatment resistant epilepsy
and other convulsant disorders, and potentially migraine, inflammatory and neuropathic pain, as well as other areas of interest
based on results of animal studies to date. We are developing a pipeline of new drug products based on our broad patent portfolios
for two drug platforms: (i) our cannabinoids platform (which we refer to as Project ResolutionRx), including dronabinol
(a synthetic form of ∆9-tetrahydrocannabinol (“Δ9-THC”)), which acts upon the nervous system’s
endogenous cannabinoid receptors and (ii) our neuromodulators platform (which we refer to as Project EndeavourRx),
which platform includes two programs: (a) our ampakines program, proprietary compounds that positively modulate
AMPA-type glutamate receptors to promote neuronal function and (b) our GABAkines program, PAMs of GABAA
receptors that are the subject of the UWMRF Patent License Agreement.
With
the Project ResolutionRx cannabinoid platform, we plan to create a wholly owned private subsidiary of RespireRx with its
own board of directors.
With the Project
EndeavourRx neuromodulator platform, we are considering creating another wholly owned private subsidiary of RespireRx with
its own board of directors.
Cannabinoids
With
respect to the cannabinoid platform, two Phase 2 clinical trials have been completed demonstrating the ability of dronabinol to
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.
Neuromodulators
– Project EndeavourRx - Ampakines and GABAkines
Neurotransmitters
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 ADHD, SCI, Autism Spectrum Disorder (“ASD”), FXS, treatment resistant epilepsy, neuropathic
pain and additional CNS-driven disorders. We are focused presently on developing drugs known as ampakines (PAMs at AMPA receptors)
and GABAkines (PAMs at GABAA receptors).
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, SCI, neurological diseases, and certain orphan indications. From our ampakine
program, 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 significantly
reduce the symptoms of adult ADHD. In an early Phase 2 study, CX1739 improved breathing in patients with central sleep apnea (“CSA”).
Preclinical studies have highlighted the potential ability of these ampakines to improve motor function in animals with SCI.
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 or CX717 in patients with spinal cord injury and a human Phase 2B study in patients
with ADHD with either CX1739 or CX717.
In order to expand our neuromodulator asset base, we entered into
an option agreement with UWMRF which option we exercised effective August 1, 2020 resulting in the establishment of the UWMRF Patent
License Agreement. Under the UWMRF Patent License Agreement, UWMRF granted to the Company an exclusive license to commercialize
GABAkine products based on UWMRF’s rights in certain patents and patent applications, and a non-exclusive license to commercialize
products based on UWMRF’s rights in certain technology that is not the subject of the patents or patent applications. See
Note 8. Commitments and Contingencies – Significant Agreements and Contracts – UWMRF Patent License Agreement.
Certain of these GABAkines
have shown impressive activity in a broad range of animal models of treatment resistant epilepsy and other convulsant disorders,
as well as in brain tissue samples obtained from epileptic patients in research conducted at the University of Wisconsin-Milwaukee
by Dr. James Cook and by Dr. Jeffrey Witkin of the Indiana University School of Medicine, among others 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
GABAkines have shown positive activity in animal models of migraine, inflammatory and neuropathic pain, as well as other areas
of interest. Because of these compounds’ GABA receptor subunit specificity, we believe 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.
Building upon the
ampakine and GABAkine programs as a foundation, we established a second business unit called Project EndeavourRx
which focuses on developing novel neuromodulators for disorders resulting from alterations in neurotransmission.
Financing
our Platforms
Our major challenge
has been to raise substantial equity or equity-linked financing to support research and development plans for our cannabinoid
and neuromodulator 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, and low market capitalization as a result of our
low stock price. For this reason, the Company is considering an internal restructuring plan that contemplates spinning out our
two drug platforms into separate operating businesses or subsidiaries.
We
believe that by creating one or more subsidiaries to further the aims of Project ResolutionRx and Project EndeavourRx,
it may be possible, through separate finance channels, to optimize the asset values of both the cannabinoid platform and the neuromodulator
platform.
Going
Concern
The
Company’s condensed 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 $1,762,855 for the six-months ended June 30, 2020 and $2,115,033 for the fiscal year ended December 31, 2019 respectively,
as well as negative operating cash flows of $106,448 for the six-months ended June 30, 2020 and $487,745 for the fiscal year ended
December 31, 2019. The Company also had a stockholders’ deficiency of $7,846,748 at June 30, 2020 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 audit 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, establishment of new and
maintenance and improvement of existing and in-process 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 to fund the Company’s business activities.
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 of our
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 condensed 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.
Concentration
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.
Value
of Financial Instruments
The
authoritative guidance with respect to value of financial instruments established a value hierarchy that prioritizes the inputs
to valuation techniques used to measure value into three levels and requires that assets and liabilities carried at 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 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 value hierarchy within which each value measurement falls in its entirety, based on the lowest
level input that is significant to the 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, cash equivalents, and accounts payable and accrued expenses) are
considered by the Company to be representative of the respective values of these instruments due to the short-term nature of those
instruments. With respect to the note payable to SY Corporation (as defined below) 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 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 obligations in its consolidated balance sheet as a direct deduction from
the carrying amount of that debt obligation, 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
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 in connection with and at the time of such financing.
Notes
Exchanges
In
cases where debt or other liabilities are exchanged for equity, the Company compares the carrying value of debt, inclusive of
accrued interest, if applicable, being exchanged, to the value of the equity issued and records any loss or gain as a result of
such exchange. See Note 4. Notes Payable.
Extinguishment
of Debt and Settlement of Liabilities
The
Company accounts for the extinguishment of debt and settlement of liabilities by comparing the carrying value of the debt or liability
to the value of consideration paid or assets given up and recognizing a loss or gain in the condensed 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 2020 for directors and officers insurance, as well as the amortized amount of an
April 2020 premium payment for office-related insurances and clinical trial coverage. Directors’ and Officers’ insurance
tail coverage, purchased in March 2013 expired in March 2020 and all prepaid amounts have been fully amortized. The amounts of
prepaid insurance amortizable in the ensuing twelve-month period are 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.
Stock-Based
Awards
The
Company periodically issues common stock and stock options to officers, directors, Scientific Advisory Board members, consultants
and 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, directors, outside consultants and vendors by measuring the cost of services
received in exchange for equity awards based on the grant date 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
value of stock options granted as stock-based payments 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 market value of the common stock on the grant date, and the estimated volatility of the common
stock over the term 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 market 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.
The
Company recognizes the value of stock-based payments in general and administrative costs and in research and development costs,
as appropriate, in the Company’s condensed consolidated statements of operations. The Company issues new shares of common
stock to satisfy stock option and warrant exercises.
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 June 30, 2020, 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 June 30, 2020, 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 (as defined below), 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 condensed 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 former 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 condensed consolidated
balance sheet, with a corresponding charge to research and development costs in the Company’s condensed 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 condensed consolidated
balance sheet, with a corresponding charge to research and development costs in the Company’s condensed 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 recorded as 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
loss attributable to common stockholders consists of net 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
June 30, 2020 and 2019, 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.
|
|
June
30,
|
|
|
|
2020
|
|
|
2019
|
|
Series
B convertible preferred stock
|
|
|
11
|
|
|
|
11
|
|
Convertible
notes payable
|
|
|
55,578,272
|
|
|
|
564,797
|
|
Common
stock warrants
|
|
|
124,514,653
|
|
|
|
1,876,198
|
|
Common
stock options
|
|
|
4,188,630
|
|
|
|
4,333,763
|
|
Total
|
|
|
184,281,566
|
|
|
|
6,774,769
|
|
Reclassifications
Certain
comparative figures in 2019 have been reclassified to conform to the current quarter’s presentation. These reclassifications
were immaterial, both individually and in the aggregate.
Recent
Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update No.
2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s
Own Equity (Subtopic 815-40). The subtitle is Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.
This Accounting Standard Update (“ASU”) addresses complex financial instruments that have characteristics of both debt
and equity. The application of this ASU would reduce the number of accounting models for convertible debt instruments and convertible
preferred stock. Limiting the accounting models would result in fewer embedded conversion features being separately recognized
from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models
are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition
of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments
issued with substantial premiums for which the premiums are recorded as paid-in capital. The Company has historically issued complex
financial instruments and has considered whether embedded conversion features have existed within those contracts or whether derivatives
would appropriately be bifurcated. To date, no such bifurcation has been necessary. However, it is possible that this ASU may have
a substantial impact on the Company’s financial statements. Management is evaluating the potential impact. This ASU becomes
effective for fiscal years beginning after December 15, 2023.
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 through 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
December 2019, the FASB issued an amendment to the guidance on income taxes which is intended to simplify the accounting for income
taxes. The amendment eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for
calculating income taxes in an interim period, and the recognition of the deferred tax liabilities for outside basis differences.
The amendment also clarifies existing guidance related to the recognition of franchise tax, the evaluation of a step up in the
tax basis of goodwill, and the effects of enacted changes in tax laws or rates in the effective tax rate computation, among other
clarifications. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2020. Management is currently evaluating the impact the guidance will have on our consolidated financial statements.
In
June 2016, the FASB issued an amendment to the guidance on the measurement of credit losses on financial instruments. The amendment
updates the guidance for measuring and recording credit losses on financial assets measured and amortized cost by replacing the
“incurred loss” model with an “expected loss” model. Accordingly, these financial assets will be presented
at the net amount expected to be collected. The amendment also requires that credit losses related to available-for-sale debt
securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment
model. The guidance is effective for smaller reporting companies for fiscal years beginning after December 15, 2022 including
interim periods within those fiscal years. Early adoption is permitted for annual periods after December 15, 2018. Management
is currently evaluating the impact the guidance will have on our consolidated financial statements.
4.
Notes Payable
Convertible
Notes Payable
Q2
2020 Convertible Notes
RespireRx
and Power Up Lending Group Ltd. (the “Lender”) entered into Securities Purchase Agreements, dated as of April 15,
2020 and June 7, 2020 (each, a “Power Up Agreement”), by which the Lender loaned $53,000 and $43,000, respectively,
to RespireRx in return for two convertible promissory notes (the “April 2020 Note” and the “June 2020
Note” respectively), a limited guaranty associated with the April 2020 Note, and the delivery into escrow of a confession
of judgment in favor of the Lender for the amount of the April 2020 Note plus fees and costs to be filed by the Lender upon the
occurrence of an Event of Default (as defined in the April 2020 Note) and other transaction-related documents associated with
both the April 2020 Note and the June 2020 Note. The proceeds of the loans, which equal $90,000 after payment of $5,000 in legal
fees and $1,000 in due diligence fees, are being used for general corporate purposes.
The April 2020 Note
and the June 2020 Note will be payable on April 15, 2021 and June 7, 2021, respectively (each, a “Maturity
Date”), and bear interest at a rate equal to 12% per annum, with any amount of principal or interest which is not paid when
due bearing interest at the rate of 22% per annum.
The Lender has the
right, at any time during the period beginning on the date that is 180 days following the date of each of the notes and ending
on the later of (i) the applicable Maturity Date and (ii) the date of payment of the Default Amount (as defined in the
notes), to convert any outstanding and unpaid amount of the notes into shares of RespireRx’s common stock or securities
convertible into RespireRx’s common stock (“2020 Note Conversion Shares”), provided that such conversion
would not result in the Lender beneficially owning more than 4.99% of RespireRx’s common stock. Subject to certain
limitations and adjustments as described in the notes, the Lender may convert at a per share conversion price equal to 61% of
the lowest trading price of the common stock as reported by the exchange on which RespireRx’s shares are traded,
for the twenty trading days prior to, but excluding, the day upon which a notice of conversion is received by RespireRx.
Upon the conversion of all amounts due under each of the April 2020 Note and the June 2020 Note, each would be deemed repaid
and terminated.
RespireRx may
prepay the outstanding principal amount under the April 2020 Note and the June 2020 Note by paying a certain percentage of the
sum of the outstanding principal, interest, default interest and other amounts owed. Such percentage varies from 120% to 145%
depending on the period in which the prepayment occurs, as set forth in the April 2020 Note and June 2020 Note, respectively.
During the period in which each note is outstanding, subject to certain limited exceptions, RespireRx must notify the Lender
in advance of closing of any financing transactions with third party investors. At the Lender’s discretion, RespireRx
must amend and restate each note, including its conversion terms, and the 2020 Note Conversion Shares to be identical to the
instruments evidencing such financing transaction.
In consideration of and to induce the Lender to consummate the April
2020 Note referenced herein, the Chief Financial Officer of RespireRx (the “CFO”), on April 15, 2020, issued a limited
guaranty in favor of the Lender whereby the CFO guaranteed to the Lender the prompt and full performance and observance by RespireRx
of its obligation to promptly cooperate in processing all notices of conversions issued pursuant to the April 2020 Note.
Both the April 2020
Note and the June 2020 Note and the shares of common stock issuable upon conversion thereof were offered and sold to the Lender
in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws, which
include Section 4(a)(2) of the Securities Act of 1933, as amended (the “1933 Act”), and Rule 506 promulgated by the
SEC under the 1933 Act. Pursuant to these exemptions, the Lender represented to RespireRx under each Power Up Agreement,
among other representations, that it was an “accredited investor” as that term is defined in Rule 501(a) of Regulation
D under the 1933 Act.
The
outstanding amounts of the April 2020 Note and June 2020 Note consist of the following at June 30, 2020 and December 31, 2019:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
Principal amount of notes payable
|
|
$
|
96,000
|
|
|
$
|
-
|
|
Unamortized portion of note discounts
|
|
|
(82,254
|
)
|
|
|
|
|
Accrued interest payable
|
|
|
1,649
|
|
|
|
-
|
|
|
|
$
|
15,395
|
|
|
$
|
-
|
|
2019
Convertible Notes
On
November 4, 2019, October 22, 2019, August 19, 2019, May 17, 2019 and April 24, 2019, the Company issued a series of convertible
notes (“2019 Convertible Notes”), all similar in nature, all subject to debt issuance costs (“DIC”) and
original issue discount (“OID”) and beneficial conversion (“BCF”) features and some subject to the issuance
of warrants (“NW”) and/or commitment shares (“CS”) and placement agent fees. Two of the notes had maturity
dates nine months after issuance and three were for one year. One note was a master note agreement in the amount of $150,000,
but with an initial drawdown of $50,000. The Company evaluated all of the terms of the 2019 Convertible Notes and determined that,
in accordance with ASC 815, there were no derivatives to be bifurcated or separately valued. Each of the April, 24, 2019, August
19, 2019 and October 22, 2019 Convertible Notes was satisfied in full by the lenders electing to convert the outstanding
balances to common stock during the six-months ended June 30, 2020 and the May 17, 2019 Convertible Note, the maturity date
of which was extended to November 17, 2020, was satisfied in full by the lenders electing to convert the outstanding
balances to common stock during the three-months ended June 30, 2020, except for $2,747 of accrued interest that remains outstanding.
The 2019 Convertible Notes that have balances outstanding as of June 30, 2020 are summarized in the table below.
Inception date
|
|
Maturity date
|
|
Original principal amount
|
|
|
Interest rate
|
|
|
Original aggregate DIC, OID, BCF, NW and CS
|
|
|
Cumulative amortization of DIC, OID, BCF, NW and CS
|
|
|
Principal remaining at June 30, 2020
|
|
|
Accrued Interest at June 30, 2020
|
|
|
Balance sheet carrying amount at June 30, 2020 inclusive of accrued interest
|
|
November 4, 2019
|
|
November 4, 2020
|
|
$
|
170,000
|
|
|
|
10
|
%
|
|
$
|
170,000
|
|
|
$
|
148,211
|
|
|
$
|
30,500
|
|
|
$
|
1,964
|
|
|
$
|
10,675
|
|
May 17, 2019
|
|
May 17, 2020, extended to November 17, 2020
|
|
$
|
50,000
|
|
|
|
10
|
%
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
-
|
|
|
$
|
2,747
|
|
|
$
|
2,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
220,000
|
|
|
|
|
|
|
$
|
220,000
|
|
|
$
|
198,211
|
|
|
$
|
30,500
|
|
|
$
|
4,711
|
|
|
$
|
13,422
|
|
2018
Q4 and 2019 Q1 Notes and Original Convertible Notes
On
December 6, 2018, December 7, 2018 and December 31, 2018 the Company issued convertible notes (each a “2018 Q4 Note”)
and on January 2, 2019, February 27, 2019, March 6, 2019 and March 14, 2019, the Company issued additional convertible notes (each
a “2019 Q1 Note”, respectively and collectively with the “2018 Q4, the “2018 Q4 and 2019 Q1 Notes”)
bearing interest at 10% per year. All of the 2018 Q4 and 2019 Q1 Notes matured on either February 28, 2019 or April 30, 2019.
The original aggregate principal amount was $190,000. None of the 2018 Q4 and 2019 Q1 Notes were repaid at maturity. The 2018
Q4 and 2019 Q1 Note investors also received an aggregate of 190,000 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 $146,805. Total value
received by the investors was $336,805, 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 $82,159 and an initial value of the convertible notes
of $107,841 using the relative fair value method. All debt discounts were fully amortized by the original maturity dates. On March
21, 2020, all except one of the 2018 Q4 and 2019 Q1 Note holders exchanged the outstanding principal amount and accrued interest
for shares of common stock. The exchange price was $0.015 per share of common stock. The closing price on March 20, 2020, the
last trading day before the closing of the exchange agreements which took place on a Saturday, was $0.034 per share of common
stock. An aggregate of $155,000 of principal and $17,911 of accrued interest was exchanged for 11,527,407 shares of common stock.
The Company recorded a loss on the extinguishment of the exchanged 2018 Q4 Notes and 2019 Q1 Notes of $219,021. As of June 30,
2020, there remains one outstanding 2018 Q4 Note and one outstanding 2019 Q1 Note, both held by the same single investor, with
an aggregate principal amount of $35,000 and aggregate accrued interest of $5,321 as of June 30, 2020. The 2019 Convertible Notes
discussed above, which the Company does not consider to have arisen from one or more offerings, may be interpreted in such a way
that the remaining 2018 Q4 Note and 2019 Q1 Note holders had the right to convert or exchange into such notes. However, no holder
of the Q4 2018 and 2019 Notes has requested such a conversion or exchange. The Company does not believe that an offering occurred
as of June 30, 2020 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 remaining 2018 Q4 Note and the remaining 2019 Q1 Note may convert is not determinable
and the Company has not accounted for any additional consideration. The warrants to purchase 190,000 shares of common stock issued
in connection with the sale of the 2018 Q4 and 2019 Q1 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 warrants issued to the Q4 2018 and Q1 2019 Note holders expire on December 30,
2023. The Company determined that there were no embedded derivatives to be identified, bifurcated and valued in connection with
this financing.
The
2018 Q4 Notes and 2019 Q1 Notes consist of the following at June 30, 2020 and December 31, 2019:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
Principal amount of notes payable
|
|
$
|
35,000
|
|
|
$
|
190,000
|
|
Accrued interest payable
|
|
|
5,321
|
|
|
|
17,976
|
|
|
|
$
|
40,321
|
|
|
$
|
207,976
|
|
Other
convertible notes were also sold to investors in 2014 and 2015 (the “Original Convertible Notes), which aggregated a total
of $579,500, and had a fixed interest rate of 10% per annum. 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 shares of common
stock issued in connection with the sale of the Original Convertible Notes have either been exchanged for common stock or expired.
On March 21, 2020, the holder of one of the Original Convertible
Notes exchanged $50,000 of principal and $32,875 of accrued interest for 5,525,017 shares of the Company’s common stock.
The exchange price was $0.015 per share of common stock. The closing price on March 20, 2020, the last trading day before the closing
of the exchange agreements, was $0.034 per share of common stock. The Company recorded a loss on the extinguishment of the exchanged
Original Convertible Note of $104,975.
The
remaining outstanding Original Convertible Notes (including that for which a default notice has been received) consist of the
following at June 30, 2020 and December 31, 2019:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
Principal amount of notes payable
|
|
$
|
75,000
|
|
|
$
|
125,000
|
|
Accrued interest payable
|
|
|
57,616
|
|
|
|
82,060
|
|
|
|
$
|
132,616
|
|
|
$
|
207,060
|
|
As
of June 30, 2020, principal and accrued interest on the Original Convertible Note that is subject to a default notice accrues
annual interest at 12% instead of 10%, totalled $46,230, of which $21,230 was accrued interest. As of December 31, 2019, principal
and accrued interest on Original Convertible Notes subject to default notices totalled $43,666 of which $18,666 was accrued interest.
As
of June 30,2020 all of the outstanding Original Convertible Notes, inclusive of accrued interest, were convertible into an aggregate
of 11,658 shares of the Company’s common stock. 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 Original Convertible 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 as of that date) 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. Management 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 has in the past made several
efforts towards a comprehensive resolution of the aforementioned matters involving SY Corporation. During the six-months ended
June 30, 2020, there were no further communications between the Company and 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 June 30, 2020 and December 31, 2019:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
Principal amount of note payable
|
|
$
|
399,774
|
|
|
$
|
399,774
|
|
Accrued interest payable
|
|
|
387,201
|
|
|
|
363,280
|
|
Foreign currency transaction adjustment
|
|
|
(26,760
|
)
|
|
|
3,182
|
|
|
|
$
|
760,215
|
|
|
$
|
766,236
|
|
Interest
expense with respect to this promissory note was $11,960 and $11,829 for the three-months and was $23,921 and $23,789 for the
six months ended June 30, 2020 and 2019, respectively.
Notes
Payable to Officers and Former Officers
For
the three-months ended June 30, 2020 and 2019, $2,817 and $2,561 and for the six-months ended June 30, 2020, $5,633 and $5,094
was charged to interest expense with respect to Dr. Arnold S. Lippa’s notes, respectively.
For
the three-months ended June 30, 2020 and 2019, $4,228 and $3,843 and for the six-months ended June 30, 2020, $8,439 and $7,645
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 as executive officer in all capacities and as a member of the board of directors
of RespireRx (the “Board of Directors”). All of the interest expense noted above for the six-months ended June 30,
2020 and 2019, was incurred while Dr. Manuso was no longer an officer.
Other
Short-Term Notes Payable
Other
short-term notes payable at June 30, 2020 and December 31, 2019 consisted of premium financing agreements with respect to various
insurance policies. At June 30, 2020, a premium financing agreement was payable in the initial amount of $70,762, with interest
at11% per annum, in nine monthly installments of $8,256. In addition, there is a balance of $11,532 of short-term financing
of office and clinical trials insurance premiums that includes a prior period premium financing of $2,317. At June 30, 2020 and
December 31, 2019, the aggregate amount of the short-term notes payable was $ 67,262 and $4,635 respectively.
5.
Settlement and Payment Agreements
On December 16, 2019,
RespireRx and Salamandra, LLC (“Salamandra”) entered into an 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 was to 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 was to pay to Salamandra $100,000 on or
before the Threshold Date if the Company had at that time raised $600,000 in working capital. Such payments by the Company would
have constituted satisfaction of the Full Amount owed and would have served 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 had raised less than
$600,000 in working capital before the Threshold Date, the Company was to pay to Salamandra an amount equal to 21% of the working
capital amount raised, in which case such payment would have reduced the Full Amount owed on a dollar-for-dollar basis, and Salamandra
would then have been able to seek collection on the remainder of the debt. The Company made the initial payment of $25,000 in
December 2019, but did not make the subsequent required payment on March 31, 2020, nor has any payment been made during
the three-months ended June 30, 2020. The Company has initiated further discussions with the intent of reaching a revised settlement
agreement which cannot be assured.
In
June 2020, the Company made a settlement proposal to a vendor, the terms of which, if accepted by the vendor would supersede a
prior agreement in principle originally reached on September 23, 2019 regarding the payment schedule of undisputed amounts owed
by the Company to the vendor. The current proposal includes, among other things, an extension of time until December 31, 2020
to raise the amounts owed. Neither the original agreement in principle nor the discussion of amendments has resulted in
a formal agreement. The original agreement in principle called for a payment of a minimum of $100,000 on or before November
30, 2019 assuming the Company had raised at least $600,000 by that date and thereafter called for a payment of $50,000 per month
until paid in full. No payments had been made through June 30, 2020 with respect to the original agreement in principle.
The currently proposed settlement has not yet been accepted and is being reviewed by the vendor and calls for a payment
of $100,000 if RespireRx is able to raise $700,000 by December 31, 2020 with subsequent settlement payments of $50,000 per month
with a residual final payment of less than $50,000 representing the remaining balance. Under the proposal, if RespireRx raises
less than $700,000 by December 31, 2020, the Company may cancel a portion of the amount owed to the vendor by paying at least
21% of the working capital raised which amount would reduce the amount owed dollar-for-dollar and the vendor would be able to
seek collection of the balance.
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 (as defined below), was extended to June 30, 2020 and further extended to July 7, 2020 when it was
paid in full (See Note 9. Subsequent Events).
6.
Stockholders’ Deficiency
Reserved
and Unreserved Shares of Common Stock
At June 30, 2020, RespireRx had 1,000,000,000 shares of common stock
authorized and 222,307,381 shares of common stock issued and outstanding. RespireRx has reserved 11 shares of common stock for
conversion of the Series B Preferred Stock, 55,578,263 shares of common stock for conversion of various convertible notes, 124,514,653
for warrant exercises and 4,188,630 for the exercise of outstanding options. RespireRx has reserved 63,236 shares of common stock
with respect unissued shares available for issuance from the 2014 Plan and 54,427,342 shares of common stock with respect to unissued
shares available for issuance from the 2015 Plan. RespireRx has reserved 6,497 Pier Contingent shares. There are 538,913,987 shares
of common stock available for issuance. The above amounts do not include contractual reserve requirements of certain convertible
notes and exercisable warrants in excess of actual conversion or exercise amounts. RespireRx believes that the common stock available
for issuance is adequate to meet the contractual reserve requirements at all times.
Preferred
Stock
RespireRx has authorized a total of 5,000,000 shares of preferred
stock, par value $0.001 per share. As of June 30, 2020 and December 31, 2019, 1,250,000 shares were designated as 9% Cumulative
Convertible 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; and 1,700 shares were
designated as Series G 1.5% Convertible Preferred Stock. Accordingly, as of June 30, 2020 and December 31, 2019, 3,505,800 shares
of preferred stock were undesignated and were able to be issued with such rights and powers as the Board of Directors may designate.
On July 13, 2020, RespireRx designated 1,200 shares of Series H, Voting, Non-participating, Convertible Preferred Stock (“Series
H Preferred Stock”) reducing the number of shares of preferred stock that were undesignated to 3,504,600 as of July 13, 2020
(See Note 9. Subsequent Events).
Series
B Preferred Stock outstanding as of June 30, 2020 and 2019 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 June 30, 2020
and December 31, 2019, the shares of Series B Preferred Stock outstanding are convertible into 11 shares of common stock. RespireRx
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
were 222,307,381 shares of RespireRx’s Common Stock outstanding as of June 30, 2020. As of March 31, 2020, RespireRx did
not have enough authorized shares to reserve for all conversions of convertible debt as well as common stock purchase options
and warrants exercises. Assuming everything had been reserved, there would have been no shares of RespireRx’s common stock
available for future issuances. On March 21, 2020, the Board of Directors approved an amendment to the Certificate of Incorporation
to increase the authorized shares of common stock from 65,000,000 shares to 1,000,000,000 (one billion) shares subject to approval
by the holders of a majority of voting stock of RespireRx, appropriate notification of all shareholders and subject
to the authorized officers making the appropriate filings with the Secretary of State of the State of Delaware. On March 22, 2020,
holders of a majority of voting stock of RespireRx consented to this increase in writing without a meeting. The amendment to the
Certificate of Incorporation and increase in the number of authorized shares of common stock became effective on April
30, 2020 when RespireRx filed the amendment with the Secretary of State of Delaware.
Common
Stock Warrants
Information
with respect to the issuance and exercise of common stock purchase warrants in connection with the Convertible Note Payable and
Warrant Purchase Agreement, and Notes Payable to Officers, is provided at Note 4 Notes Payable.
A summary of warrant
activity for the six-months ended June 30, 2020 is presented below.
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (in Years)
|
|
Warrants outstanding at December 31, 2019
|
|
|
2,191,043
|
|
|
$
|
1.87109
|
|
|
|
3.44000
|
|
Warrants issued due to anti-dilution provisions increasing number of originally issued warrants included in December 31, 2019 balance
|
|
|
138,824,795
|
|
|
|
0.00153
|
|
|
|
3.70650
|
|
Exercised
|
|
|
(16,501,185
|
)
|
|
|
0.00157
|
|
|
|
-
|
|
Warrants outstanding and exercisable at June 30, 2020
|
|
|
124,514,653
|
|
|
$
|
0.03272
|
|
|
|
3.78506
|
|
The
exercise prices of common stock warrants outstanding and exercisable are as follows at June 30, 2020:
Exercise Price
|
|
|
Warrants
Outstanding
(Shares)
|
|
|
Warrants
Exercisable
(Shares)
|
|
|
Expiration Date
|
$
|
0.001485
|
|
|
|
58,922,559
|
|
|
|
58,922,559
|
|
|
October 22, 2024
|
$
|
0.001530
|
|
|
|
41,643,423
|
|
|
|
41,643,423
|
|
|
August 19, 2024
|
$
|
0.001600
|
|
|
|
22,125,000
|
|
|
|
22,125,000
|
|
|
May 17, 2022
|
$
|
1.000000
|
|
|
|
916,217
|
|
|
|
916,217
|
|
|
September 20, 2022
|
$
|
1.500000
|
|
|
|
190,000
|
|
|
|
190,000
|
|
|
December 30, 2023
|
$
|
1.562000
|
|
|
|
130,284
|
|
|
|
130,284
|
|
|
December 31, 2021
|
$
|
1.575000
|
|
|
|
238,814
|
|
|
|
238,814
|
|
|
April 30, 2023
|
$
|
2.750000
|
|
|
|
8,000
|
|
|
|
8000
|
|
|
September 20, 2022
|
$
|
4.875000
|
|
|
|
108,594
|
|
|
|
108,594
|
|
|
September 30, 2020
|
$
|
6.834800
|
|
|
|
145,758
|
|
|
|
145,758
|
|
|
September 30, 2020
|
$
|
7.930000
|
|
|
|
86,004
|
|
|
|
86,004
|
|
|
February 28, 2021
|
|
|
|
|
|
124,514,653
|
|
|
|
124,514,653
|
|
|
|
Based
on a value of $0.0064 per share on June 30, 2020, there were 122,690,982 exercisable in-the-money common stock warrants as of
June 30, 2020.
A
summary of warrant activity for the six months ended June 30, 2019 is presented below.
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
Number of
|
|
|
Average
|
|
|
Contractual
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Life (in Years)
|
|
Warrants outstanding at December 31, 2018
|
|
|
1,783,229
|
|
|
$
|
2.20393
|
|
|
|
3.06
|
|
Issued
|
|
|
152,372
|
|
|
|
1.41101
|
|
|
|
|
|
Expired
|
|
|
(59,403
|
)
|
|
|
2.65928
|
|
|
|
|
|
Warrants outstanding at June 30, 2019
|
|
|
1,876,198
|
|
|
$
|
2.12512
|
|
|
|
2.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable at June 30, 2019
|
|
|
1,876,198
|
|
|
$
|
2.12512
|
|
|
|
2.79
|
|
The
exercise prices of common stock warrants outstanding and exercisable are as follows at June 30, 2019:
Exercise Price
|
|
|
Warrants Outstanding
(Shares)
|
|
|
Warrants Exercisable
(Shares)
|
|
|
Expiration Date
|
$
|
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
|
|
|
|
8,000
|
|
|
September 20, 2022
|
$
|
4.8500
|
|
|
|
5,155
|
|
|
|
5,155
|
|
|
September 23, 2019
|
$
|
4.8750
|
|
|
|
108,594
|
|
|
|
108,594
|
|
|
September 30, 2020
|
$
|
5.0000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
September 22, 2019
|
$
|
6.8348
|
|
|
|
145,758
|
|
|
|
145,758
|
|
|
September 30, 2020
|
$
|
7.9300
|
|
|
|
86,004
|
|
|
|
86,004
|
|
|
February 28, 2021
|
|
|
|
|
|
1,876,198
|
|
|
|
1,876,198
|
|
|
|
Based
on a fair market value of $0.70 per share on June 30, 2019, there was no intrinsic value of exercisable in-the-money common stock
warrants as of June 30, 2019.
Stock
Options
On
March 18, 2014, RespireRx adopted its 2014 Equity, Equity-Linked and Equity Derivative Incentive Plan (the “2014 Plan”).
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 (as amended, the “2015 Plan”).
As of March 31, 2020, there were 8,985,260 shares that may be issued under the 2015 Plan. On May 5, 2020 the Board of Directors
increased the number of shares that may be issued under the 2015 Plan to 58,985,260. On July 31, 2020 the Board of Directors increased
the number of shares that may be issued under the 2015 Plan to 158,985, 260. (See Note 9. Subsequent Events). The Company has
not and does not intend to present the 2015 Plan to stockholders for approval.
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.
There
were no stock or stock option grants during the three-months and six months ended June 30, 2020 or in the three-months and six-months
ended June 30, 2019.
See
Note 9. Subsequent Events for a description of stock options granted on July 31, 2020.
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 Summary of Significant Accounting Policies.
A
summary of stock option activity for the six-months ended June 30, 2020 is presented below.
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (in Years)
|
|
Options outstanding at December 31, 2019
|
|
|
4,287,609
|
|
|
$
|
3.3798
|
|
|
|
4.98
|
|
Expired
|
|
|
(98,979
|
)
|
|
|
6.6242
|
|
|
|
-
|
|
Options outstanding at June 30, 2020
|
|
|
4,188,630
|
|
|
$
|
3.3031
|
|
|
|
4.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 30, 2020
|
|
|
4,188,630
|
|
|
$
|
3.3031
|
|
|
|
4.59
|
|
The
exercise prices of common stock options outstanding and exercisable were as follows at June 30, 2020:
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
|
$
|
5.7500
|
|
|
|
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
|
$
|
15.9250
|
|
|
|
2,462
|
|
|
|
2,462
|
|
|
February 28, 2024
|
$
|
19.5000
|
|
|
|
9,487
|
|
|
|
9,487
|
|
|
July 17, 2022
|
$
|
19.5000
|
|
|
|
6,410
|
|
|
|
6,410
|
|
|
August 10, 2022
|
|
|
|
|
|
4,188,630
|
|
|
|
4,188,630
|
|
|
|
There
was no deferred compensation expense for the outstanding and unvested stock options at June 30, 2020.
Based
on a fair value of $0.0064 per share on June 30, 2020, there were no exercisable in-the-money common stock options as of June
30, 2020.
7.
Related Party Transactions
Dr.
Arnold S. Lippa and Jeff E. Margolis, officers and directors of RespireRx since March 22, 2013, have indirect ownership and managing
membership interests 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.
8.
Commitments and Contingencies
Pending
or Threatened Legal Action and Claims
On February 21, 2020,
Sharp Clinical Services, Inc., a vendor of RespireRx, filed a complaint against RespireRx in the Superior Court
of New Jersey Law Division, Bergen County 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, seeking $100,259 plus 1.5% interest per month on outstanding
unpaid invoices. Amid settlement discussions, the vendor stated on March 13, 2020 its intent to proceed to a default judgment
against the Company, and the Company stated on March 14, 2020 its intent to continue settlement discussions. On May 29, 2020,
a default was entered against RespireRx. As of June 30, 2020, the Company had recorded accounts payable of $99,959 to such
vendor, an amount considered by the Company to be reasonable given the settlement discussions that were ongoing at that time.
On August 18, 2020, RespireRx communicated with Sharp Clinical Services, Inc. in an attempt to continue settlement discussions.
Related
to the Salamandra matter described in Note 5. Settlements and Payments Agreements, 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 June 30, 2020 and December 31, 2019, including accrued interest at 4.5% annually
from February 26, 2018, the date of the judgment, through June 30, 2020, totalling $20,736.
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, 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
email 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 June 30, 2020 and December 31, 2019.
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 June 30, 2020 and
December 31, 2019 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. Stockholders’ Deficiency. Cash compensation expense pursuant to this
agreement totalled $37,500 and $75,000 for the three-months and six-months ended June 30, 2020 and 2019, which is included in
research and development expenses in the Company’s consolidated statements of operations for such periods.
Employment
Agreements
Effective
on May 6, 2020, Timothy Jones was appointed as RespireRx’s President and Chief Executive Officer and entered into an employment
agreement as of that date. In addition, Mr. Jones has continued to serve as a member of the Company’s Board of Directors,
a position he has held since January 28, 2020. On November 19, 2019, Mr. Jones became an advisor to the Company’s Board
of Directors, a position he held until January 27, 2020. Under the employment agreement, a provisional period of “at will”
employment was to expire on July 31, 2020. Neither party terminated the employment agreement prior to July 31, 2020, and on that
date all rights and obligations under the agreement were deemed effective, including with respect to the certain economic obligations
of the Company upon termination of Mr. Jones’ employment. The Board of Directors and Mr. Jones agreed to continue the employment
agreement after the initial provisional period. The employment agreement has a termination date of September 30, 2023 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.
On July 31, 2020, the employment agreement was amended. The terms of the amended agreement call for a base salary through September
30, 2020 of $300,000 per year which may remain accrued but unpaid at the discretion of the Board of Directors until such time
as at least $2,500,000 has been raised. If $10,000,000 or more has been raised by September 30, 2021, Mr. Jones’ base salary
would be increased to $375,000 per year. Otherwise, it would remain at $300,000 annually unless increased pursuant to the
employment agreement or by the Board of Directors. Mr. Jones’ base salary is subject to cost of living increases. Since
the expiration of the provisional period, Mr. Jones is eligible for a guaranteed bonus of $200,000 on October 31,2020, $200,000
on March 31, 2021 and $150,000 each six months thereafter on each March 31st and September 30th thereafter, unless
the agreement is earlier terminated. At the end of the provisional period, pursuant to the employment agreement, Mr. Jones
was granted an option grant for the purchase of 1,000,000 shares of the Company’s common stock upon the expiration of the
provisional period. In addition, until such time as the Company establishes comparable benefits, Mr. Jones is entitled to $1,200
per month on a tax equalized basis for health insurance and $1,000 per month on a tax equalized basis for term life insurance
plus a disability policy. Mr. Jones is entitled to be reimbursed for business expenses. Mr. Jones would be entitled to a $12,000
tax equalized annual automobile allowance after the Company has raised $10,000,000. In addition, on July 31, 2020, the Board of
Directors granted Mr. Jones a discretionary bonus that was a grant of an option to purchase 16,000,000 shares of common stock
expiring on July 31, 2025 at an exercise price equal to the closing price of the Company’s common stock on July 31,
2020 of $0.0072, 25% of which vested immediately and 25% of which will vest on each of September 30, 2020, December 31,
2020 and March 31, 2021. Upon commencement of Mr. Jones’ employment agreement on May 6, 2020, Mr. Jones was no longer eligible
to receive fees for his participation as a member of the Board of Directors. From January 1, 2020 to January 27, 2020, while Mr.
Jones was an advisor to the Company’s Board of Directors, the Company accrued $3,484 for Mr. Jones’ advisory fees.
From January 28, 2020 to May 5, 2020, the Company accrued $16,734 of fees for Mr. Jones’ participation as a member of the
Board of Directors and $0 thereafter. From May 6, 2020 to June 30, 2020, the Company accrued $49,525 for Mr. Jones’ compensation
and related benefits. These amounts are included in accounts payable and accrued expenses and in accrued compensation in the Company’s
Condensed Consolidated Balance Sheet as of June 30, 2020.
Effective
May 6, 2020, with the appointment of Timothy Jones as RespireRx’s President and Chief Executive Officer, Dr. Lippa resigned
the interim officer positions of Interim Chief Executive Officer and Interim President, positions that Dr. Lippa has assumed on
October 12, 2018 after the resignation of Dr. James Manuso on September 30, 2018. Dr. Lippa continues to serve as RespireRx’s
Executive Chairman and as a member of the Board of Directors as well as the Company’s Chief Scientific Officer. Dr. Lippa
has been granted stock options on several occasions and is eligible to receive additional awards under RespireRx’s 2014
Plan and 2015 Plan at the discretion of the Board of Directors. Dr. Lippa did not receive any option to purchase shares of common
stock during the three-month and six-month periods ending June 30, 2020. Additional information with respect to the stock options
granted to Dr. Lippa is provided at Note 6 Stockholders’ Deficiency. Dr. Lippa is also entitled to receive, until such time
as RespireRx 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. Cash compensation inclusive
of employee benefits accrued pursuant to this agreement totalled $84,900 and $169,800 for each of the three-months and six-months
ended June 30, 2020 and 2019, respectively. Dr. Lippa’s cash compensation is included in accrued compensation and related
expenses in the Company’s condensed consolidated balance sheet at June 30, 2020 and in research and development expenses
in the Company’s condensed consolidated statement of operations for the three-months and six-months ended June 30, 2020
and 2019. Dr. Lippa does not receive any additional compensation for serving as Executive Chairman and on the Board of Directors.
On July 13, 2020, Dr. Lippa forgave $600,000 of accrued compensation and benefits and in exchange received 600 shares of Series
H Preferred Stock (See Note 9. Subsequent Events).
Jeff E. Margolis currently serves as the Company’s Senior
Vice President, Chief Financial Officer, Treasurer and Secretary. On August 18, 2015, the Company entered into an employment agreement
with Mr. 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 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 been 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, which $1,000 per month obligation has been waived
by Mr. Margolis until Mr. Margolis notifies the Company of the rescission of the waiver. 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 Stockholders’
Deficiency. Recurring cash compensation accrued pursuant to this amended agreement totalled $80,400 and $169,800 for the three-months
and six-months ended June 30, 2020 and 2019, respectively, Mr. Margolis’ cash compensation is included in accrued compensation
and related expenses in the Company’s condensed consolidated balance sheet as of June 30, 2020 and December 31, 2019, and
in general and administrative expenses in the Company’s condensed consolidated statement of operations. Mr. Margolis does
not receive any additional compensation for serving on the Company’s Board of Directors. On July 13, 2020, Mr. Margolis forgave
$500,000 of accrued compensation and benefits and in exchange received 500 shares of Series H Preferred Stock (See Note 9. Subsequent
Events).
The
employment agreements between the Company and each of 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 2014 License Agreement granted the Company
(i) exclusive rights to several issued and pending patents in several 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 that commenced 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 and further extended to July 7, 2020 when the obligation was paid (See Note 9. Subsequent Events). 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
each of the three-months and six-months ended June 30, 2020 and 2019, the Company recorded charges to operations of $25,000, respectively,
with respect to its 2020 and 2019 minimum annual royalty obligation, which is included in research and development expenses in
the Company’s condensed consolidated statement of operations for the three-months and six-months ended June 30, 2020 and
2019, respectively.
UWM
Research Foundation Patent License Agreement
On August 1, 2020, RespireRx exercised its option pursuant to its
option agreement dated March 2, 2020, between RespireRx and UWM Research Foundation, an affiliate of the University of Wisconsin-Milwaukee
(“UWMRF”). Upon exercise RespireRx and UWMRF executed the UWMRF Patent License Agreement effective August 1, 2020 pursuant
to which RespireRx licensed the identified intellectual property.
Under
the UWMRF Patent License Agreement, the Company has an exclusive license to commercialize GABAkine products based on UWMRF’s
rights in certain patents and patent applications, and a non-exclusive license to commercialize products based on UWMRF’s
rights in certain technology that is not the subject of the patents or patent applications. UWMRF maintains the right to use,
and, upon the approval of the Company, to license, these patent and technology rights for any non-commercial purpose, including
research and education. The UWMRF Patent License Agreement expires upon the later of the expiration of the Company’s payment
obligations to UWMRF or the expiration of the last remaining licensed patent granted thereunder, subject to early termination
upon the occurrence of certain events. The License Agreement also contains a standard indemnification provision in favor of UWMRF
and confidentiality provisions obligating both parties. For additional details, see Note 9. Subsequent Events - Exercise
of Option pursuant to Option Agreement with UWMRF and Commencement of UWMRF Patent License Agreement.
Noramco
Inc./Purisys, LLC - 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. Noramco subsequently assigned this agreement (as assigned, the “Purisys Agreement”)
to its subsidiary, Purisys, LLC (“Purisys”). Under the terms of the Purisys Agreement, Purisys 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 Purisys 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 Purisys’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 Bausch Health Companies Inc.
Beginning
in March 2010, the Company entered into a series of asset purchase and license agreements with Biovail Laboratories International
SRL, which after its merger with Valeant Pharmaceuticals International, Inc. was later renamed Bausch Health Companies Inc. (“Bausch”).
In
March 2011, the Company entered into a new agreement with Bausch to re-acquire the ampakine compounds, patents and rights that
Bausch 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 NDA 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. Bausch 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 these compounds for respiratory depression.
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 June 30, 2020, aggregating $2,289,770. License agreement amounts
included in the 2020 column represents amounts contractually due from July 1, 2020 through December 31, 2020 (six months) and in
each of the subsequent years, represents the full year. Employment agreement amounts included in the 2020 column represent amounts
contractually due from July 1, 2020 through September 30, 2020 (three months) and in one case through September 30, 2023 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
|
|
$
|
510,370
|
|
|
$
|
50,000
|
|
|
$
|
115,092
|
|
|
$
|
115,093
|
|
|
$
|
130,185
|
|
|
$
|
100,000
|
|
Employment agreements (1)
|
|
|
1,779,400
|
|
|
|
450,200
|
|
|
|
689,600
|
|
|
|
639,600
|
|
|
|
554,700
|
|
|
|
-
|
|
Total
|
|
$
|
2,289,770
|
|
|
$
|
500,200
|
|
|
$
|
739,600
|
|
|
$
|
654,700
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
(1)
The payment of amounts related to Dr. Lippa and Mr. Margolis have been deferred indefinitely, as described above at “Employment
Agreements.” The payment amounts to Mr. Jones have been deferred pending the Company achieving certain financing thresholds
as described above at “Employment Agreements.” The 2020 amounts include three-months of employment agreement obligations
for Dr. Lippa, Mr. Jones and Mr. Margolis as their employment contracts renewed on September 30, 2019 and the 2020 obligations
include the three months of obligations through September 30, 2020. In the case of Mr. Jones, the obligations extend through the
first renewal date of his employment contract which is September 30, 2023. Also, in the case of Mr. Jones, guaranteed bonus obligations
are included in the periods in which such amounts are due.
9.
Subsequent Events
Convertible
Notes
FirstFire
Global Opportunties Fund LLC
On July 2, 2020, RespireRx and FirstFire Global Opportunities Fund
LLC (“FF”) entered into a Securities Purchase Agreement (the “FF SPA”) by which FF provided a sum of $125,000
to the Company, in return for a convertible promissory note with a face amount of $137,500 (which difference in value as compared
to the consideration is due to an original issue discount of $12,500), a common stock purchase warrant for 6,875,000 shares of
the Company’s common stock (the “FF Warrant”), and the Confession of Judgment (as defined below), among other
agreements and obligations.
The
note obligates the Company to pay interest at a rate of 10% per annum on any unpaid principal since July 2, 2020, and to make
five monthly amortization payments in the amount of $30,250 each, with the first such payment due on December 2, 2020, and the
final such payment, along with any unpaid principal and any accrued and unpaid interest and other fees, due on April 2, 2021.
Any amount of principal or interest that is not paid when due bears interest at the rate of the lesser of 24% and the maximum
amount permitted by law, from the due date to the date such amount is paid.
FF
has the right, at any time, to convert any outstanding and unpaid amount of the note into shares of the Company’s common
stock or securities convertible into the Company’s common stock, provided that such conversion would not result in FF beneficially
owning more than 4.99% of the Company’s then outstanding shares of common stock. Subject to certain limitations and adjustments
as described in the note, FF may convert at a per share conversion price equal to $0.02, provided that upon any event of default
(as defined in the note), the conversion price will equal the lower of (i) the fixed conversion price, (ii) discount to market
based upon subsequent financings with other investors, or (iii) 60% multiplied by the lowest traded price of the common stock
of the Company during the twenty-one consecutive trading day (as defined in the note) period immediately preceding the date of
such conversion. Upon such conversion, all rights with respect to the portion of the note being so converted terminate, except
for the right to receive the Company’s common stock or other securities, cash or other assets as provided in the note due
upon such conversion.
The
Company may, with prior written notice to FF, prepay the outstanding principal amount under the note during the initial 180 day
period after the Effective Date by making a payment to FF of an amount in cash equal to a certain percentage of the outstanding
principal, interest, default interest and other amounts owed. Such percentage varies from 105% to 115% depending on the period
in which the prepayment occurs, as set forth in the note.
The
FF SPA provides FF with certain participation rights in any subsequent offering of debt or equity. Under the FF SPA, the Company
may not enter into an offering of its securities with terms that would benefit an investor more than FF is benefited under the
FF SPA and the agreements ancillary thereto, unless the Company offers FF those same terms. The FF SPA also grants FF certain
registration rights.
The
FF Warrant is a common stock purchase warrant to purchase 6,875,000 shares of the Company’s common stock, for value received
in connection with the issuance of the note, from the date of issuance of the FF Warrant until September 30, 2023, at an exercise
price of $0.007 (subject to adjustment as provided therein) per share of common stock.
Additionally, the
Company provided a confession of judgment (the “Confession of Judgment”) in favor of FF for the amount of the
note plus fees and costs, to be filed pursuant to the terms and conditions of the FF SPA and the note.
The note and the shares of the Company’s common stock issuable
upon its conversion were offered and sold to FF in reliance upon specific exemptions from the registration requirements of United
States federal and state securities laws, which include Section 4(a)(2) of the 1933 Act, and Rule 506(b) promulgated by the SEC
under the 1933 Act. Pursuant to these exemptions, FF represented to the Company under the FF SPA, among other representations,
that it was an “accredited investor” as that term is defined in Rule 501(a) of Regulation D under the 1933 Act.
EMA
Financial, LLC
On July 30, 2020, the Company and EMA Financial, LLC (“EMA”)
entered into a securities purchase Agreement (the “EMA SPA”) by which EMA provided a sum of $68,250 to the Company,
in return for a convertible note with a face amount of $75,000, and a common stock purchase warrant (the “EMA Warrant”)
for 3,750,000 shares of the Company’s common stock.
The
note obligates the Company to pay by October 30, 2021 a principal amount of $75,000 together with interest at a rate equal
to 10% per annum, which principal exceeds the consideration by the amount of an original issue discount of $6,750. Any amount
of principal or interest that is not paid by the maturity date would bear interest at the rate of 24% from the maturity date to
the date such amount is paid.
EMA
has the right, in its discretion, at any time, to convert any outstanding and unpaid amount of the note into shares of common
stock, provided that such conversion would not result in EMA beneficially owning more than 4.99% of the Company’s then outstanding
common stock. In the absence of an event of default (as defined in the note), EMA may convert at a per share conversion
price equal to $0.02, subject to a retroactive downward adjustment if the lowest traded price on each of the three consecutive
trading days following such conversion is lower than $0.02. Upon an event of default, the conversion price is to be adjusted downward
based on a discount to market with respect to subsequent financings or a percentage of the lowest traded price during the twenty-one
day period prior to the conversion, if lower than $0.02. Upon such conversion, all rights with respect to the portion of the note
being so converted terminate, except for the right to receive common stock or other securities, cash or other assets as
provided in the note due upon such conversion.
The
Company may, with prior written notice to EMA, prepay the outstanding principal amount under the Note during the initial 180 day
period after July 30, 2020 by making a payment to EMA of an amount in cash equal to a certain percentage of the outstanding principal,
interest, default interest and other amounts owed. Such percentage varies from 110% to 115% depending on the period in which the
prepayment occurs, as set forth in the note.
If,
prior to the repayment or conversion of the note, the Company consummates a registered, qualified or unregistered primary offering
of its securities for capital raising purposes with aggregate net proceeds in excess of $2,500,000, EMA will have the right, in
its discretion, to demand repayment in full of any outstanding principal, interest (including default interest) under the note
as of the closing date of such offering.
The EMA SPA includes, among other things: (1) an automatic adjustment
to the terms of the EMA SPA and related documents to the terms of a future financing if those terms are more beneficial to an investor
than the terms of the EMA SPA and related documents are to EMA, subject to limited exceptions; and (2) certain registration rights.
In addition, any subsidiary to which the Company transfers a material amount of assets must guarantee certain obligations of the
Company under the note.
The
EMA Warrant is a common stock purchase warrant to purchase 3,750,000 shares of common stock, for value received in connection
with the issuance of the note, from the date of issuance of the EMA Warrant until September 30, 2023, at an exercise price of
$0.007 (subject to adjustment as provided therein) per share of common stock.
The note and the shares of common stock issuable upon conversion
thereof are offered and sold to EMA in reliance upon specific exemptions from the registration requirements of United States federal
and state securities laws, which include Section 4(a)(2) of the 1933 Act, and Rule 506 of Regulation D promulgated thereunder.
Pursuant to these exemptions, EMA represented to the Company under the EMA SPA, among other representations, that it was an “accredited
investor” as that term is defined in Rule 501(a) of Regulation D under the 1933 Act.
2014
License Agreement Extension of Time to Meet December 31, 2019 Payment Obligation
RespireRx
received an extension of time to meet the $100,000 per year payment obligation that was originally due on December 31, 2019, until
July 7, 2020 when the payment obligation was met by RespireRx. The next annual payment obligation due with respect to the 2014
License Agreement is due on December 31, 2020. See Note 8. Significant Agreements and Contracts – University of Illinois
2014 Exclusive License Agreement.
Compensation
Forgiveness by Arnold S. Lippa and Jeff Margolis and Related Issuance of Series H Preferred Stock.
On
July 13, 2020, RespireRx entered into two Exchange Agreements (each an “Exchange Agreement” and collectively, the
“Exchange Agreements”) with Mr. Margolis, and Dr. Lippa (each an “Employee” and collectively, the “Employees”).
Pursuant
to the terms of the Exchange Agreements, each Employee exchanged his right to receive certain accrued compensation from the Company
in exchange for shares of Series H 2% Voting, Non-Participating, Convertible Preferred Stock (“Series H Preferred Stock”)
of the Company. Mr. Margolis exchanged his right to receive $500,000 of accrued compensation for 500 shares of the Series H Preferred
Stock, and Dr. Lippa exchanged his right to receive $600,000 of accrued compensation for 600 shares of the Series H Preferred
Stock. The Series H Preferred Stock is convertible into units consisting of one share of common stock of the Company and a warrant
exercisable into one share of common stock of the Company (such warrant having an initial exercise price of $0.007 per share).
The agreement to accept
the Employees’ offers to forgive compensation and to enter into Exchange Agreements was approved by disinterested members
of the Company’s Board of Directors; Mr. Margolis and Dr. Lippa recused themselves from voting. The Company’s entry
into the Exchange Agreements and resulting forgiveness of compensation reduced the accrued compensation liabilities of
the Company by $1,100,000.
Also,
on July 13, 2020, the Company filed a Certificate of Designation, Preferences, Rights and Limitations (the “Certificate
of Designation”) of its Series H Preferred Stock with the Secretary of State of the State of Delaware to amend the Company’s
certificate of incorporation. The filing of the Certificate of Designation was approved by the Company’s Board of Directors.
The Certificate of Designation sets forth the preferences, rights and limitations of the Series H Preferred Stock.
Entry
into Equity Purchase Agreement
On July 28, 2020,
RespireRx entered into an equity purchase agreement (the “EPA”) and a registration rights agreement (the “Registration
Rights Agreement”) with White Lion Capital, LLC (the “Investor”) pursuant to which the Investor agreed to invest
up to $2,000,000 to purchase the Company’s common stock at a purchase price of 85% of the lowest daily volume weighted average
price of the common stock for the five trading days prior to a given closing date related to such purchase. Additionally,
RespireRx issued to the Investor a convertible note (the “Commitment Note”) with a face amount of $25,000.
The Registration Rights
Agreement was entered into as an inducement to the Investor to execute and deliver the EPA, whereby RespireRx agreed to provide
certain registration rights under the 1933 Act with respect to the shares of common stock issuable to the Investor pursuant
to the EPA. The EPA terminates on the earlier of (i) June 30, 2021, (ii) the date on which the Investor has purchased $2,000,000
of the Company’s common stock, (iii) the date on which the registration statement agreed to in the Registration Rights Agreement
is no longer in effect, (iv) upon Investor’s material breach of the EPA, (v) in the event a voluntary or involuntary bankruptcy
petition is filed with respect to RespireRx, or (vi) if a custodian is appointed for RespireRx for all or substantially all of
its property or RespireRx makes a general assignment for the benefit of its creditors.
The Commitment Note was issued in connection with the execution
of the EPA and pursuant to the terms thereof, and obligates RespireRx to pay by July 28, 2021 a principal amount of $25,000, together
with a guaranteed interest payment of $2,000 representing an 8% per annum interest rate applied regardless of any payments or prepayments
other than payments made by conversion of the Commitment Note. Upon an event of default, any amount of outstanding principal or
interest would bear interest at the lower of 18% or the highest rate permitted by law.
The
Investor has the right, at any time after the first 180 days, to convert any outstanding and unpaid amount (including accrued
interest and other fees) into shares of common stock, provided that such conversion would not result in the Investor beneficially
owning more than 9.99% of RespireRx’s then outstanding common stock. Unless an event of default has occurred, the
Investor may convert at a per share conversion price equal to $0.02. Upon such conversion, all rights with respect to the portion
of the Commitment Note being so converted terminate, except for the right to receive common stock.
The
Investor also has the right, at any time the Commitment Note is outstanding, to apply any outstanding principal or interest as
consideration for any equity, equity-linked and/or debt securities offered by RespireRx in any public offering or private placement,
subject to the terms of the Commitment Note.
RespireRx
may, with prior written notice to the Investor, prepay the entire outstanding principal amount under the Commitment Note at any
time by making a payment to the Investor of an amount in cash equal to 110% of the outstanding principal, guaranteed interest
amount, and any default interest or other amounts owed.
The
shares of common stock to be issued and sold to the Investor pursuant to the EPA, or issuable upon conversion of the Commitment
Note, and the Commitment Note are issued in reliance upon specific exemptions from the registration requirements of United States
federal and state securities laws, which include Section 4(a)(2) of the 1933 Act, and Rule 506 of Regulation D promulgated thereunder.
Pursuant to these exemptions, the Investor represented to the Company under the EPA, among other representations, that it was
an “accredited investor” as that term is defined in Rule 501(a) of Regulation D under the 1933 Act.
Approval
of Amendment of the Amended and Restated 2015 Stock and Stock Option Plan
On
July 31, 2020, the Board of Directors amended the 2015 Plan to increase the shares issuable under the 2015 Plan by 100,000,000,
from 58,985,260 shares to 158,985,260. Other than the change in the number of shares available under the 2015 Plan, no other changes
were made to the 2015 Plan by this amendment. See Note 6. Stockholders’ Deficiency – Stock Options.
Stock
options granted to Executive Officers and Others
On
July 31, 2020, the Board of Directors of the Company granted non-qualified options to two executive officers of the Company.
RespireRx
granted a non-qualified stock option to Mr. Jones to purchase 16,000,000 shares of common stock of the Company. The options
vested or will vest, as applicable, in four installments: 25% on issuance, 25% on September 30, 2020, 25% on December 31, 2020,
and 25% on March 31, 2021. The options will expire on July 31, 2025. The exercise price of the options is the closing per share
market price of shares of common stock of RespireRx as of the date of issuance, which was $0.0072 per share. The option contains
a cashless exercise provision.
RespireRx
granted non-qualified options to Richard Purcell to purchase 5,000,000 shares of common stock of the Company. The options vested
or will vest, as applicable, in four installments: 25% on issuance, 25% on September 30, 2020, 25% on December 31, 2020, and 25%
on March 31, 2020. The options will expire on July 31, 2025. The exercise price of the options is the closing per share market
price of shares of Common Stock of the Company as of the date of issuance, which was $0.0072 per share. The option contains a
cashless exercise provision.
On July 31, 2020, the Board of Directors of the Company granted
a non-qualified option exercisable into 7,500,000 shares of common stock of the Company to Kathryn MacFarlane, a member of the
Board of Directors and additional non-qualified options exercisable into 21,000,000 shares of common stock of the Company in the
aggregate to vendors, or assignees of vendors, in each case on either a discretionary basis or for services rendered. The options
vested on issuance and will expire on July 31, 2025. The exercise price of the options is the closing per share market price of
shares of common stock of RespireRx as of the date of issuance, which was $0.0072 per share. These options contain a cashless exercise
provision.
Amendment
to Timothy Jones Employment Contract and Extension Beyond Provisional Period
On
July 31, 2020, the employment agreement of Mr. Jones was amended to (i) decrease the threshold financing amount above which the
Board of Directors may exercise its discretion to withhold payment to Mr. Jones of his salary and bonus and (ii) adjust bonus
amounts paid without adjusting the aggregate dollar amount of these bonus amounts.
On
that same date, pursuant to employment agreement, (i) Mr. Jones’s employment with the Company was no longer considered “at
will” and all rights and obligations set forth in the Employment Agreement were deemed effective as of that date and (ii)
Mr. Jones was granted options to purchase 1,000,000 shares of common stock of RespireRx.
See
“Note 8. Significant Agreements and Contracts—Employment Agreements.” Also, see See Note 8. Commitments
and Contingencies – Significant Agreements and Contracts – Employment Agreements to our condensed consolidated
financial statements at March 31, 2020 for more information on the employment agreement of Mr. Jones.
Exercise
of Option pursuant to Option Agreement with UWMRF and Commencement of UWMRF Patent License Agreement.
On August 1, 2020,
RespireRx exercised its option pursuant to its option agreement dated March 2, 2020, between RespireRx and UWM Research Foundation,
an affiliate of the University of Wisconsin-Milwaukee (“UWMRF”). Upon exercise RespireRx and UWMRF executed the UWMRF
Patent License Agreement effective August 1, 2020 pursuant to which RespireRx licensed the identified intellectual property. Under
the terms of the exclusive, royalty bearing UWMRF Patent License Agreement, RespireRx licensed from UWMRF, the Licensed Subject
Matter which includes the patent rights, technology rights and improvements on a worldwide basis. RespireRx is responsible to
pay UWMRF 25% of past patent costs twelve months after the effective date of the UWMRF Patent License Agreement and 25% twenty-four
months after the effective and the balance of past patent costs thirty-six months after the effective date. As of January 14,
2020, such past patent costs totalled $60,370. RespireRx is obligated to pay annual license maintenance fees that very from
year-to-year from the second anniversary date through the fifth anniversary date and the amount due on the fifth
anniversary date is due each anniversary date thereafter. Additionally, RespireRx is obligated to pay UWMRF one-time milestones
(i) upon the dosing of the first patient is a Phase II clinical trial, (ii) upon the dosing of the first patient in a Phase
III clinical trial and (iii) upon approval by the FDA” of a NDA. RespireRx is also obligated to pay annual royalties
on net sales of patented products, and other products as described and defined in the UWMRF Patent License Agreement, subject
to reduction due to royalty stacking provisions. The royalty percentages are also subject to annual minimum amounts after first
commercial sale of a licensed product of which annual minimums increase in two year increments until they reach a fixed amount
in year six and thereafter. UWMRF was granted stock appreciation rights providing UWMRF with the right to receive an amount
equal to 4.9% of the consideration received upon the sale or assignment of one or more of the neuromodulator programs above $1
per program. The Company must provide UWMRF with an annual development plan by September 30, 2021 and each September 30th
thereafter. The UWMRF Patent License Agreement will expand the Company’s neuromodulator platform which has historically
included the Company’s ampakine program and now includes a GABAA program as well. That platform, as expanded,
is now called Project EndeavourRx.
Conversions
of Certain Convertible Notes
The
table below summarizes the conversions of several convertible notes after June 30, 2020.
|
|
Date
|
|
|
Principal
|
|
|
Interest
|
|
|
|
|
|
Total
|
|
|
No. Shares
|
|
|
|
2020
|
|
|
converted
|
|
|
converted
|
|
|
Costs
|
|
|
converted
|
|
|
issued
|
|
Convertible note issued in November 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July1
|
|
|
$
|
20,500
|
|
|
$
|
1,348
|
|
|
$
|
-
|
|
|
$
|
21,848
|
|
|
|
9,103,313
|
|
|
|
July 7
|
|
|
$
|
10,000
|
|
|
$
|
674
|
|
|
|
-
|
|
|
$
|
10,674
|
|
|
|
4,447,488
|
|
Total
|
|
|
|
|
$
|
30,500
|
|
|
$
|
2,022
|
|
|
$
|
-
|
|
|
$
|
32,522
|
|
|
|
13,550,801
|
|
Exercises
of Certain Warrants on a Cashless Basis
The
table below summarizes the exercise of warrants after June 30, 2020.
Warrant exercises
|
|
Date
2020
|
|
|
Number of warrants
exercised on a cashless basis
|
|
|
Number of shares issued
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Associated With August 2019 Convertible Note
|
|
|
July 1
|
|
|
|
10,063,627
|
|
|
|
9,490,000
|
|
|
|
|
July 7
|
|
|
|
10,604,454
|
|
|
|
10,000,000
|
|
|
|
|
July 10
|
|
|
|
10,604,454
|
|
|
|
10,000,000
|
|
|
|
|
July 23
|
|
|
|
2,997,219
|
|
|
|
2,826,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Associated With October 2019 Convertible Note
|
|
|
July 31
|
|
|
|
13,300,000
|
|
|
|
12,641,650
|
|
|
|
|
August 7
|
|
|
|
14,000,000
|
|
|
|
13,307,000
|
|
|
|
|
August 12
|
|
|
|
14,000,000
|
|
|
|
13,307,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
75,569,754
|
|
|
|
71,572,511
|
|
Reimbursement
of Advances made by Officers to the Company
Advances
to the Company, included in Notes payable to officers in the Company’s condensed consolidated balance sheet as of June 30,
2020, made by Jeff E. Margolis, were repaid, in part, such repayment being $4,000.