NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three
Months and Nine Months Ended September 30, 2019 and 2018
1.
Organization and Basis of Presentation
Organization
RespireRx
Pharmaceuticals Inc. (“RespireRx” or the “Company”) was formed in 1987 under the name Cortex Pharmaceuticals,
Inc. to engage in the discovery, development and commercialization of innovative pharmaceuticals for the treatment of neurological
and psychiatric disorders. On December 16, 2015, RespireRx filed a Certificate of Amendment to its Second Restated Certificate
of Incorporation with the Secretary of State of the State of Delaware to amend its Second Restated Certificate of Incorporation
to change its name from Cortex Pharmaceuticals, Inc. to RespireRx Pharmaceuticals Inc. While previously developing potential applications
for respiratory disorders, RespireRx has retained and expanded its ampakine intellectual property and data with respect to neurological
and psychiatric disorders and is considering developing certain potential products in this platform, if it is able to obtain additional
financing and/or strategic relationships.
In
August 2012, RespireRx acquired Pier Pharmaceuticals, Inc. (“Pier”), which is now its wholly-owned subsidiary.
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 September 30, 2019 and for the nine months and three months ended September 30, 2019 and
2018, 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 September 30, 2019 and the
results of its condensed consolidated operations for the nine months and three months ended September 30, 2019 and 2018. 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, 2018 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 generally accepted accounting principles 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, 2018, as filed with the SEC.
2.
Business
The
mission of the Company is to develop innovative and revolutionary treatments to combat diseases caused by disruption of neuronal
signaling. We are developing treatment options that address conditions that affect millions of people, but for which there are
few or poor treatment options, including obstructive sleep apnea (“OSA”), attention deficit hyperactivity disorder
(“ADHD”) and recovery from spinal cord injury (“SCI”), as well as certain neurological orphan diseases
such as Fragile X Syndrome. RespireRx is developing a pipeline of new drug products based on our broad patent portfolios for two
drug platforms: cannabinoids, including dronabinol (“∆9-THC”), and the ampakines, proprietary compounds that
positively modulate AMPA-type glutamate receptors to promote neuronal function.
RespireRx
is developing a number of potential products. From the cannabinoid platform, two Phase 2 clinical trials have been completed demonstrating
the ability of dronabinol to statistically significantly reduce the symptoms of OSA, which management believes is potentially
a multi-billion-dollar market. Subject to raising sufficient financing (of which no assurance can be provided), we believe that
we have put most of the necessary pieces into place to rapidly initiate a Phase 3 clinical trial program. By way of definition,
when a new drug is allowed by the United States Food and Drug Administration (“FDA”) to be tested in humans, Phase
1 clinical trials are conducted in healthy people to determine safety and pharmacokinetics. If successful, Phase 2 clinical trials
are conducted in patients to determine safety and preliminary efficacy. Phase 3 trials, large scale studies to determine efficacy
and safety, are the final step prior to seeking FDA approval to market a drug.
Through
an extensive translational research effort from the cellular level through Phase 2 clinical trials, the Company has developed
a family of novel, low impact ampakines, including CX717, CX1739 and CX1942 that may have clinical application in the treatment
of CNS-driven neurobehavioral and cognitive disorders, spinal cord injury, neurological diseases, and certain orphan indications.
From our ampakine platform, our lead clinical compounds, CX717 and CX1739, have successfully completed multiple Phase 1 safety
trials. Both compounds have also completed Phase 2 efficacy trials demonstrating target engagement, by antagonizing the ability
of opioids to induce respiratory depression. CX717 has successfully completed a Phase 2 trial demonstrating the ability to statistically
significantly reduce the symptoms of adult ADHD. In an early Phase 2 study, CX1739 improved breathing in patients with central
sleep apnea. Preclinical studies have highlighted the potential ability of these ampakines to improve motor function in animals
with spinal injury. Subject to raising sufficient financing (of which no assurance can be provided), we believe that we will be
able to rapidly initiate a human Phase 2 study with CX1739 and/or CX717 in patients with spinal cord injury and a human Phase
2B study in patients with ADHD with either CX717 or CX1739.
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 $1,487,389 and $469,844 for the nine months and three-months ended September 30, 2019, respectively and $2,591,790
for the fiscal year ended December 31, 2018, and negative operating cash flows of $313,692 for the nine months ended September
30, 2019 and $427,368 for the fiscal year ended December 31, 2018. The Company had only $94 of cash at September 30, 2019 and
also had a stockholders’ deficiency of $7,039,381 at September 30, 2019 and expects to continue to incur net losses and
negative operating cash flows for at least the next few years. As a result, management has concluded that there is substantial
doubt about the Company’s ability to continue as a going concern, and the Company’s independent registered public
accounting firm, in its report on the Company’s consolidated financial statements for the year ended December 31, 2018,
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. Fund raising efforts have been hampered by the Company’s
low market capitalization and its common stock’s limited public float and low trading volume. Management is continuing to
address various aspects of the Company’s operations and obligations, including, without limitation, debt obligations, financing
requirements, intellectual property, licensing agreements, legal and patent matters and regulatory compliance, and has taken steps
to continue to raise new debt and equity capital to fund the Company’s business activities from both related and unrelated
parties. The Company is continuing its efforts to raise additional capital in order to be able to pay its liabilities and fund
its business activities on a going forward basis, including the pursuit of the Company’s planned research and development
activities.
The
Company regularly evaluates various measures to satisfy the Company’s liquidity needs, including strategic transactions,
development and other agreements with collaborative partners such as Noramco Inc., and, when necessary, seeking to exchange or
restructure the Company’s outstanding securities. The Company also is evaluating certain changes to its operations and structure
to facilitate raising capital from sources that may be interested in financing only discrete aspects of the Company’s development
programs. Such changes could include a significant reorganization, which may include the formation of one or more subsidiaries
into which one or more programs may be contributed. To date, we have organized our two major platforms, cannabinoids and ampakines,
into two operating divisions with the potential for evolving into stand-alone subsidiary companies. Towards this end, we have
begun discussions focused on each of these platforms with potential investors and strategic partners. We also have begun interviewing
individuals to assume executive management of the dronabinol platform.
As
a result of the Company’s current financial situation, the Company has experienced very limited access to external sources
of debt and equity financing and the cost of such capital, both in terms of rates and other conditions, has been high. 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 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 credit quality financial institutions.
The
Company’s research and development efforts and potential products rely on licenses from research institutions and if the
Company loses access to these technologies or applications, its business could be substantially impaired.
Cash
Equivalents
The
Company considers all highly liquid short-term investments with maturities of less than three-months when acquired to be cash
equivalents.
Fair
Value of Financial Instruments
The
authoritative guidance with respect to fair value of financial instruments established a fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value into three levels and requires that assets and liabilities carried
at fair value be classified and disclosed in one of three categories, as presented below. Disclosure as to transfers into and
out of Levels 1 and 2, and activity in Level 3 fair value measurements, is also required.
Level
1. Observable inputs such as quoted prices in active markets for an identical asset or liability that the Company has the ability
to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active-exchange traded
securities and exchange-based derivatives.
Level
2. Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly
observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include
fixed income securities, non-exchange based derivatives, mutual funds, and fair-value hedges.
Level
3. Unobservable inputs in which there is little or no market data for the asset or liability which requires the reporting entity
to develop its own assumptions. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded, non-exchange-based
derivatives and commingled investment funds, and are measured using present value pricing models.
The
Company determines the level in the fair value hierarchy within which each fair value measurement falls in its entirety, based
on the lowest level input that is significant to the fair value measurement in its entirety. In determining the appropriate levels,
the Company performs an analysis of the assets and liabilities at each reporting period end.
The
carrying amounts of financial instruments (consisting of cash, cash equivalents, advances on research grants and accounts payable
and accrued expenses) are considered by the Company to be representative of the respective fair values of these instruments due
to the short-term nature of those instruments. With respect to the note payable to SY Corporation Co., Ltd., formerly known
as Samyang Optics Co. Ltd. (“SY Corporation”) and the convertible notes payable, management does not believe that
the credit markets have materially changed for these types of borrowings since the original borrowing date. The Company considers
the carrying amounts of the notes payable to officers, inclusive of accrued interest, to be representative of the respective fair
values of such instruments due to the short-term nature of those instruments and their terms.
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 at fair value in connection with and at the time of such financing. The value of debt
discounts such as warrants, beneficial conversion features and original issue discounts are recorded as contra debt and amortized
into interest expense over the life of the notes.
Extinguishment
of Debt
The
Company accounts for the extinguishment of debt in accordance with GAAP by comparing the carrying value of the debt to the fair
value of consideration paid or assets given up and recognizing a loss or gain in the condensed consolidated statement of operations
in the amount of the difference in the period in which such transaction occurs.
Equipment
Equipment
is recorded at cost and depreciated on a straight-line basis over their estimated useful lives, which range from three to five
years. All equipment was fully depreciated as of September 30, 2019.
Prepaid
Insurance
Long-term
prepaid insurance represents the premium paid in March 2014 for directors’ and officers’ insurance tail coverage,
which is being amortized on a straight-line basis over the policy period of six years. The amount amortizable in the ensuing twelve-
month period is recorded as a current asset in the Company’s condensed consolidated balance sheet at each reporting date.
As of September 30, 2019, all such prepaid amounts have been reclassified as current since the policy will expire within one year.
Impairment
of Long-Lived Assets
The
Company reviews its long-lived assets, including long-term prepaid insurance, for impairment whenever events or changes in circumstances
indicate that the total amount of an asset may not be recoverable, but at least annually. An impairment loss is recognized when
estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than the asset’s
carrying amount. The Company has not deemed any long-lived assets as impaired at September 30, 2019.
Stock-Based
Awards
The
Company periodically issues common stock and stock options to officers, directors, outside 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 fair value of the awards, with the cost recognized as compensation
expense on the straight-line basis in the Company’s consolidated financial statements over the vesting period of the awards.
The
fair 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.
There
were no stock or stock option grants during the nine months ended September 30, 2019.
For
stock options requiring an assessment of value during the nine months ended September 30, 2018, the fair value of each stock option
award was estimated using the Black-Scholes option-pricing model using the following assumptions:
Risk-free interest rate
|
|
|
2.56
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
Expected volatility
|
|
|
185.41
|
%
|
Expected life
|
|
|
4.5
|
|
The
Company recognizes the fair 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. There were no stock options exercised during the nine months ended
September 30, 2019 and 2018.
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 September 30, 2019, the Company did not have any unrecognized tax benefits related to various federal and state income tax
matters and does not anticipate any material amount of unrecognized tax benefits within the next 12 months.
The
Company is subject to U.S. federal income taxes and income taxes of various state tax jurisdictions. As the Company’s net
operating losses have yet to be utilized, all previous tax years remain open to examination by Federal authorities and other jurisdictions
in which the Company currently operates or has operated in the past.
The
Company accounts for uncertainties in income tax law under a comprehensive model for the financial statement recognition, measurement,
presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns as prescribed by GAAP.
The tax effects of a position are recognized only if it is “more-likely-than-not” to be sustained by the taxing authority
as of the reporting date. If the tax position is not considered “more-likely-than-not” to be sustained, then no benefits
of the position are recognized. As of September 30, 2019, the Company had not recorded any liability for uncertain tax positions.
In subsequent periods, any interest and penalties related to uncertain tax positions will be recognized as a component of income
tax expense.
Foreign
Currency Transactions
The
note payable to SY Corporation, which is denominated in a foreign currency (the South Korean Won), is translated into the Company’s
functional currency (the United States Dollar) at the exchange rate on the balance sheet date. The foreign currency exchange gain
or loss resulting from translation is recognized in the related 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,
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.
Research
and development costs incurred by the Company under research grants are expensed as incurred over the life of the underlying contracts,
unless the terms of the contract indicate that a different expensing schedule is more appropriate.
The
Company reviews the status of its research and development contracts on a quarterly basis.
On
May 6, 2016, the Company made an advance payment to Duke University with respect to the Phase 2A clinical trial of CX1739. At
September 30, 2019, an asset balance of $48,912 remained from the advance payment.
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.
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
September 30, 2019 and 2018, the Company excluded the outstanding securities summarized below, which entitle the holders thereof
to acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Series B convertible preferred stock
|
|
|
11
|
|
|
|
11
|
|
Convertible notes payable
|
|
|
867,200
|
|
|
|
16,061
|
|
Common stock warrants
|
|
|
2,016,043
|
|
|
|
1,703,229
|
|
Common stock options
|
|
|
4,287,609
|
|
|
|
4,323,317
|
|
Total
|
|
|
7,170,863
|
|
|
|
5,507,312
|
|
Reclassifications
Certain
comparative figures in 2018 have been reclassified to conform to the current nine month and three month presentation. These reclassifications
were immaterial, both individually and in the aggregate.
Recent
Accounting Pronouncements
From time to time, new accounting pronouncements
are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless
otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material
impact on our financial position or results of operations upon adoption.
4.
Notes Payable
Convertible
Notes Payable
On
August 19, 2019, the Company issued a convertible note (the “August 2019 Convertible Note”) bearing interest at 10%
per year. The maturity amount is $55,000 and it matures on the nine month anniversary, which is May 19, 2020. The Company
incurred debt issuance costs of $2,500 for lender legal fees. The transaction included a $5,000 original issue discount, a warrant
to purchase 150,000 shares of common stock and 7,500 Commitment Shares (as such term is defined in the definitive transaction
documents), which were issued in connection with the August 2019 Convertible Note. The net proceeds to the Company was $47,500.
Subject to certain limitations and adjustments as described in the August 2019 Convertible Note, the holder may convert the August
2019 Convertible Note at a fixed conversion price of $0.50 per share of common stock, provided that from the date that
is six months after the issuance date, the conversion price shall be the lower of (a) $0.50 or (b) 60% multiplied by the lowest
closing price of the common stock during the twenty (20) consecutive trading days prior to conversion. The Company evaluated
all of the terms of the August 2019 Convertible Note and determined that, in accordance with ASC 815, there were no derivatives
to be bifurcated or separately valued. However, there were five features of the August 2019 Convertible Note and the related securities
purchase agreement that required valuation. They were: (i) the debt issuance costs of $2,500, (ii) the intrinsic value of the
beneficial conversion feature, (iii) the value of the warrant, (iv) the original issue discount of $5,000, and (v) the value of
the Commitment Shares. The Company amortizes each of these five on a straight-line basis over the life of the August 2019 Convertible
Note. The Company valued the warrant using the Black-Scholes valuation method utilizing the following assumptions: (i) exercise
price of $0.50, (ii) stock price of $0.65, (iii) life of five years, (iv) five-year risk free rate of 1.47% and (v) volatility
of 175.5% that results in the value of one warrant of $0.623 and a total warrant value of $93,450. The amount to be recorded initially
as the amount of the August 2019 Convertible Note was then calculated by determining the relative values as percentages of the
net proceeds of the August 2019 Convertible Note ($47,500), the beneficial conversion feature ($16,500) and the warrant ($64.08%
or $30,440) and the Commitment Shares (3.34% or $1,588). The debt issuance costs, original issue discount and the amount recorded
as the intrinsic value of the beneficial conversion feature each are being amortized to interest expense on a straight-line basis
over the life the August 2019 Convertible Note.
The
table below provides a summary of the August 2019 Convertible Note as of September 30, 2019.
Principal amount of note payable
|
|
$
|
55,000
|
|
Debt discounts, net of amortization of $8,504
|
|
|
(46,496
|
)
|
Accrued coupon interest
|
|
|
648
|
|
|
|
$
|
9,152
|
|
On
May 17, 2019, the Company issued a master convertible note (the “May 2019 Convertible Note”) issuable in tranches,
bearing interest at 10% per year, bearing a maximum maturity amount of $150,000. The first tranche has a maturity amount of $50,000
and matures on the one year anniversary of the tranche which is May 17, 2020. There was a stated original issue discount of $5,000
and the Company incurred debt issuance costs of $2,000 for lender legal fees. Therefore, the net proceeds to the Company was $43,000.
Subject to certain limitations and adjustments as described in the May 2019 Convertible Note, the holder may convert from the
date of issuance to the maturity date, part or all of the May 2019 Convertible Note, inclusive of accrued interest, into the Company’s
common stock at a variable conversion price that is the lesser of (i) lowest trading price as such term is defined in the
May 2019 Convertible Note (the lowest closing bid price) in the twenty five day trading period prior to the date of the May 2019
Convertible Note (which price is now fixed at $0.25, the closing bid price on May 16, 2019), or (ii) the variable conversion price
(as defined in the May 2019 Convertible Note) which is 61% of the market price (as defined in the May 2019 Convertible Note).
The market price is the lowest trading price (closing bid) in the twenty five day trading day period up to the day prior to the
conversion. If at any time while the Note is outstanding, the conversion price is equal to or lower than $0.35, then an additional
eleven percent (11%) discount is to be factored into the conversion price until the May 2019 Convertible Note is no longer outstanding
(resulting in a discount rate of 50% assuming no other adjustments are triggered). The lowest trading price on the date
of inception of the May 2019 Convertible Note ($0.25) and the lowest market price were both below $0.35, the effective conversion
rate on the inception date was $0.125. Therefore, on the inception date, the first tranche would have converted into 400,000 shares
of the Company’s common stock. As of September 30, 2019, the first tranche would convert into 296,438 shares of common
stock based upon a conversion price of $0.175 (50% of the lowest closing bid price during the applicable period). The Company
evaluated all of the terms of the May 2019 Convertible Note and determined that, in accordance with Accounting Standard Codification
(ASC) 815, there were no derivatives to be bifurcated or separately valued. However, there were four features of the May 2019
Convertible Note, the related securities purchase agreement and the warrant that was issued in connection therewith that required
valuation. They were: (i) the original issue discount of $5,000, (ii) the debt issuance costs of $2,000, (iii) the beneficial
conversion feature and (iv) the value of the warrant. The Company amortized (i) and (ii) above on a straight-line basis over the
life of the tranche. The Company evaluated (iii) the intrinsic value of the beneficial conversion feature for a calculated value
of $286,000 (($0.84 closing price minus $0.125 conversion price) x 400,000 shares). The Company calculated the warrant value using
the Black-Scholes valuation method, utilizing the following assumptions: (a) exercise price of $1.18 per share, (b) stock price
$0.84, (c) three year life (d) three year risk free rate of 2.15% and (e) volatility of 210.19% and determined that the value
of one warrant was $0.774 and the total warrant value was $32,796 for the warrant exercisable into 42,373 shares of the Company’s
common stock, par value $0.001. The amount to be recorded initially as the amount of the May 2019 Convertible Note was
then calculated by determining the relative values as percentages of the maturity amount of the May 2019 Convertible Note ($50,000),
the beneficial conversion feature ($286,000) and the warrant ($32,796). The respective percentages were 13.56%, 77.55 and 8.89%.
The original issue discount, debt issuance costs, the intrinsic value of the beneficial conversion feature and proceeds allocated
to the value of the warrant are being amortized to interest expense on a straight-line basis over the life the May 2019 Convertible
Note.
The
table below provides a summary of the May 2019 Convertible Note as of September 30, 2019.
Principal amount of note payable
|
|
$
|
50,000
|
|
Debt discounts, net of amortization of $19,072
|
|
|
(31,149
|
)
|
Accrued coupon interest
|
|
|
1,876
|
|
|
|
$
|
20,727
|
|
On
April 24, 2019, the Company issued a convertible note (“the April 2019 Convertible Note”) bearing interest at 10%
per year. The maturity amount is $58,500 and matures on the one year anniversary which is April 24, 2020. The Company incurred
debt issuance costs of $3,500 for lender legal and due diligence fees. There was no stated original issue discount and no warrants
were issued in connection with the April 2019 Convertible Note. The net proceeds to the Company was $50,000. Subject to certain
limitations and adjustments as described in the April 2019 Convertible Note, the holder may, from the date that is one hundred
eighty (180) days after the issuance to the maturity date, convert part or all of the April 2019 Convertible Note, inclusive of
accrued interest, into the Company’s common stock at a variable conversion price that is 61% of the market price
as defined in the April 2019 Convertible Note. The market price is the lowest trading price, which in turn is the lowest closing
bid price in the twenty (20) trading days prior to conversion. The lowest closing bid price in the twenty (20) day period prior
to inception was $0.65 which would calculate to a $0.3964 conversion price and further calculate to 147,541 conversion shares
to be issued. The Company evaluated all of the terms of the April 2019 Convertible Note and determined that, in accordance with
ASC 815, there were no derivatives to be bifurcated or separately valued. However, there were two features of the April 2019 Convertible
Note and the related securities purchase agreement that required valuation. They were: (i) the debt issuance costs of $3,500,
and (ii) the intrinsic value of the beneficial conversion feature. The Company amortized (i) on a straight-line basis over the
life of the April 2019 Convertible Note. The Company evaluated (ii) as the closing price on the inception date minus the conversion
price multiplied by the number of conversion shares and determined that the beneficial conversion feature had an intrinsic value
of $44,950 (($0.701 closing price minus $0.3964 conversion price) x 147,541 shares). The debt issuance costs and the amount recorded
as the intrinsic value of the beneficial conversion feature are each being amortized to interest expense on a straight-line basis
over the life the April 2019 Convertible Note.
The
table below provides a summary of the April 2019 Convertible Note as of September 30, 2019.
Principal amount of note payable
|
|
$
|
58,500
|
|
Debt discounts, net of amortization of $21,238
|
|
|
(27,211
|
)
|
Accrued coupon interest
|
|
|
2,859
|
|
|
|
$
|
34,148
|
|
On
January 2, 2019, February 27, 2019, March 6, 2019 and March 14, 2019, the Company issued convertible notes (collectively,
the “2019 Q1 Convertible Notes”) bearing interest at 10% per year. The 2019 Q1 Convertible Notes issued
on January 2, 2019 matured on February 28, 2019 with a face amount of $10,000. The 2019 Q1 Convertible Notes issued on
February 27, 2019, March 6, 2019 and March 14, 2019 matured on April 30, 2019 with an aggregate face amount of $100,000. Investors
also received an aggregate of 110,000 common stock purchase warrants. The warrants were valued using the Black Scholes option
pricing model calculated on the date of each grant and had an aggregate value of $78,780. Total value received by the investors
was $188,780, the sum of the face value of the convertible note and the value of the warrant. Therefore, the Company recorded
a debt discount associated with the warrant issuance of $45,812 and an initial value of the convertible notes of $64,188 using
the relative fair value method. An additional $6,653 and $2,811 of interest expense was recorded based upon the 10% annual rate
for the nine months and three months ended September 30, 2019, respectively. The 2019 Q1 Convertible Note that matured
on February 28, 2019 was not paid and remains outstanding and continues to accrue interest. The 2019 Q1 Convertible Notes
that matured on April 30, 2019 were not paid and remain outstanding and continue to accrue interest. Although the 2019 Q1
Convertible Notes are in default, the Company has not received any notices of default from any of the note holders. The 2019 Q1
Convertible Notes have no reset rights or other protections based on subsequent equity transactions, equity-linked transactions
or other events other than the right, but not the obligation, for each investor to convert or exchange his or her 2019 Q1
Convertible Note, but not the warrant, into the next exempt private securities offering. The May 2019 Convertible Note and April
2019 Convertible Note, which the Company does not consider to have arisen from an offering, may be interpreted in such a way that
the 2019 Q1 Convertible Note Holders have the right to convert or exchange. However, no holders of such notes have requested
a conversion or exchange. The Company does not believe that an offering occurred as of September 30, 2019 or as of the date of
the issuance of these financial statements. Therefore, the number of shares of common stock (or preferred stock) into which the
2019 Q1 Convertible Notes may convert is not determinable and the Company has not accounted for any additional consideration.
The warrants to purchase 110,000 shares of common stock issued in connection with the sale of the 2019 Q1 Convertible Notes
are exercisable at a fixed price of $1.50 per share of common stock, provide no right to receive a cash payment, and included
no reset rights or other protections based on subsequent equity transactions, equity-linked transactions or other events. The
Company determined that there were no embedded derivatives to be identified, bifurcated and valued in connection with this financing.
During
December 2018, convertible notes (“2018 Convertible Notes”) bearing interest at 10% per year and maturing on February
28, 2019 and warrants were sold to investors with an aggregate face amount of $80,000. Investors also received 80,000 common stock
purchase warrants. The warrants were valued using the Black Scholes option pricing model calculated on the date of each grant
and had an aggregate value of $68,025. Total value received by the investors was $148,025, the sum of the face value of the convertible
note and the value of the warrant. Therefore, the Company recorded a debt discount associated with the issuance of the warrants
of $36,347 and an initial value of the convertible notes of $43,653 using the relative fair value method. An additional $6,067
and $2,044 of interest expense was recorded based upon the 10% annual rate for the nine months and three months ended September
30, 2019, respectively. The 2018 Convertible Notes matured on February 28, 2019, were not paid, remain outstanding and continue
to accrue interest. Although the 2018 Convertible Notes are in default, the Company has not received any notices of default from
any of the note holders. The 2018 Convertible Notes have no reset rights or other protections based on subsequent equity transactions,
equity-linked transactions or other events other than the right, but not the obligation for each investor to convert or exchange
his or her 2018 Convertible Note, but not the warrant, into the next exempt private securities offering. The May 2019 Convertible
Note and April 2019 Convertible Note, which the Company does not consider to have arisen from an offering, may be interpreted
in such a way that the 2019 Q1 Convertible Note Holders have the right to convert or exchange. However, no holders of such
notes have requested a conversion or exchange. The Company does not believe that an offering occurred as of September 30, 2019
or as of the date of the issuance of these financial statements. Therefore, the number of shares of common stock (or preferred
stock) into which the 2018 Convertible Notes may convert is not determinable and the Company has not accounted for any additional
consideration. The warrants to purchase 80,000 shares of common stock issued in connection with the sale of the 2018 Convertible
Notes are exercisable at a fixed price of $1.50 per share of common stock, provide no right to receive a cash payment, and included
no reset rights or other protections based on subsequent equity transactions, equity-linked transactions or other events. The
Company determined that there were no embedded derivatives to be identified, bifurcated and valued in connection with this financing.
The
2018 Convertible Notes and 2019 Q1 Convertible Notes consist of the following at September 30, 2019 and December
31, 2018:
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
Principal amount of notes payable
|
|
$
|
190,000
|
|
|
$
|
80,000
|
|
Discount associated with issuance of warrants net of amortization of $82,159 as of September 30, 2019 and $8,379 as of December 31,2018
|
|
|
-
|
|
|
|
(27,968
|
)
|
Accrued interest payable
|
|
|
13,121
|
|
|
|
401
|
|
|
|
$
|
203,121
|
|
|
$
|
52,433
|
|
Convertible
notes were also sold to investors in 2014 and 2015 (“Original Convertible Notes), which aggregated a total of $579,500,
had a fixed interest rate of 10% per annum and those that remain outstanding are convertible into common stock at a fixed price
of $11.3750 per share. The Original Convertible Notes have no reset rights or other protections based on subsequent equity transactions,
equity-linked transactions or other events. The warrants to purchase 50,945 shares of common stock issued in connection with the
sale of the convertible notes were exercisable at a fixed price of $11.3750 per share. All such warrants have either been exchanged
as part of April and May 2016 note and warrant exchange agreements or expired on September 15, 2016.
The
maturity date of the Original Convertible Notes was extended to September 15, 2016 and included the issuance of 27,936 additional
warrants to purchase common stock, exercisable at $11.375 per share of common stock, which expired on September 15, 2016.
The
remaining outstanding Original Convertible Notes (including those for which default notices have been received) consist of the
following at September 30, 2019 and December 31, 2018:
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
Principal amount of notes payable
|
|
$
|
125,000
|
|
|
$
|
125,000
|
|
Accrued interest payable
|
|
|
76,920
|
|
|
|
62,233
|
|
|
|
$
|
201,920
|
|
|
$
|
187,233
|
|
As
of September 30, 2019, principal and accrued interest on the one remaining outstanding Original Convertible Note, which is subject
to a default notice and which therefore accrues annual interest at 12% instead of 10%, totaled $42,406, of which $17,406 was accrued
interest. As of December 31, 2018, principal and accrued interest on convertible notes subject to default notices totaled $38,292
of which $13,292 was accrued interest.
As
of September 30, 2019 all of the outstanding Original Convertible Notes, inclusive of accrued interest, were convertible into
an aggregate of 17,810 shares of the Company’s common stock, including 6,765 shares attributable to accrued interest
of $76,920 payable as of such date. As of December 31, 2018, the outstanding Original Convertible Notes were convertible into
16,460 shares of the Company’s common stock, including 5,471 shares attributable to accrued interest of $62,233 payable
as of such date. Such Original Convertible Notes will continue to accrue interest until exchanged, paid or otherwise discharged.
There can be no assurance that any of the additional holders of the remaining Original Convertible Notes will exchange their notes.
Note
Payable to SY Corporation Co., Ltd.
On
June 25, 2012, the Company borrowed 465,000,000 Won (the currency of South Korea, equivalent to approximately $400,000 United
States Dollars as of that date) from and executed a secured note payable to 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 nine months ended
September 30, 2019, there were no 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 September 30, 2019 and December 31, 2018:
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
Principal amount of note payable
|
|
$
|
399,774
|
|
|
$
|
399,774
|
|
Accrued interest payable
|
|
|
351,188
|
|
|
|
315,307
|
|
Foreign currency transaction adjustment
|
|
|
(27,775
|
)
|
|
|
29,360
|
|
|
|
$
|
723,187
|
|
|
$
|
744,441
|
|
Interest
expense with respect to this promissory note was $35,881 and $12,092 for the nine months and three months ended September 30,
2019, and for the nine months and three months ended September 30, 2018, respectively.
Notes
Payable to Officers and Former Officers
For
the nine months and three months ended September 30, 2019, $7,683 and $2,589 respectively was charged to interest expense with
respect to notes payable to Dr. Arnold S. Lippa, an officer of the Company. For the nine months and three months ended September
30, 2018, $9,517 and $3,319 respectively was charged to interest expense with respect to notes payable to Dr. Arnold S. Lippa.
For
the nine months and three months ended September 30, 2019, $11,530 and $3,886 respectively was charged to interest expense with
respect notes payable to to Dr.James S. Manuso, a former officer of the Company. For the nine months and three months ended September
30, 2018 $9,754 and $3,564 respectivley was charged to interest expense with respect to notes payable to Dr. James S. Manuso.
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 the Company. All of the $11,530 of interest expense noted above for the nine months ended September 30, 2019, was incurred
while Dr. Manuso was no longer an officer.
Other
Short-Term Notes Payable
Other
short-term notes payable at September 30, 2019 and December 31, 2018 consisted of premium financing agreements with respect to
various insurance policies. At the inception of the new policy in March 2019, a premium financing agreement was payable in the
initial amount of $61,746, with interest at 9% per annum, in nine monthly installments of $7,120. At September 30, 2019 and December
31, 2018, the aggregate amount of the short-term notes payable was $27,997 and $8,907 respectively.
5.
Settlement and Payment Agreements
On August 21, 2019,
the Company entered into a Settlement Agreement and Release with Salamandra, LLC (“Salamandra”)
in respect to amounts owed to Salamandra, which totaled $202,395 as of September 30, 2019. The settlement agreement reduces the
amount owed to a lump-sum payment of $125,000 payable by November 30, 2019, if by that date, the Company has raised an aggregate
of at least $600,000 in working capital. Should the Company raise less than $600,000, the Company may pay 21% of the amount raised
and cancel that portion of the debt. If the Company is unable to raise $600,000 by November 30, 2019, the settlement agreement
becomes null and void. Upon receipt of the settlement payment, mutual releases will become effective with respect to the remaining
amount of debt on that date. On October 22, 2019 and November 4, 2019, the Company raised an aggregate of $202,400 in working
capital from the net proceeds of the October 2019 Convertible Note and the November 2019 Convertible Note (see Note 9. Subsequent
Events). Total working capital raised by the Company from the inception of the Settlement Agreement through November 4, 2019 was
$202,400.
On
September 23, 2019, the Company and a vendor agreed in principle to a proposed settlement agreement, which has not been documented
in the form of a formal agreement. The agreement in principal calls for no reduction in the overall amount to be paid by the Company,
which amount is not in dispute, but addresses only a payment schedule. The agreement in principal calls for a payment of a minimum
of $100,000 on or before November 30, 2019 assuming the Company has raised at least $600,000 by that date and thereafter calls
for a payment of $50,000 per month until paid in full. If the Company does not make a scheduled payment, the agreement in principal
would be deemed null and void.
6.
Stockholders’ Deficiency
Preferred
Stock
The
Company has authorized a total of 5,000,000 shares of preferred stock, par value $0.001 per share. As of September 30, 2019 and
December 31, 2018, 1,250,000 shares were designated as 9% Cumulative Convertible Preferred Stock (non-voting, “9% Preferred
Stock”); 37,500 shares were designated as Series B Convertible Preferred Stock (non-voting, “Series B Preferred Stock”);
205,000 shares were designated as Series A Junior Participating Preferred Stock (non-voting, “Series A Junior Participating
Preferred Stock”); and 1,700 shares were designated as Series G 1.5% Convertible Preferred Stock. Accordingly, as of September
30, 2019 and December 31, 2018, 3,505,800 shares of preferred stock were undesignated and may be issued with such rights and powers
as the Board of Directors may designate.
Series
B Preferred Stock outstanding as of September 30, 2019 and 2018 consisted of 37,500 shares issued in a May 1991 private placement.
Each share of Series B Preferred Stock is convertible into approximately 0.00030 shares of common stock at an effective conversion
price of $2,208.375 per share of common stock, which is subject to adjustment under certain circumstances. As of September 30,
2019 and December 31, 2018, the shares of Series B Preferred Stock outstanding are convertible into 11 shares of common stock.
The Company may redeem the Series B Preferred Stock for $25,001, equivalent to $0.6667 per share, an amount equal to its liquidation
preference, at any time upon 30 days prior notice.
Common
Stock
There
are 3,879,576 shares of the Company’s common stock outstanding as of September 30, 2019. The Company has reserved
an aggregate of 7,401,292 for conversions of convertible debt which reserve includes contractual reserves totaling 7,383,482 shares
of the Company’s common stock, which exceeds the actual conversion amounts under those contracts as of September
30, 2019 by 6,534,657 shares. In addition, The Company has reserved 6,303,652 shares of the Company’s common stock
for exercises of common stock purchase options granted and warrants issued. There are 6,497 shares of the Company’s common
stock reserved as Pier contingent shares. There are 4,490,578 shares reserved for future issuances under the Company’s
2014 and 2015 Plans (as hereafter defined). There are 43,452,954 shares of the Company’s common stock available for
future issuances.
Common
Stock Warrants
Information
with respect to the issuance and exercise of common stock purchase warrants in connection with the Convertible Note Payable and
the related warrant, and Notes Payable to Officers, is provided at Note 4.
A
summary of warrant activity for the nine months ended September 30, 2019 is presented below.
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
Number of
|
|
|
Average
|
|
|
Contractual
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Life (in Years)
|
|
Warrants outstanding and exerciable at December 31, 2018
|
|
|
1,783,229
|
|
|
$
|
2.20393
|
|
|
|
3.06
|
|
Issued
|
|
|
302,372
|
|
|
|
0.95908
|
|
|
|
|
|
Expired
|
|
|
(69,558
|
)
|
|
|
2.65928
|
|
|
|
|
|
Warrants outstanding and exercisable at September 30, 2019
|
|
|
2,016,043
|
|
|
$
|
1.99011
|
|
|
|
2.73
|
|
The
exercise prices of common stock warrants outstanding and exercisable are as follows at September 30, 2019:
Exercise Price
|
|
|
Warrants
Outstanding
(Shares)
|
|
|
Warrants
Exercisable
(Shares)
|
|
|
Expiration Date
|
$
|
0.5000
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
August 19, 2024
|
$
|
1.0000
|
|
|
|
916,217
|
|
|
|
916,217
|
|
|
September 20, 2022
|
$
|
1.1800
|
|
|
|
42,372
|
|
|
|
42,372
|
|
|
May 17, 2022
|
$
|
1.5000
|
|
|
|
190,000
|
|
|
|
190,000
|
|
|
December 30, 2023
|
$
|
1.5620
|
|
|
|
130,284
|
|
|
|
130,284
|
|
|
December 31, 2021
|
$
|
1.5750
|
|
|
|
238,814
|
|
|
|
238,814
|
|
|
April 30, 2023
|
$
|
2.7500
|
|
|
|
8,000
|
|
|
|
8,000
|
|
|
September 20, 2022
|
$
|
4.8750
|
|
|
|
108,594
|
|
|
|
108,594
|
|
|
September 30, 2020
|
$
|
6.8348
|
|
|
|
145,758
|
|
|
|
145,758
|
|
|
September 30, 2020
|
$
|
7.9300
|
|
|
|
86,004
|
|
|
|
86,004
|
|
|
February 28, 2021
|
|
|
|
|
|
2,016,043
|
|
|
|
2,016,043
|
|
|
|
Based
on a fair market value of $0.45 per share on September 30, 2019, the intrinsic value of exercisable in-the-money common stock
warrants as of September 30, 2019 was $7,500.
A
summary of warrant activity for the nine months ended September 30, 2018 is presented below.
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (in Years)
|
|
Warrants outstanding and exercisable at December 31, 2017
|
|
|
1,464,415
|
|
|
$
|
2.68146
|
|
|
|
3.73
|
|
Issued
|
|
|
238,814
|
|
|
|
1.57500
|
|
|
|
|
|
Warrants outstanding and exercisable at September 30, 2018
|
|
|
1,703,229
|
|
|
$
|
2.52632
|
|
|
|
4.08
|
|
The
exercise prices of common stock warrants outstanding and exercisable are as follows at September 30, 2018:
Exercise Price
|
|
|
Warrants Outstanding
(Shares)
|
|
|
Warrants Exercisable
(Shares)
|
|
|
Expiration Date
|
$
|
1.0000
|
|
|
|
916,217
|
|
|
|
916,217
|
|
|
September 20, 2022
|
$
|
1.2870
|
|
|
|
41,002
|
|
|
|
41,002
|
|
|
April 17, 2019
|
$
|
1.5620
|
|
|
|
130,284
|
|
|
|
130,284
|
|
|
December 31, 2021
|
$
|
1,5750
|
|
|
|
238,814
|
|
|
|
238,814
|
|
|
April 30, 2023
|
$
|
2.7500
|
|
|
|
8,000
|
|
|
|
8000
|
|
|
September 20, 2022
|
$
|
4.8500
|
|
|
|
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
|
$
|
5.1025
|
|
|
|
10,309
|
|
|
|
10,309
|
|
|
January 29, 2019
|
$
|
6.5000
|
|
|
|
8,092
|
|
|
|
8,092
|
|
|
February 4, 2019
|
$
|
6.8348
|
|
|
|
145,758
|
|
|
|
145,758
|
|
|
September 30, 2020
|
$
|
7.9300
|
|
|
|
86,004
|
|
|
|
86,004
|
|
|
February 28, 2021
|
|
|
|
|
|
1,703,229
|
|
|
|
1,703,229
|
|
|
|
Based
on a fair market value of $0.7171 per share on September 30, 2018, there were no exercisable in-the money common stock warrants
as of September 30, 2018.
Stock
Options
On
March 18, 2014, the stockholders of the Company holding a majority of the votes to be cast on the issue approved the adoption
of the Company’s 2014 Equity, Equity-Linked and Equity Derivative Incentive Plan (the “2014 Plan”), which had
been previously adopted by the Board of Directors of the Company, subject to stockholder approval. The Plan permits the grant
of options and restricted stock with respect to up to 325,025 shares of common stock, in addition to stock appreciation rights
and phantom stock, to directors, officers, employees, consultants and other service providers of the Company.
On
June 30, 2015, the Board of Directors adopted the 2015 Stock and Stock Option Plan (the “2015 Plan”). The 2015 Plan
initially provided for, among other things, the issuance of either or any combination of restricted shares of common stock and
non- qualified stock options to purchase up to 461,538 shares of the Company’s common stock for periods up to ten years
to management, members of the Board of Directors, consultants and advisors. The Company has not and does not intend to present
the 2015 Plan to stockholders for approval. On August 18, 2015, the Board of Directors increased the number of shares that may
be issued under the 2015 Plan to 769,231 shares of the Company’s common stock. On March 31, 2016, the Board of Directors
further increased the number of shares that may be issued under the 2015 Plan to 1,538,461 shares of the Company’s common
stock. On January 17, 2017, the Board of Directors further increased the number of shares that may be issued under the 2015 Plan
to 3,038,461 shares of the Company’s common stock. On December 9, 2017, the Board of Directors further increased the number
of shares that may be issued under the 2015 Plan to 6,985,260 shares of the Company’s common stock. On December 28, 2018,
the Board of Directors further increased the number of shares that may be issued under the 2015 Plan to 8,985,260 shares of the
Company’s common stock.
Information
with respect to the Black-Scholes variables used in connection with the evaluation of the fair value of stock- based compensation
is provided at Note 3.
There
were no grants of common stock options or of stock for the nine month period ended September 30, 2019.
A
summary of stock option activity for the nine months ended September 30, 2019 is presented below.
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (in Years)
|
|
Options outstanding and exercisable at December 31, 2018
|
|
|
4,344,994
|
|
|
$
|
3.7634
|
|
|
|
7.38
|
|
Expired
|
|
|
(57,385
|
)
|
|
|
(15.6139
|
)
|
|
|
|
|
Options outstanding and exercisable at September 30, 2019
|
|
|
4,287,609
|
|
|
$
|
3.3798
|
|
|
|
5.23
|
|
The
exercise prices of common stock options outstanding and exercisable were as follows at September 30, 2019:
Exercise Price
|
|
|
Options
Outstanding
(Shares)
|
|
|
Options
Exercisable
(Shares)
|
|
|
Expiration Date
|
$
|
0.7000
|
|
|
|
21,677
|
|
|
|
21,677
|
|
|
November 21, 2023
|
$
|
1.1200
|
|
|
|
310,388
|
|
|
|
310,388
|
|
|
April 5, 2023
|
$
|
1.2500
|
|
|
|
16,762
|
|
|
|
16,762
|
|
|
December 7, 2022
|
$
|
1.3500
|
|
|
|
34,000
|
|
|
|
34,000
|
|
|
July 28, 2022
|
$
|
1.4500
|
|
|
|
1,849,418
|
|
|
|
1,849,418
|
|
|
December 9, 2027
|
$
|
1.4500
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
December 9, 2027
|
$
|
2.0000
|
|
|
|
285,000
|
|
|
|
285,000
|
|
|
June 30, 2022
|
$
|
2.0000
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
July 26, 2022
|
$
|
3.9000
|
|
|
|
395,000
|
|
|
|
395,000
|
|
|
January 17, 2022
|
$
|
4.5000
|
|
|
|
7,222
|
|
|
|
7,222
|
|
|
September 2, 2021
|
$
|
5.6875
|
|
|
|
89,686
|
|
|
|
89,686
|
|
|
June 30, 2020
|
$
|
5.7500
|
|
|
|
2,608
|
|
|
|
2,608
|
|
|
September 12, 2021
|
$
|
6.4025
|
|
|
|
27,692
|
|
|
|
27,692
|
|
|
August 18, 2020
|
$
|
6.4025
|
|
|
|
129,231
|
|
|
|
129,231
|
|
|
August 18, 2022
|
$
|
6.4025
|
|
|
|
261,789
|
|
|
|
261,789
|
|
|
August 18, 2025
|
$
|
6.8250
|
|
|
|
8,791
|
|
|
|
8,791
|
|
|
December 11, 2020
|
$
|
7.3775
|
|
|
|
523,077
|
|
|
|
523,077
|
|
|
March 31, 2021
|
$
|
8.1250
|
|
|
|
169,231
|
|
|
|
169,231
|
|
|
June 30, 2022
|
$
|
13.9750
|
|
|
|
3,385
|
|
|
|
3,385
|
|
|
March 14, 2024
|
$
|
15.4700
|
|
|
|
7,755
|
|
|
|
7,755
|
|
|
April 8, 2020
|
$
|
15.9250
|
|
|
|
2,462
|
|
|
|
2,462
|
|
|
February 28, 2024
|
$
|
16.6400
|
|
|
|
1,538
|
|
|
|
1,538
|
|
|
January 29, 2020
|
$
|
19.5000
|
|
|
|
9,487
|
|
|
|
9,487
|
|
|
July 17, 2022
|
$
|
19.5000
|
|
|
|
6,410
|
|
|
|
6,410
|
|
|
August 10, 2022
|
|
|
|
|
|
4,287,609
|
|
|
|
4,287,609
|
|
|
|
There
was no deferred compensation expense for the outstanding stock options at September 30, 2019.
Based
on a fair market value of $0.45 per share on September 30, 2019, there was no intrinsic value of exercisable in-the-money common
stock options as of September 30, 2019.
A
summary of stock option activity for the nine months ended September 30, 2018 is presented below.
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (in Years)
|
|
Options outstanding and exercisable at December 31, 2017
|
|
|
3,996,167
|
|
|
$
|
3.7634
|
|
|
|
6.30
|
|
Granted
|
|
|
327,150
|
|
|
|
1.1267
|
|
|
|
4.50
|
|
Options outstanding and exercisable at September 30, 2018
|
|
|
4,323,317
|
|
|
$
|
3.5855
|
|
|
|
6.17
|
|
The
exercise prices of common stock options outstanding and exercisable were as follows at September 30, 2018:
Exercise Price
|
|
|
Options Outstanding
(Shares)
|
|
|
Options Exercisable
(Shares)
|
|
|
Expiration Date
|
$
|
1.1200
|
|
|
|
310,388
|
|
|
|
310,388
|
|
|
April 5, 2023
|
$
|
1.2500
|
|
|
|
16,762
|
|
|
|
16,762
|
|
|
December 7, 2022
|
$
|
1.3500
|
|
|
|
34,000
|
|
|
|
34,000
|
|
|
July 28, 2022
|
$
|
1.4500
|
|
|
|
1,849,418
|
|
|
|
1,849,418
|
|
|
December 9, 2027
|
$
|
1.4500
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
December 9, 2027
|
$
|
2.0000
|
|
|
|
285,000
|
|
|
|
285,000
|
|
|
June 30, 2022
|
$
|
2.0000
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
July 26, 2022
|
$
|
3.9000
|
|
|
|
395,000
|
|
|
|
395,000
|
|
|
January 17, 2022
|
$
|
4.5000
|
|
|
|
7,222
|
|
|
|
7,222
|
|
|
September 2, 2021
|
$
|
5.6875
|
|
|
|
89,686
|
|
|
|
89,686
|
|
|
June 30, 2020
|
$
|
5.7500
|
|
|
|
2,608
|
|
|
|
2,608
|
|
|
September 12, 2021
|
$
|
6.4025
|
|
|
|
27,692
|
|
|
|
27,692
|
|
|
August 18, 2020
|
$
|
6.4025
|
|
|
|
129,231
|
|
|
|
129,231
|
|
|
August 18, 2022
|
$
|
6.4025
|
|
|
|
261,789
|
|
|
|
261,789
|
|
|
August 18, 2025
|
$
|
6.8250
|
|
|
|
8,791
|
|
|
|
8,791
|
|
|
December 11, 2020
|
$
|
7.3775
|
|
|
|
523,077
|
|
|
|
523,077
|
|
|
March 31, 2021
|
$
|
8.1250
|
|
|
|
169,231
|
|
|
|
169,231
|
|
|
June 30, 2022
|
$
|
13.0000
|
|
|
|
7,385
|
|
|
|
7,385
|
|
|
March 13, 2019
|
$
|
13.0000
|
|
|
|
3,846
|
|
|
|
3,846
|
|
|
April 14, 2019
|
$
|
13.9750
|
|
|
|
3,385
|
|
|
|
3,385
|
|
|
March 14, 2024
|
$
|
15.4700
|
|
|
|
7,755
|
|
|
|
7,755
|
|
|
April 8, 2020
|
$
|
15.9250
|
|
|
|
2,462
|
|
|
|
2,462
|
|
|
February 28, 2024
|
$
|
16.0500
|
|
|
|
46,154
|
|
|
|
46,154
|
|
|
July 17, 2019
|
$
|
16.6400
|
|
|
|
1,538
|
|
|
|
1,538
|
|
|
January 29, 2020
|
$
|
19.5000
|
|
|
|
9,487
|
|
|
|
9,487
|
|
|
July 17, 2022
|
$
|
19.5000
|
|
|
|
6,410
|
|
|
|
6,410
|
|
|
August 10, 2022
|
|
|
|
|
|
4,323,317
|
|
|
|
4,323,317
|
|
|
|
Based
on a fair market value of $0.7101 per share on September 30, 2018, there were no exercisable in-the-money common stock options
as of September 30, 2018.
Reserved
and Unreserved Shares of Common Stock
On
January 17, 2017, the Board of Directors of the Company approved the adoption of an amendment of the Amended and Restated RespireRx
Pharmaceuticals, Inc. 2015 Stock and Stock Option Plan (as amended, the “2015 Plan”). That amendment increases the
shares issuable under the plan by 1,500,000, from 1,538,461 to 3,038,461. On December 9, 2017, the Board of Directors further
amended the 2015 Plan to increase the number of shares that may be issued under the 2015 Plan to 6,985,260 shares of the Company’s
common stock. On December 28, 2018, the Board of Directors further amended the 2015 Plan to increase the number of shares that
may be issued under the 2015 Plan to 8,985,260 shares of the Company’s common stock.
Other
than the change in the number of shares available under the 2015 Plan, no other changes were made to the 2015 Plan by these amendments
noted above.
At
September 30, 2019, the Company had 65,000,000 shares of common stock authorized and 3,879,576 shares of common stock issued and
outstanding. The Company has reserved 11 shares of common stock for the conversion of the Series B Preferred Stock. The Company
has reserved an aggregate of 7,401,292 for conversions of convertible debt which reserve includes contractual reserves totaling
7,383,482 shares of the Company’s common stock, which exceeds the actual conversion amounts under those contracts
as of September 30, 2019 by 6,516,847 shares. In addition, The Company has reserved 6,303,652 shares of the Company’s common
stock for exercises of common stock purchase options granted and warrants issued. There are 6,497 shares of the Company’s
common stock reserved as Pier contingent shares. There are 4,490,578 shares reserved for future issuances under the Company’s
2014 and 2015 Plans (as hereafter defined). Accordingly, after taking into consideration the reserved shares, there are 42,918,394
shares of the Company’s common stock available for future issuances. The Company expects to satisfy its future common
stock commitments through the issuance of authorized but unissued shares of common stock.
7.
Related Party Transactions
Dr.
Arnold S. Lippa and Jeff E. Margolis, officers and directors of the Company since March 22, 2013, have indirect ownership interests
and managing memberships in Aurora Capital LLC (“Aurora”) through interests held in its members, and Jeff. E. Margolis
is also an officer of Aurora. Aurora is a boutique investment banking firm specializing in the life sciences sector that is also
a full-service brokerage firm.
A
description of advances and notes payable to officers is provided at Note 4.
8.
Commitments and Contingencies
Pending
or Threatened Legal Action and Claims
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 license relates to the use of ampakines for the treatment of
various respiratory disorders. The Company, through its counsel, disputed any grounds for termination and notified the representative
that it invoked Section 13 of that license agreement, which mandates a meeting to be attended by individuals with decision-making
authority to attempt in good faith to negotiate a resolution to the dispute. In February 2019, the Company and TEC Edmonton
tentatively agreed to terms acceptable to all parties to establish a new license agreement and the form of a new license agreement.
However, the Company has re-evaluated that portion of its ampakine program and has decided not to enter into a new agreement,
at this time. The lack of entry into a new agreement at this time does not affect the Company’s other ampakine programs
and permits the Company to reallocate resources to those programs, including, but not limited to ADHD, SCI, FXS and others.
By
e-mail dated July 21, 2016, the Company received a demand from an investment banking consulting firm that represented the Company
in 2012 in conjunction with the Pier transaction alleging that $225,000 is due and payable for investment banking services rendered.
Such amount has been included in accrued expenses at September 30, 2019 and December 31, 2018.
The
Company is periodically the subject of various pending and threatened legal actions and claims. In the opinion of management of
the Company, adequate provision has been made in the Company’s consolidated financial statements as of September 30, 2019
and December 31, 2018 with respect to such matters, including, specifically, the matters noted above. The Company intends to vigorously
defend itself if any of the matters described above results in the filing of a lawsuit or formal claim.
Significant
Agreements and Contracts
Consulting
Agreement
Richard
Purcell, the Company’s Senior Vice President of Research and Development since October 15, 2014, provides his services to
the Company on a month-to-month basis through his consulting firm, DNA Healthlink, Inc., through which the Company has contracted
for his services, for a monthly cash fee of $12,500. Additional information with respect to shares of common stock that have been
issued to Mr. Purcell is provided at Note 6. Cash compensation expense pursuant to this agreement totaled $112,500 and $37,500
for the nine months and three months ended September 30, 2019 and 2018, which is included in research and development expenses
in the Company’s consolidated statements of operations for such periods.
Employment
Agreements
On
October 12, 2018, Dr. Lippa was named Interim President and Interim Chief Executive Officer to replace Dr. Manuso who resigned
effective September 30, 2018. Dr. Lippa continues to serve as the Company’s Executive Chairman and as a member of the Board
of Directors. Also, on August 18, 2015, Dr. Lippa was named Chief Scientific Officer of the Company, and the Company entered into
an employment agreement with Dr. Lippa in that capacity. Pursuant to the agreement, which is for an initial term through September
30, 2018 (and which automatically extended on September 30, 2018 and September 30, 2019 and will automatically extend annually,
upon the same terms and conditions, for successive periods of one year, unless either party provides written notice of its intention
not to extend the term of the agreement at least 90 days prior to the applicable renewal date), Dr. Lippa received an annual base
salary of $300,000. Dr. Lippa is also eligible to earn a performance-based annual bonus award of up to 50% of his base salary,
based upon the achievement of annual performance goals established by the Board of Directors in consultation with the executive
prior to the start of such fiscal year, or any amount at the discretion of the Board of Directors. Additionally, Dr. Lippa was
granted stock options to acquire 30,769 shares of common stock of the Company and is eligible to receive additional awards under
the Company’s Plans at the discretion of the Board of Directors. Dr. Lippa is also entitled to receive, until such time
as the Company establishes a group health plan for its employees, $1,200 per month, on a tax-equalized basis, as additional compensation
to cover the cost of health coverage and up to $1,000 per month, on a tax-equalized basis, as reimbursement for a term life insurance
policy and disability insurance policy. Dr. Lippa is also entitled to be reimbursed for business expenses. Additional information
with respect to the stock options granted to Dr. Lippa is provided at Note 6. Cash compensation accrued pursuant to this agreement
totaled $254,700 and $84,900 for the nine months and three months ended September 30, 2019 and 2018, respectively, and $339,600
for the fiscal year ended December 31, 2018 which amounts are included in accrued compensation and related expenses in the Company’s
consolidated balance sheet at September 30, 2019 and December 31, 2018, and in research and development expenses in the Company’s
consolidated statement of operations. Dr. Lippa does not receive any additional compensation for serving as Executive Chairman
and on the Board of Directors.
On
August 18, 2015, the Company also entered into an employment agreement with Jeff E. Margolis, in his role as Vice President, Secretary
and Treasurer. Pursuant to the agreement, which was for an initial term through September 30, 2016 (and which has automatically
extended on each subsequent anniversary and will continue to 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). At the inception of the employment agreement, Mr. Margolis was
granted stock options to acquire 30,769 shares of common stock of the Company and remians eligible to receive additional awards
under the Company’s Plans at the discretion of the Board of Directors. Mr. Margolis is also entitled to receive, until such
time as the Company establishes a group health plan for its employees, $1,200 per month, on a tax-equalized basis, as additional
compensation to cover the cost of health coverage and up to $1,000 per month, on a tax-equalized basis, as reimbursement for a
term life insurance policy and disability insurance policy. Mr. Margolis is also entitled to be reimbursed for business expenses.
Mr. Margolis’ employment agreement was amended effective July 1, 2017. The employment agreement amendment called for payment
in three installments in cash of the $60,000 bonus granted on June 30, 2015. A minimum of $15,000 was to be payable in cash as
follows: (a) $15,000 payable in cash upon the next closing (after July 1, 2017) of any financing in excess of $100,000 (b) $15,000
payable by the end of the following month assuming cumulative closings (beginning with the closing that triggered (a)) in excess
of $200,000 and (c) $30,000 payable in cash upon the next closing of any financing in excess of an additional $250,000. The conditions
of (a), (b) and (c) above were met as of December 31, 2017, however Mr. Margolis has waived the Company’s obligation to
make any payments of the cash bonus until 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. Mr. Margolis currently receives
an annual base salary of $300,000, and is also eligible to receive performance-based annual bonus awards ranging from $65,000
to $125,000, based upon the achievement of annual performance goals established by the Board of Directors in consultation with
Mr. Margolis prior to the start of such fiscal year, or any amount at the discretion of the Board of Directors. Additional information
with respect to the stock options granted to Mr. Margolis is provided at Note 6. Recurring cash compensation accrued pursuant
to this amended agreement totaled $241,200 and $80,400 for the nine months and three months ended September 30, 2019 and 2018,
respectively, and $321,600 for the fiscal year ended December 31, 2018. Such amounts are included in accrued compensation
and related expenses in the Company’s consolidated balance sheet at September 30, 2019 and December 31, 2018 respectively,
and in general and administrative expenses in the Company’s consolidated statement of operations.
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), and prior to his resignation, Dr. James S. Manuso, 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. Additionally,
on December 9, 2017, Dr. Lippa, Mr. Margolis and Dr. Manuso forgave accrued compensation that had accrued through September 30,
2017 in exchange for stock options.
University
of Alberta License Agreement
On
May 9, 2007, the Company entered into a license agreement, as amended, with the University of Alberta granting the Company exclusive
rights to practice patents held by the University of Alberta claiming the use of ampakines for the treatment of various respiratory
disorders. The Company agreed to pay the University of Alberta a licensing fee and a patent issuance fee, which were paid, and
prospective payments consisting of a royalty on net sales, sublicense fee payments, maintenance payments and milestone payments.
The prospective maintenance payments commence on the enrollment of the first patient into the first Phase 2B clinical trial and
increase upon the successful completion of the Phase 2B clinical trial. As the Company does not at this time anticipate scheduling
a Phase 2B clinical trial in the near term, no maintenance payments to the University of Alberta are currently due and payable,
nor are any maintenance payments expected to be due in the near future in connection with the license agreement. On May 18, 2018,
the Company received a letter from counsel claiming to represent TEC Edmonton and The Governors of the University of Alberta,
which purported to terminate, effective December 12, 2017, the license agreement dated May 9, 2007 (as subsequently amended) between
the Company and The Governors of the University of Alberta. The Company, through its counsel, disputed any grounds for termination
and notified the representative that it invoked Section 13 of that license agreement, which mandates a meeting to be attended
by individuals with decision-making authority to attempt in good faith to negotiate a resolution to the dispute. In February
2019, the Company and TEC Edmonton tentatively agreed to terms acceptable to all parties to establish a new license agreement
and the form of a new license agreement. However, 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.
University
of Illinois 2014 Exclusive License Agreement
On
June 27, 2014, the Company entered into an Exclusive License Agreement (the “2014 License Agreement”) with the University
of Illinois, the material terms of which were similar to a License Agreement between the parties that had been previously terminated
on March 21, 2013. The 2014 License Agreement became effective on September 18, 2014, upon the completion of certain conditions
set forth in the 2014 License Agreement, including: (i) the payment by the Company of a $25,000 licensing fee, (ii) the payment
by the Company of outstanding patent costs aggregating $15,840, and (iii) the assignment to the University of Illinois of rights
the Company held in certain patent applications, all of which conditions were fulfilled.
The
2014 License Agreement granted the Company (i) exclusive rights to several issued and pending patents in numerous jurisdictions
and (ii) the non-exclusive right to certain technical information that is generated by the University of Illinois in connection
with certain clinical trials as specified in the 2014 License Agreement, all of which relate to the use of cannabinoids for the
treatment of sleep related breathing disorders. The Company is developing dronabinol (Δ9-tetrahydrocannabinol), a cannabinoid,
for the treatment of OSA, the most common form of sleep apnea.
The
2014 License Agreement provides for various commercialization and reporting requirements commencing on June 30, 2015. In addition,
the 2014 License Agreement provides for various royalty payments, including a royalty on net sales of 4%, payment on sub-licensee
revenues of 12.5%, and a minimum annual royalty beginning in 2015 of $100,000, which is due and payable on December 31 of each
year beginning on December 31, 2015. The minimum annual royalty obligation of $100,000 due on December 31, 2018, was extended
to February 28, 2019, when such payment obligation was paid by the Company. 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. For each of the nine month and three month periods ending September 30,
2019 and 2018, the Company recorded a charge to operations of $75,000 and $25,000, respectively, with respect to its minimum
annual royalty obligation, which is included in research and development expenses in the Company’s consolidated statements
of operations for the nine months and three months ended September 30, 2019 and 2018, respectively.
Research
Contract with the University of Alberta
On
January 12, 2016, the Company entered into a Research Contract with the University of Alberta in order to test the efficacy of
ampakines at a variety of dosage and formulation levels in the potential treatment of Pompe Disease, apnea of prematurity and
spinal cord injury, as well as to conduct certain electrophysiological studies to explore the ampakine mechanism of action for
central respiratory depression. The Company agreed to pay the University of Alberta total consideration of approximately CAD$146,000
(approximately US$111,000), consisting of approximately CAD$85,000 (approximately US$65,000) of personnel funding in cash in four
installments during 2016, to provide approximately CAD$21,000 (approximately US$16,000) in equipment, to pay patent costs of CAD$20,000
(approximately US$15,000), and to underwrite additional budgeted costs of CAD$20,000 (approximately US$15,000). The final amount
payable in respect to this Research Contract of US$16,207 (CAD$21,222) was paid in US dollars in January 2018 and completed the
payments under the contract. The conversion to US dollars above utilizes an exchange rate of approximately US$0.76 for every CAD$1.00.
The
University of Alberta received matching funds through a grant from the Canadian Institutes of Health Research in support of
this research. Dr. John Greer, faculty member of the Department of Physiology, Perinatal Research Centre and Women &
Children’s Health Research Institute at the University of Alberta collaborated on this research. The studies were
completed in 2016.
See
“University of Alberta License Agreement” above for more information on the related license agreement.
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
September 30, 2019, aggregating $1,211,200 License agreement amounts included in the 2019 column represents amounts contractually
due from October 1, 2019 through December 31, 2019 (three months) and in each of the subsequent years, represents the full year.
Employment agreement amounts included in the 2019 column represent amounts contractually due at from October 1, 2019 through September
30, 2020 (twelve months) when such contracts expire unless extended pursuant to the terms of the contracts.
|
|
|
|
|
Payments Due By Year
|
|
|
|
Total
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
License agreements
|
|
$
|
425,000
|
|
|
$
|
25,000
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
Litigation settlement
|
|
|
125,000
|
|
|
$
|
125,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Employment agreements (1)
|
|
|
661,200
|
|
|
|
165,300
|
|
|
|
495,900
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
1,211,200
|
|
|
$
|
315,300
|
|
|
$
|
595,900
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
(1)
The payment of such amounts has been deferred indefinitely, as described above at “Employment Agreements.” The 2019
amounts include three months of employment agreement obligations for Dr. Lippa and Mr. Margolis as their employment contracts
renewed on September 30, 2019 and the 2019 obligations include the three months of obligations through December 31, 2019.
9.
Subsequent Events
On
October 22, 2019, the Company entered into a securities purchase agreement, a 10% Convertible Note (the “October 2019 Convertible
Note”) and several other related agreements and documents. The October 2019 Convertible Note matures on July 22, 2020, provided
for net proceeds to the Company of $54,500 which was received by the Company on October 28, 2019, and has a face amount
of $60,000, bears interest at 10% per year, had an original issue discount of $1,750 and capitalized note costs of $3,750 (for
legal and due diligence fees of the Holder of the October 2019 Convertible Note). The holder of the October 2019 Convertible Note
also received 10,000 restricted shares of the Company’s common stock as commitment shares and a warrant to purchase
175,000 shares of the Company’s common stock, exercisable at $0.50 per share of common stock for five years.
The October 2019 Convertible Note may be prepaid at the option of the Company, inclusive of accrued interest, by the Company subject
to prepayment premium factors as described in the definitive documents and may not be prepaid after the 180th day. Subject
to certain limitations, the October 2019 Convertible Note may be converted by the holder at 60% of the lowest traded price of
the Company’s common stock, subject to a minimum trade size of 100 shares and a minimum daily trading volume of at
least 100 shares, for the twenty (20) consecutive trading days prior to such conversion. In addition, the holder has certain redemption
rights in the event of a subsequent financing and other rights. Pursuant to the terms of the definitive transaction documents,
the Company must reserve that number of shares of common stock from its authorized but unissued shares that is six (6)
times the number of shares of common stock into which the October 2019 Convertible Note may convert. At inception the Company
reserved 1,935,000 shares in connection with the transaction.
On
November 4, 2019, the Company entered into a securities purchase agreement, a 10% Convertible Note (the “November 2019 Convertible
Note”) and several other related agreements and documents. The November 2019 Convertible Note has a face amount of $170,000,
matures on November 4, 2020, bears interest at 10% per year and resulted in net proceeds to the Company of $147,900, after taking
into account capitalized note costs of $8,500 and an original issue discount of $13,600. There were no warrants or commitment
shares issued with respect to the November 2019 Convertible Note. The November 2019 Convertible Note may be prepaid subject to
prepayment premium factors as described in the definitive documents and may not be prepaid after the 180th day. The holder
may convert, at any time, the November 2019 Convertible Note at the holder’s option into shares of the Company’s common
stock at a price that is 60% of the lowest trading price, taking into consideration only trades of 100 shares or more, for
the twenty (20) consecutive trading days prior to and inclusive of the conversion date of such conversion. Pursuant to the terms
of the definitive transaction documents, at inception, the Company created an initial reserve of 5,200,000 shares
of common stock in connection with this transaction from its authorized but unissued shares and must maintain a reserve
at all times that is five (5) times the number of shares of common stock into which the October 2019 Convertible Note may
convert.
On
November 12, 2019 the holder of the April 2019 Convertible Note (See Note 4. Notes Payable - Convertible Notes Payable)
converted $10,000 of principal amount into 81,967 shares of the Company’s common stock ($0.1220 per share). On October
28, 2019 the same holder converted $10,000 of principal amount of the April 2019 Convertible Note into 73,529 shares of the Company’s
common stock ($0.1360 per share). There remains, as of November 12, 2019, $38,500 of principal amount plus accrued interest
outstanding under the April 2019 Convertible Note.