Filed
pursuant to Rule 424(b)(3)
Registration
Statement No. 333-249469
Prospectus Supplement DATED NOVEMBER 24, 2020
(to
the Prospectus dated October 28, 2020)
RespireRx
Pharmaceuticals Inc.
This
Prospectus Supplement No. 1 supplements and amends the final
prospectus dated October 28, 2020 (the “Final Prospectus”) relating
to the resale of up to 115,000,000 shares of our common stock,
$0.001 par value per share, issuable to White Lion Capital, LLC
(the “Selling Stockholder”), pursuant to a “put right” under an
equity purchase agreement, dated July 28, 2020, as amended, by and
between us and the Selling Stockholder. This Prospectus Supplement
No. 1 should be read in conjunction with the Final Prospectus and
is qualified by reference to the Final Prospectus except to the
extent that the information in this Prospectus Supplement No. 1
supersedes the information contained in the Final
Prospectus.
On
November 23, 2020, we filed with the U.S. Securities and Exchange
Commission the attached Quarterly Report on Form 10-Q.
Our
Common Stock is quoted by the OTCQB Venture Market operated by the
OTC Markets Group, Inc. (“OTCQB”) under the symbol “RSPI.” On
November 23, 2020, the closing price of our Common Stock was
$0.0033 per share.
Investing
in our securities involves a high degree of risk. You should review
carefully the risks and uncertainties described under the heading
“Risk Factors” beginning on page 7 of the Final Prospectus, and
under similar headings in any amendments or supplements to this
prospectus.
Neither
the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal
offense.
The
date of this Prospectus Supplement No. 1 is November 24,
2020
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the quarterly period ended September 30, 2020
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission
file number: 1-16467
RESPIRERX
PHARMACEUTICALS INC.
(Exact
name of registrant as specified in its charter)
|
Delaware |
|
33-0303583 |
|
(State
or other jurisdiction of |
|
(I.R.S.
Employer |
|
incorporation
or organization) |
|
Identification
Number) |
126
Valley Road, Suite C
Glen
Rock, New Jersey 07452
(Address
of principal executive offices)
(201)
444-4947
(Registrant’s
telephone number, including area code)
Not
applicable
(Former
name, former address and former fiscal year, if changed since last
report)
Securities
registered pursuant to Section 12(b) of the Act:
|
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
|
N/A |
|
N/A |
|
N/A |
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
[X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Yes
[X] No [ ]
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
|
Large
accelerated filer [ ] |
Accelerated
filer [ ] |
|
|
|
|
Non-accelerated
filer [X] |
Smaller
reporting company [X] |
|
|
|
|
|
Emerging
growth company [ ] |
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
[ ]
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
Yes
[ ] No [X]
As of
November 20, 2020, the Company had 645,649,410, shares of
common stock, $0.001 par value, issued and outstanding.
RESPIRERX
PHARMACEUTICALS INC.
AND
SUBSIDIARY
TABLE
OF CONTENTS
Cautionary
Note Regarding Forward-Looking Statements
This
Quarterly Report on Form 10-Q of RespireRx Pharmaceuticals Inc.
(“RespireRx” and together with RespireRx’s wholly owned subsidiary,
Pier Pharmaceuticals, Inc. (“Pier”), the “Company, “we,” or “our,”
unless the context indicates otherwise) contains certain
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the “Securities Act”) and
Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and the Company intends that such forward-looking
statements be subject to the safe harbor created thereby. These
might include statements regarding the Company’s future plans,
targets, estimates, assumptions, financial position, business
strategy and other plans and objectives for future operations, and
assumptions and predictions about research and development efforts,
including, but not limited to, preclinical and clinical research
design, execution, timing, costs and results, future product
demand, supply, manufacturing, costs, marketing and pricing
factors.
In
some cases, forward-looking statements may be identified by words
including “assumes,” “could,” “ongoing,” “potential,” “predicts,”
“projects,” “should,” “will,” “would,” “anticipates,” “believes,”
“intends,” “estimates,” “expects,” “plans,” “contemplates,”
“targets,” “continues,” “budgets,” “may,” or the negative of these
terms or other comparable terminology, although not all
forward-looking statements contain these words, and such statements
may include, but are not limited to, statements regarding (i)
future research plans, expenditures and results, (ii) potential
collaborative arrangements, (iii) the potential utility of the
Company’s products candidates, (iv) reorganization plans, and (v)
the need for, and availability of, additional financing.
Forward-looking statements are based on information available at
the time the statements are made and involve known and unknown
risks, uncertainties and other factors that may cause our results,
levels of activity, performance or achievements to be materially
different from the information expressed or implied by the
forward-looking statements in this report.
These
factors include but are not limited to, regulatory policies or
changes thereto, available cash, research and development results,
issuance of patents, competition from other similar businesses,
interest of third parties in collaborations with us, and market and
general economic factors, and other risk factors disclosed in “Item
1A. Risk Factors” in the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2019, as filed with the SEC on
April 14, 2020 (the “2019 Form 10-K”) and in Item 1A. Risk Factors
in this report.
You
should read these risk factors and the other cautionary statements
made in the Company’s filings as being applicable to all related
forward-looking statements wherever they appear in this report. We
cannot assure you that the forward-looking statements in this
report will prove to be accurate and therefore prospective
investors are encouraged not to place undue reliance on
forward-looking statements. You should read this report completely.
Other than as required by law, we undertake no obligation to update
or revise these forward-looking statements, even though our
situation may change in the future.
We caution
investors not to place undue reliance on any forward-looking
statement that speaks only as of the date made and to recognize
that forward-looking statements are predictions of future results,
which may not occur as anticipated. Actual results could differ
materially from those anticipated in the forward-looking statements
and from historical results, due to the risks and uncertainties
described in the 2019 Form 10-K and in this report, as well as
others that we may consider immaterial or do not anticipate at this
time. These forward-looking statements are based on assumptions
regarding the Company’s business and technology, which involve
judgments with respect to, among other things, future scientific,
economic, regulatory and competitive conditions, collaborations
with third parties, and future business decisions, all of which are
difficult or impossible to predict accurately and many of which are
beyond the Company’s control. Although we believe that the
expectations reflected in our forward-looking statements are
reasonable, we do not know whether our expectations will prove
correct. Our expectations reflected in our forward-looking
statements can be affected by inaccurate assumptions that we might
make or by known or unknown risks and uncertainties, including
those described in the 2019 Form 10-K and in this report. These
risks and uncertainties are not exclusive and further information
concerning us and our business, including factors that potentially
could materially affect our financial results or condition, may
emerge from time to time.
This
discussion should be read in conjunction with the condensed
consolidated financial statements (unaudited) and notes thereto
included in Item 1 of this report and in the 2019 Form 10-K,
including the section titled “Item 1A. Risk Factors.”
Forward-looking statements speak only as of the date they are made.
We advise investors to consult any further disclosures we may make
on related subjects in our annual reports on Form 10-K, quarterly
reports on Form 10-Q and current reports on Form 8-K that we file
with or furnish to the SEC.
PART I - FINANCIAL
INFORMATION
ITEM 1. CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
RESPIRERX
PHARMACEUTICALS INC.
AND
SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE
SHEETS
| |
|
September
30, 2020 |
|
|
December
31, 2019 |
|
| |
|
|
(unaudited) |
|
|
|
|
|
| ASSETS |
|
|
|
|
|
|
|
|
| Current
assets: |
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents |
|
$ |
216 |
|
|
$ |
16,690 |
|
|
Prepaid
expenses |
|
|
56,024 |
|
|
|
28,638 |
|
| |
|
|
|
|
|
|
|
|
| Total current
assets |
|
|
56,240 |
|
|
|
45,328 |
|
| |
|
|
|
|
|
|
|
|
| Total
assets |
|
$ |
56,240 |
|
|
$ |
45,328 |
|
| |
|
|
|
|
|
|
|
|
| LIABILITIES AND
STOCKHOLDERS’ DEFICIENCY |
|
|
|
|
|
|
|
|
| Current
liabilities: |
|
|
|
|
|
|
|
|
| Accounts payable and
accrued expenses, including $634,166 and $476,671 payable to
related parties at September 30, 2020 and December 31, 2019,
respectively |
|
$ |
4,607,590 |
|
|
$ |
3,772,030 |
|
| Accrued compensation
and related expenses |
|
|
1,091,682 |
|
|
|
2,083,841 |
|
| Convertible notes
payable, currently due and payable on demand, including accrued
interest of $79,724 and $113,304 at September 30, 2020 and December
31, 2019, respectively of which $47,526 and $43,666, was deemed to
be in default at September 30, 2020 and December 31, 2019 (Note
4) |
|
|
426,326 |
|
|
|
551,591 |
|
| Note payable to SY
Corporation, including accrued interest of $399,293 and $363,280 at
September 30, 2020 and December 31, 2019, respectively (payment
obligation currently in default – Note 4) |
|
|
795,098 |
|
|
|
766,236 |
|
| Notes payable to
officer, including accrued interest of $43,869 and $35,388 as of
September 30, 2020 and December 31, 2019, respectively (Note
4) |
|
|
210,219 |
|
|
|
142,238 |
|
| Notes payable to
former officer, including accrued interest of $54,691 and $41,977
as of September 30, 2020 and December 31, 2019, respectively (Note
4) |
|
|
182,291 |
|
|
|
169,577 |
|
|
Other
short-term notes payable |
|
|
31,219 |
|
|
|
4,634 |
|
| |
|
|
|
|
|
|
|
|
| Total current
liabilities |
|
|
7,344,425 |
|
|
|
7,490,147 |
|
| |
|
|
|
|
|
|
|
|
| Commitments and
contingencies (Note 8) |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Stockholders’
deficiency: (Note 6) |
|
|
|
|
|
|
|
|
| Series B convertible
preferred stock, $0.001 par value; $0.6667 per share liquidation
preference; aggregate liquidation preference $25,001; shares
authorized: 37,500; shares issued and outstanding: 11; common
shares issuable upon conversion at 0.00030 common shares per Series
B share |
|
|
21,703 |
|
|
|
21,703 |
|
| Common stock, $0.001
par value; shares authorized: 1,000,000,000; shares issued and
outstanding: 577,842,003 at September 30, 2020 and 4,175,072 at
December 31, 2019, respectively (Note 2 and Note 9) |
|
|
577,842 |
|
|
|
4,175 |
|
| Additional paid-in
capital |
|
|
161,863,565 |
|
|
|
159,038,388 |
|
|
Accumulated
deficit |
|
|
(169,751,295 |
) |
|
|
(166,509,085 |
) |
| |
|
|
|
|
|
|
|
|
| Total stockholders’
deficiency |
|
|
(7,288,185 |
) |
|
|
(7,444,819 |
) |
| |
|
|
|
|
|
|
|
|
| Total liabilities and
stockholders’ deficiency |
|
$ |
56,240 |
|
|
$ |
45,328 |
|
See
accompanying notes to condensed consolidated financial statements
(unaudited).
RESPIRERX
PHARMACEUTICALS INC.
AND
SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
| |
|
Three
Months Ended |
|
|
Nine
Months Ended |
|
| |
|
September
30, |
|
|
September
30, |
|
| |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
| Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative, including $492,900 and $121,600 to related
parties for the three months ended September 30, 2020 and 2019,
respectively, and $725,780 and $364,825 to related parties for the
nine months ended September 30, 2020 and 2019,
respectively |
|
$ |
1,140,204 |
|
|
$ |
279,930 |
|
|
$ |
1,969,223 |
|
|
$ |
874,834 |
|
|
Research
and development, including $144,900 and $122,400 to related parties
for the three months ended September 30, 2020 and 2019,
respectively, and $389,700 and $367,200 to related parties for the
nine months ended September 30, 2020 and 2019,
respectively |
|
|
171,776 |
|
|
|
150,527 |
|
|
|
480,242 |
|
|
|
447,877 |
|
| Total operating
expenses |
|
|
1,311,980 |
|
|
|
430,457 |
|
|
|
2,449,465 |
|
|
|
1,322,711 |
|
| Loss from
operations |
|
|
(1,311,980 |
) |
|
|
(430,457 |
) |
|
|
(2,449,465 |
) |
|
|
(1,322,711 |
) |
| Loss on extinguishment
of debt and other liabilities in exchange for equity |
|
|
(65,906 |
) |
|
|
- |
|
|
|
(389,902 |
) |
|
|
- |
|
| Interest expense,
including $2,848 and $2,589 to related parties for the three months
ended September 30, 2020 and 2019, respectively, and $8,481 and
$7,683 to related parties for the nine months ended September 30,
2020 and 2019, respectively |
|
|
(78,678 |
) |
|
|
(70,168 |
) |
|
|
(409,994 |
) |
|
|
(221,813 |
) |
| Foreign currency
transaction gain (loss) |
|
|
(22,791 |
) |
|
|
30,781 |
|
|
|
7,151 |
|
|
|
57,135 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss attributable
to common stockholders |
|
$ |
(1,479,355 |
) |
|
$ |
(469,844 |
) |
|
$ |
(3,242,210 |
) |
|
$ |
(1,487,389 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss per common
share - basic and diluted |
|
$ |
(0.01
|
) |
|
$ |
(0.12
|
) |
|
$ |
(0.02
|
) |
|
$ |
(0.38
|
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average
common shares outstanding - basic and diluted |
|
|
224,352,033
|
|
|
|
3,874,465
|
|
|
|
131,793,037
|
|
|
|
3,873,097
|
|
See
accompanying notes to condensed consolidated financial statements
(unaudited).
RESPIRERX
PHARMACEUTICALS INC.
AND
SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ DEFICIENCY
(Unaudited)
Nine
months Ended September 30, 2020
| |
|
Series
B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Convertible |
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Total |
|
| |
|
Preferred
Stock |
|
|
Common
Stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
Stockholders’ |
|
| |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Par
Value |
|
|
Capital |
|
|
Deficit |
|
|
Deficiency |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, December 31,
2019 |
|
|
37,500 |
|
|
$ |
21,703 |
|
|
|
4,175,072 |
|
|
$ |
4,175 |
|
|
$ |
159,038,388 |
|
|
$ |
(166,509,085 |
) |
|
$ |
(7,444,819 |
) |
| Issuances of common
stock |
|
|
- |
|
|
|
- |
|
|
|
29,518,781 |
|
|
|
29,519 |
|
|
|
910,599 |
|
|
|
- |
|
|
|
940,118 |
|
| Net loss for the three
months ended March 31, 2020 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(946,718 |
) |
|
|
(946,718 |
) |
| Balance, March 31,
2020 |
|
|
37,500 |
|
|
$ |
21,703 |
|
|
|
33,693,853 |
|
|
$ |
33,694 |
|
|
$ |
159,948,987 |
|
|
$ |
(167,455,803 |
|
|
$ |
(7,451,419 |
) |
| Issuances of common
stock |
|
|
- |
|
|
|
- |
|
|
|
188,613,528 |
|
|
|
188,613 |
|
|
|
142,195 |
|
|
|
- |
|
|
|
330,808 |
|
| Note
discounts |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
90,000 |
|
|
|
- |
|
|
|
90,000 |
|
| Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(816,137 |
) |
|
|
(816,137 |
) |
| Balance, June 30,
2020 |
|
|
37,500 |
|
|
$ |
21,703 |
|
|
|
222,307,381 |
|
|
$ |
222,307 |
|
|
$ |
160,181,182 |
|
|
$ |
(168,271,940 |
) |
|
$ |
(7,846,748 |
) |
| Issuances of common
stock (after issuance and full conversion of Series H Preferred
Stock) |
|
|
- |
|
|
|
- |
|
|
|
253,774,260 |
|
|
|
253,774 |
|
|
|
1,435,910 |
|
|
|
- |
|
|
|
1,685,234 |
|
| Note payable
conversions |
|
|
- |
|
|
|
- |
|
|
|
13,550,801 |
|
|
|
13,551 |
|
|
|
(2,817 |
) |
|
|
- |
|
|
|
10,734 |
|
| Option
grants |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
337,500 |
|
|
|
- |
|
|
|
337,500 |
|
| Warrant
exercises |
|
|
- |
|
|
|
- |
|
|
|
88,209,561 |
|
|
|
88,210 |
|
|
|
(88,210 |
) |
|
|
- |
|
|
|
- |
|
| Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,479,355 |
) |
|
|
(1,479,355 |
) |
| Balance, September 30,
2020 |
|
|
37,500 |
|
|
$ |
21,703 |
|
|
|
577,842,003 |
|
|
$ |
577,842 |
|
|
$ |
161,863,565 |
|
|
$ |
(169,751,295 |
) |
|
$ |
(7,288,185 |
) |
Nine
months Ended September 30, 2019
| |
|
Series
B
Convertible
Preferred Stock |
|
|
Common
Stock |
|
|
Additional
Paid-in |
|
|
Accumulated |
|
|
Total
Stockholders’ |
|
| |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Par
Value |
|
|
Capital |
|
|
Deficit |
|
|
Deficiency |
|
| Balance, December 31,
2018 |
|
|
37,500 |
|
|
$ |
21,703 |
|
|
|
3,872,076 |
|
|
$ |
3,872 |
|
|
$ |
158,635,222 |
|
|
$ |
(164,394,052 |
) |
|
$ |
(5,733,255 |
) |
| Fair value of common
stock warrants issued in connection with convertible
notes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
45,812 |
|
|
|
- |
|
|
|
45,812 |
|
| Net loss for the three
months ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(540,332 |
) |
|
$ |
(540,332 |
) |
| Balance at March 31,
2019 |
|
|
37,500 |
|
|
$ |
21,703 |
|
|
|
3,872,076 |
|
|
$ |
3,872 |
|
|
$ |
158,681,034 |
|
|
$ |
(164,934,384 |
) |
|
$ |
(6,227,775 |
) |
| Fair value of common
stock warrants and beneficial conversion feature associated with
convertible notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
87,950 |
|
|
|
|
|
|
$ |
87,950 |
|
| Net loss for the three
months ended June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(477,213 |
) |
|
|
(477,213 |
) |
| Balance, June 30,
2019 |
|
|
37,500 |
|
|
$ |
21,703 |
|
|
|
3,872,076 |
|
|
$ |
3,872 |
|
|
$ |
158,768,984 |
|
|
$ |
(165,411,597 |
) |
|
$ |
(6,617,038 |
) |
| Fair value of common
stock, warrants and beneficial conversion feature associated with
convertible notes |
|
|
|
|
|
|
|
|
|
|
7,500 |
|
|
|
8 |
|
|
|
47,493 |
|
|
|
|
|
|
|
47,501 |
|
| Net loss for the three
months ended September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(469,844 |
) |
|
|
(469,844 |
) |
| Balance, September 30,
2019 |
|
|
37,500 |
|
|
$ |
21,703 |
|
|
|
3,879,576 |
|
|
$ |
3,880 |
|
|
$ |
158,816,477 |
|
|
$ |
(165,881,441 |
) |
|
$ |
(7,039,381 |
) |
See
accompanying notes to condensed consolidated financial statements
(unaudited).
RESPIRERX
PHARMACEUTICALS INC.
AND
SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
| |
|
Nine
Months
Ended
September 30,
|
|
| |
|
2020 |
|
|
2019 |
|
| |
|
|
|
|
|
|
| Cash
flows from operating activities: |
|
|
|
|
|
|
|
|
| Net
loss |
|
$ |
(3,242,210 |
) |
|
$ |
(1,487,389 |
) |
| Adjustments
to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
| Amortization
of debt discounts and debt issuance costs |
|
|
301,515
|
|
|
|
122,373 |
|
| Loss
on extinguishment of debt and other liabilities |
|
|
389,902 |
|
|
|
- |
|
| Stock-based
compensation |
|
|
337,500 |
|
|
|
|
|
| Foreign
currency transaction (gain) loss |
|
|
(7,151 |
) |
|
|
(57,135 |
) |
| Changes
in operating assets and liabilities: |
|
|
|
|
|
|
|
|
| Prepaid
expenses |
|
|
(27,385 |
) |
|
|
(15,743 |
) |
| Accounts
payable and accrued expenses |
|
|
1,062,163
|
|
|
|
432,579 |
|
| Accrued
compensation and related expenses |
|
|
700,540
|
|
|
|
585,900 |
|
| Accrued
interest payable |
|
|
134,402
|
|
|
|
105,724 |
|
| Net
cash used in operating activities |
|
|
(350,724 |
) |
|
|
(313,691 |
) |
| |
|
|
|
|
|
|
|
|
| Cash
flows from financing activities: |
|
|
|
|
|
|
|
|
| Proceeds
from convertible notes borrowings |
|
|
274,750 |
|
|
|
263,501 |
|
| Debt
issuance costs |
|
|
- |
|
|
|
(8,000 |
) |
| Proceeds
from issuance of note payable to officer |
|
|
59,500 |
|
|
|
25,000 |
|
| |
|
|
|
|
|
|
|
|
| Net
cash provided by financing activities |
|
|
334,250 |
|
|
|
280,501 |
|
| |
|
|
|
|
|
|
|
|
| Cash
and cash equivalents: |
|
|
|
|
|
|
|
|
| Net
decrease |
|
|
(16,474 |
) |
|
|
(33,190 |
) |
| Balance
at beginning of period |
|
|
16,690 |
|
|
|
33,284 |
|
| Balance
at end of period |
|
$ |
216 |
|
|
$ |
94 |
|
(Continued)
RESPIRERX
PHARMACEUTICALS INC.
AND
SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
| |
|
Nine
Months
Ended September 30, |
|
| |
|
2020 |
|
|
2019 |
|
| Supplemental
disclosures of cash flow information: |
|
|
|
|
|
|
| Cash
paid for - |
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
4,506 |
|
|
$ |
4,936 |
|
| |
|
|
|
|
|
|
|
|
| Non-cash
financing activities: |
|
|
|
|
|
|
|
|
| Beneficial
Conversion Feature associated with convertible debt |
|
$ |
90,000 |
|
|
|
- |
|
| Debt
and accrued interest converted to common stock |
|
$ |
975,660
|
|
|
$ |
- |
|
| Issuance
of common stock for accrued compensation and benefits |
|
$ |
1,684,218 |
|
|
$ |
- |
|
| Issuance of
common stock for accounts payable |
|
$ |
307,015
|
|
|
$ |
-
|
|
| Issuance
of warrants for with Series H conversion |
|
$ |
1,268,871 |
|
|
|
|
|
| Issuance
of common stock with 10% convertible notes |
|
|
- |
|
|
$ |
1,588 |
|
| Warrants
issued with convertible debt |
|
$ |
44,451 |
|
|
|
80,968 |
|
| Cashless
warrant exercises |
|
$ |
103,848 |
|
|
$ |
- |
|
| Original
issue discounts associated with convertible debt |
|
$ |
19,250 |
|
|
$ |
15,500 |
|
| Issuance of
note payable for equity raising costs |
|
$ |
40,000
|
|
|
$ |
-
|
|
See
accompanying notes to condensed consolidated financial statements
(unaudited).
RESPIRERX
PHARMACEUTICALS INC.
AND
SUBSIDIARY
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.
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, 2020 and for the three months and nine
months ended September 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 consolidated financial position of the Company as of September
30, 2020, the results of its consolidated operations for the three
months and nine months ended September 30, 2020 and 2019, changes
in its consolidated statements of stockholders’ deficiency for the
nine months ended September 30, 2020 and 2019 and its consolidated
cash flows for the nine months ended September 30, 2020 and 2019.
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
signaling. We are developing treatment options that address
conditions that affect millions of people, but for which there are
limited or poor treatment options, including OSA, attention deficit
hyperactivity disorder (“ADHD”) epilepsy, chronic pain, including
inflammatory and neuropathic pain, recovery from spinal cord injury
(“SCI”), as well as other areas of interest based on results of
animal studies to date.
RespireRx
is developing a pipeline of new drug products based on our broad
patent portfolios across two distinct drug platforms:
|
|
(i) |
our
pharmaceutical cannabinoids platform (which we refer to as
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 EndeavourRx) is made
up of two programs: (a) our ampakines program, including
proprietary compounds that are positive allosteric modulators
(“PAMs”) of AMPA-type glutamate receptors to promote neuronal
function and (b) our GABAkines program, including proprietary
compounds that are PAMs of GABAA receptors, which was
recently established pursuant to our entry with the University of
Wisconsin-Milwaukee Research Foundation, Inc., an affiliate of the
University of Wisconsin-Milwaukee (“UWMRF”), into a patent license
agreement (the UWMRF Patent License Agreement”).
|
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 $3,242,210 for the nine months ended
September 30, 2020 and $2,115,033 for the fiscal year ended
December 31, 2019 respectively, as well as negative operating cash
flows of $350,724 for the nine months ended September 30, 2020 and
$487,745 for the fiscal year ended December 31, 2019. The Company
also had a stockholders’ deficiency of $7,288,185 at September 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
RespireRx
periodically issues
its common stock, par value $0.001 (“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
September 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 September 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 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
September 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.
| |
|
September
30, |
|
| |
|
2020 |
|
|
2019 |
|
| Series B convertible
preferred stock |
|
|
11 |
|
|
|
11 |
|
| Convertible notes
payable |
|
|
47,239,857 |
|
|
|
867,200 |
|
| Common stock
warrants |
|
|
288,093,579 |
|
|
|
2,016,043 |
|
| Common stock
options |
|
|
71,660,938 |
|
|
|
4,287,609 |
|
| Total |
|
|
406,994,385 |
|
|
|
7,170,863 |
|
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
Q3
2020 Convertible Notes
Convertible
Note with EMA Financial, LLC
On July
30, 2020, RespireRx and EMA Financial, LLC (“EMA”) entered into a
Securities Purchase Agreement (the “EMA SPA”) by which EMA provided
a sum of $68,250 (the “EMA Consideration”) to RespireRx, in return
for a fixed rate convertible note (the “EMA Note”) with a face
amount of $75,000, and a common stock purchase warrant (the “EMA
Warrant”) for 3,750,000 shares of Common Stock. The net proceeds
received by RespireRx on August 4, 2020 were $63,750 after payment
of $3,500 in EMA’s legal fees and the withholding by EMA of $1,000
in diligence fees.
The
EMA Note obligates RespireRx to pay by October 30, 2021 (the “EMA
Maturity Date”) a principal amount of $75,000 together with
interest at a rate equal to 10% per annum, which principal exceeds
the EMA Consideration by the amount of an original issue discount
of $6,750. Any amount of principal or interest that is not paid by
the EMA Maturity Date would bear interest at the rate of 24% from
the EMA 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 EMA Note into shares of Common
Stock, provided that such conversion would not result in EMA
beneficially owning more than 4.99% of RespireRx’s then outstanding
Common Stock. In the absence of an event of default, 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 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 EMA Note being so converted
terminate, except for the right to receive Common Stock or other
securities, cash or other assets as provided in the EMA Note due
upon such conversion.
RespireRx
may, with prior written notice to EMA, prepay the outstanding
principal amount under the EMA Note during the initial 180 day
period 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 EMA Note.
If,
prior to the repayment or conversion of the EMA Note, RespireRx
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 EMA 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, the EMA Note prohibits RespireRx from selling or
otherwise disposing of a significant portion of its assets outside
the ordinary course of business or in connection with a merger or
consolidation or sale of all or substantially all of RespireRx’s
assets where the surviving or successor entity does not assume
RespireRx’s obligations under the EMA SPA. Further, any subsidiary
to which RespireRx transfers a material amount of assets must
guarantee certain obligations of RespireRx under the EMA
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 EMA 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
EMA 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 Securities Act of 1933, as amended (the “Securities 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 Securities
Act.
The
Company determined that there were no embedded derivatives to be
identified, bifurcated and valued in connection with this
financing.
The
outstanding amounts of the EMA Note consists of the following at
September 30, 2020 and December 31, 2019:
| |
|
September
30,
2020
|
|
|
December
31,
2019
|
|
| Principal amount of
notes payable |
|
$ |
75,000 |
|
|
$ |
- |
|
| Unamortized portion of
note discounts |
|
|
(24,009 |
) |
|
|
|
|
| Accrued interest
payable |
|
|
1,274 |
|
|
|
- |
|
| |
|
$ |
52,265 |
|
|
$ |
- |
|
Convertible
Note and Equity Purchase Agreement with White Lion Capital,
LLC
On
July 28, 2020, RespireRx issued a convertible note, as amended
(“Commitment Note”) to White Lion Capital, LLC (“White Lion”)
pursuant to, and to induce White Lion to enter into an equity
purchase agreement dated July 28, 2020 (“White Lion EPA”). See Note
8. Commitments and Contingencies - Entry into Equity Purchase
Agreement for a description of the White Lion EPA and the other
agreements entered into pursuant to the White Lion EPA. The
Commitment Note had an initial face amount of $25,000 which was
subsequently amended effective July 28, 2020 to $40,000 in
consideration for an amendment to the White Lion EPA extending the
date by which RespireRx was to file a registration statement on
Form S-1 listing White Lion as the selling stockholder on Form S-1.
The Commitment Note was accounted for as equity issuance costs in
Additional paid-in capital.
The
Commitment Note obligates RespireRx to pay by July 28, 2021 a
principal amount of $40,000, together with a guaranteed interest
payment of $3,200 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.
White Lion
has the right, at any time after the first 180 days after execution
of the White Lion EPA, 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 White Lion
beneficially owning more than 9.99% of the Company’s then
outstanding Common Stock. Unless an event of default has occurred,
White Lion 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. White Lion 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 the Company in any
public offering or private placement, subject to the terms of the
Commitment Note.
RespireRx
may, with prior written notice to White Lion, prepay the entire
outstanding principal amount under the Commitment Note at any time
by making a payment to White Lion of an amount in cash equal to
110% of the outstanding principal, guaranteed interest amount, and
any default interest or other amounts owed.
RespireRx
determined that there were no embedded derivatives to be
identified, bifurcated and valued in connection with this
financing.
The
outstanding amounts of the White Lion Note consist of the following
at September 30, 2020 and December 31, 2019:
| |
|
September
30,
2020
|
|
|
December
31,
2019
|
|
| Principal amount of
notes payable |
|
$ |
40,000 |
|
|
$ |
- |
|
| Accrued interest
payable |
|
|
561 |
|
|
|
- |
|
| |
|
$ |
40,561 |
|
|
$ |
- |
|
Convertible
Note with FirstFire Global Opportunities Fund LLC
On
July 2, 2020, RespireRx and FirstFire Global Opportunities Fund LLC
(“FirstFire”) entered into a Securities Purchase Agreement (the
“FirstFire SPA”) pursuant to which FirstFire provided a sum of
$125,000 (the “FirstFire Consideration”) to RespireRx, in return
for a convertible promissory note (the “FirstFire Note”) with a
face amount of $137,500 (which difference in value as compared to
the FirstFire 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 “FirstFire Warrant”), and the
Confession of Judgment (as defined below), among other agreements
and obligations. The net proceeds of the First Fire Consideration,
which were received by RespireRx on July 6, 2020, equal $121,000
after payment of $4,000 in FirstFire’s legal fees.
Under
the terms of the FirstFire SPA and the FirstFire Note, FirstFire
paid the FirstFire Consideration at closing. The FirstFire Note
obligates RespireRx to pay interest at a rate of 10% per annum on
any unpaid principal beginning on 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 April 2, 2021 (the “FirstFire Note
Maturity Date”). 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.
FirstFire
has the right, at any time, to convert any outstanding and unpaid
amount of the FirstFire Note into shares of RespireRx’s Common
Stock or securities convertible into RespireRx’s common stock,
provided that such conversion would not result in FirstFire
beneficially owning more than 4.99% of RespireRx’s then outstanding
shares of Common Stock. Subject to certain limitations and
adjustments as described in the FirstFire Note, FirstFire may
convert at a per share conversion price equal to $0.02 (the
“FirstFire Fixed Conversion Price”), provided that upon any event
of default, the conversion price will equal the lower of (i) the
FirstFire Fixed Conversion Price, (ii) discount to market based
upon subsequent financings with other investors, or (iii) 60%
multiplied by the lowest traded price of Common Stock during the
twenty-one consecutive trading day period immediately preceding the
date of such conversion. Upon such conversion, all rights with
respect to the portion of the FirstFire Note being so converted
terminate, except for the right to receive Common Stock or other
securities, cash or other assets as provided in the FirstFire Note
due upon such conversion.
RespireRx
may, with prior written notice to FirstFire, prepay the outstanding
principal amount under the FirstFire Note during the initial 180
day period after the execution of the FirstFire SPA by making a
payment to FirstFire 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.
The
FirstFire SPA provides FirstFire with certain participation rights
in any subsequent offering of debt or equity. Under the FirstFire
SPA, RespireRx may not enter into an offering of its securities
with terms that would benefit an investor more than FirstFire is
benefited under the FirstFire SPA and the agreements ancillary
thereto, unless RespireRx offers FirstFire those same terms. The
FirstFire SPA also grants FirstFire certain registration
rights.
The
FirstFire Warrant is a warrant to purchase 6,875,000 shares of
Common Stock, for value received in connection with the issuance of
the FirstFire Note, from the date of issuance of the FirstFire
Warrant until September 30, 2023, at an exercise price of $0.007
(subject to adjustment as provided therein) per share of common
stock.
Additionally,
RespireRx provided a confession of judgment (the “Confession of
Judgment”) in favor of FirstFire for the amount of the FirstFire
Note plus fees and costs, to be filed pursuant to the terms and
conditions of the FirstFire SPA and the FirstFire Note.
The
FirstFire Note and the shares of Common Stock issuable upon
conversion thereof are offered and sold to FirstFire 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, and Rule 506(b) promulgated
by the SEC under the Securities Act. Pursuant to these exemptions,
FirstFire represented to RespireRx under the FirstFire SPA, among
other representations, that it was an “accredited investor” as that
term is defined in Rule 501(a) of Regulation D under the Securities
Act.
The
Company determined that there were no embedded derivatives to be
identified, bifurcated and valued in connection with this
financing.
The
outstanding amounts of the FirstFire Note consist of the following
at September 30, 2020 and December 31, 2019:
|
|
|
September
30,
2020
|
|
|
December
31,
2019
|
|
|
Principal
amount of notes payable |
|
$ |
137,500 |
|
|
$ |
- |
|
| Unamortized
portion of note discounts |
|
|
(29,831 |
) |
|
|
|
|
|
Accrued
interest payable |
|
|
3,390 |
|
|
|
- |
|
|
|
|
$ |
111,059 |
|
|
$ |
- |
|
Q2
2020 Convertible Notes
RespireRx
and Power Up Lending Group Ltd. (“Power Up”) entered into two
securities purchase agreements, dated as of April 15, 2020 and June
7, 2020 (each, a “Power Up Agreement”), by which Power Up 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 Power Up for the amount of the April 2020 Note
plus fees and costs to be filed by Power Up 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, were used for general corporate
purposes.
The
April 2020 Note was repaid by conversion in October 2020 (See Note
9. Subsequent Events). The June 2020 Note will be payable on June
7, 2021, (the “June 2020 Note Maturity Date”), and bears 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.
Power
Up has the right, at any time during the period beginning on the
date that is 180 days following the date of the June 2020 Note and
ending on the later of (i) the applicable June 2020 Note 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
June 2020 Note into shares of RespireRx’s common stock or
securities convertible into RespireRx’s common stock (the “June
2020 Note Conversion Shares”), provided that such conversion would
not result in Power Up beneficially owning more than 4.99% of
RespireRx’s common stock. Subject to certain limitations and
adjustments as described in the June 2020 Note, Power Up 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 the June 2020 Note, would be deemed repaid and terminated.
The April 2020 Note was repaid and terminated in this manner in
October 2020. See Note 9. Subsequent Events.
RespireRx
may prepay the outstanding principal amount under 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 June 2020 Note.
During the period in which the June 2020 Note is outstanding,
subject to certain limited exceptions, RespireRx must notify Power
Up in advance of closing of any financing transactions with third
party investors. At Power Up’s discretion, RespireRx must amend and
restate each note, including its conversion terms, and the June
2020 Note Conversion Shares to be identical to the instruments
evidencing such financing transaction.
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. Pursuant to
these exemptions, Power Up 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 Securities Act.
The
Company determined that there were no embedded derivatives to be
identified, bifurcated and valued in connection with this
financing.
The
outstanding amounts of the April 2020 Note and June 2020 Note
consist of the following at September 30, 2020 and December 31,
2019:
| |
|
September
30,
2020
|
|
|
December
31,
2019
|
|
| Principal amount of
notes payable |
|
$ |
96,000 |
|
|
$ |
- |
|
| Unamortized portion of
note discounts |
|
|
(58,057 |
) |
|
|
|
|
| Accrued interest
payable |
|
|
4,553 |
|
|
|
- |
|
| |
|
$ |
42,496 |
|
|
$ |
- |
|
On
October 22, 23 and 26, 2020, Power Up converted the outstanding
principal amount and all accrued and unpaid interest related to the
April 2020 Note into 28,804,407 shares of Common Stock and as of
October 26, 2020 the April 2020 Note is deemed repaid and
terminated. See Note 9. Subsequent Events.
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, May 17, 2020,
August 19, 2019, October 22, 2019 and November 4, 2019 Convertible
Notes was satisfied in full by the lenders electing to convert the
outstanding balances to Common Stock, except for $2,747 of accrued
interest that remains outstanding under the May 17, 2019
Convertible Note.
|
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
September
30, 2020
|
|
|
Accrued
Interest at September 30, 2020
|
|
|
Balance
sheet carrying amount at September 30, 2020 inclusive of accrued
interest |
|
|
May
17, 2019 |
|
May
17, 2020, extended to November 17, 2020 |
|
$ |
50,000 |
|
|
|
10 |
% |
|
$ |
50,000 |
|
|
$ |
50,000 |
|
|
$ |
- |
|
|
$ |
2,747 |
|
|
$ |
2,747 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
50,000 |
|
|
|
|
|
|
$ |
50,000 |
|
|
$ |
50,000 |
|
|
$ |
- |
|
|
$ |
2,747 |
|
|
$ |
2,747 |
|
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 September 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
$6,215 as of September 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
September 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
September 30, 2020 and December 31, 2019:
| |
|
September
30,
2020
|
|
|
December
31,
2019
|
|
| Principal amount of
notes payable |
|
$ |
35,000 |
|
|
$ |
190,000 |
|
| Accrued interest
payable |
|
|
6,215 |
|
|
|
17,976 |
|
| |
|
$ |
41,215 |
|
|
$ |
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 September 30, 2020 and December 31, 2019:
| |
|
September
30,
2020
|
|
|
December
31,
2019
|
|
| Principal amount of
notes payable |
|
$ |
75,000 |
|
|
$ |
125,000 |
|
| Accrued interest
payable |
|
|
60,983 |
|
|
|
82,060 |
|
| |
|
$ |
135,983 |
|
|
$ |
207,060 |
|
As of
September 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%, totaled $47,526, of which $22,526
was accrued interest. As of December 31, 2019, principal and
accrued interest on Original Convertible Notes subject to default
notices totaled $43,666 of which $18,666 was accrued
interest.
As of
September 30, 2020 all of the outstanding Original Convertible
Notes, inclusive of accrued interest, were convertible into an
aggregate of 11,955 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 nine months ended September 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 September
30, 2020 and December 31, 2019:
| |
|
September
30,
2020
|
|
|
December
31,
2019
|
|
| Principal amount of
note payable |
|
$ |
399,774 |
|
|
$ |
399,774 |
|
| Accrued interest
payable |
|
|
399,293 |
|
|
|
363,280 |
|
| Foreign currency
transaction adjustment |
|
|
(3,969 |
) |
|
|
3,182 |
|
| |
|
$ |
795,098 |
|
|
$ |
766,236 |
|
Interest
expense with respect to this promissory note was $12,092 and
$12,092 for the three months and was $36,013 and $35,881 for the
nine months ended September 30, 2020 and 2019,
respectively.
Notes Payable to Officers and Former Officers
For
the three months ended September 30, 2020 and 2019, $2,848 and
$2,589 and for the nine months ended September 30, 2020, $8,481 and
$7,683 was charged to interest expense with respect to Dr. Arnold
S. Lippa’s notes, respectively.
Other Short-Term Notes Payable
Other
short-term notes payable at September 30, 2020 and December 31,
2019 consisted of premium financing agreements with respect to
various insurance policies. At September 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 and which resulted in a remaining balance of $24,321 at
September 30, 2020. In addition, there is a balance of $6,899 of
short-term financing of office and clinical trials insurance
premiums that includes a prior period premium financing of $2,317.
At September 30, 2020 and December 31, 2019, the aggregate amount
of the short-term notes payable was $31,219 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 since that time. 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 September 30, 2020 with respect to the original
agreement in principle. Given that as of September 30, 2020, a
final agreement had not been reached and management does not
believe that the proposed extension for the first payment to
December 31, 2020 will be achievable, RespireRx intends to make a
new proposal, similar to the last, but with an extended timeframe
and smaller monthly amounts. The currently proposed settlement has
not yet been finalized 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 current 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.
6.
Stockholders’ Deficiency
Reserved and Unreserved Shares of Common Stock
At
September 30, 2020, RespireRx had 1,000,000,000 shares of common
stock authorized and 577,842,003 shares of common stock issued and
outstanding. RespireRx has reserved 11 shares of common stock for
conversion of the Series B Preferred Stock, 145,198,671 shares of
common stock for conversion of various convertible notes, inclusive
of contractual reserves that had not been waived, 145,198,671 for
warrant exercises, inclusive of contractual reserves that had not
been waived but which excludes reserves for warrant exercises with
respect to 253,774,260 warrants for which reserve requirements have
been waived until November 25, 2020, and 71,660,938 for the
exercise of outstanding options. RespireRx has not reserved shares
of common stock with respect unissued shares available for issuance
from the 2014 Plan or the 2015 Plan and will reserve for such
unissued shares, if the Amendment to its Certificate of
Incorporation is filed with the Secretary of State of Delaware
increasing the authorized shares of Common Stock from 1,000,000,000
to 2,000,000,000 (see below). RespireRx has reserved 6,497 Pier
Contingent shares. There are 87,018,841 shares of common
stock available for issuance. The above amounts include certain
contractual reserve requirements of certain convertible notes and
exercisable warrants in excess of actual conversion or exercise
amounts which contractual reserve requirements had not been waived.
Management believes that the Common Stock available for issuance is
adequate to meet all conversions and option and warrant exercises
at all times. Any and all contractual reserve requirements in all
convertible notes that are not yet convertible, including with
respect to the Commitment Note issued in favor of White Lion, have
been waived by the respective holders until November 25,
2020.
RespireRx
has called for a special meeting of stockholders to be held at
9:00am Eastern Time on November 24, 2020 to vote on two proposals
that were recommended by the Board of Directors. One proposal is to
effect a ten for one (10:1) reverse stock split of all issued and
outstanding shares of Common Stock and the second proposal is to
increase the authorized shares from 1,005,000,000 to 2,005,000,000
of which 5,000,000 would be authorized preferred stock. The net
result would be to increase the authorized shares of Common Stock
from 1,000,000,000 to 2,000,000,000. If both proposals are approved
by stockholders at the special meeting, RespireRx plans to file one
or more amendments to its Certificate of Incorporation to effect
both of these proposals as soon as practical. The increase in the
authorized number of shares of Common Stock would allow the Company
to remain in compliance with contractual reserve requirements
following the November 25, 2020 expiration of the waivers of such
requirements.
Preferred Stock
RespireRx
has authorized a total of 5,000,000 shares of preferred stock, par
value $0.001 per share. As of September 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; 1,700 shares were designated as
Series G 1.5% Convertible Preferred Stock. On July 13, 2020,
RespireRx designated 1,200 shares of Series H, Voting,
Non-participating, Convertible Preferred Stock (“Series H Preferred
Stock”) and on September 30, 2020 RespireRx amended the Certificate
of Designation of the Series H Preferred Stock to increase the
number of shares of Series H Preferred Stock to 3,000 shares. On
July 13, 2020 and September 30, 2020, RespireRx issued an aggregate
of 1,624.1552578 shares of Series H Preferred Stock inclusive of 2%
accrued dividends, all of which converted on September 30, 2020
into 253,774,260 shares of Common Stock and warrants to purchase
253,774,260 shares of Common Stock, and therefore as of that time
on September 30, 2020, there were no shares of Series H Preferred
Stock outstanding. Under the Certificate of Designation of the
Series H Preferred Stock, shares of Series H Preferred Stock
converted or redeemed by conversion are to be canceled and are not
to be reissued. Accordingly, as of the time of this conversion on
September 30, 2020 and on December 31, 2019, 3,504,424.1552578
shares of preferred stock and 3,505,800 shares of preferred stock,
respectively, were undesignated and were able to be issued with
such rights and powers as the Board of Directors may
designate.
Series
B Preferred Stock outstanding as of September 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 September
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 577,842,003 shares of RespireRx’s Common Stock outstanding as
of September 30, 2020. On or before September 30, 2020, certain
holders of convertible notes and Series H Preferred Stock waived
the contractual reserve requirements associated with such
convertible notes and the reserve requirements associated with the
Series H Preferred Stock and warrants issued upon conversion of the
Series H Preferred Stock, until November 25, 2020. With such
waivers and after giving effect to the conversions of Series H
Preferred Stock discussed above, RespireRx had 87,036,986
shares of Common Stock available for issuance on September
30, 2020. As described above, RespireRx has sought stockholder
approval on November 24, 2020, to increase its authorized shares of
Common Stock from 1,000,000,000 (1 billion) to 2,000,000,000 (2
billion) . If approved by the stockholders, RespireRx intends to
effect this increase in the number or authorized shares of Common
Stock on November 24, 2020 or November 25, 2020. This increase will
allow the Company to remain in compliance with contractual reserve
requirements following the November 25, 2020 expiration of the
waivers of such requirements. Previously, 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. If approved by the stockholders, it is anticipated
that another amendment to the Certificate of Incorporation will be
filed with the Secretary of State of Delaware as soon as practical
to effect a further increase in authorized shares of common stock,
as discussed above. There can be no assurance that either proposal
will be approved at the special meeting of stockholders.
Equity Purchase
Agreement with White Lion Capital LLC
For a
description of the White Lion EPA, see Note 8. Significant
Agreements and Contracts – Equity Purchase Agreement and
Registration Rights Agreement.
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 nine months ended September 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 |
|
| Issued including
issuances as a result of anti-dilution protections |
|
|
395,850,387 |
|
|
|
0.00521 |
|
|
|
2.89772 |
|
| Expired |
|
|
(254,353 |
) |
|
|
(5.99808 |
) |
|
|
- |
|
| Exercised |
|
|
(109,693,498 |
) |
|
|
(0.00161 |
) |
|
|
- |
|
| Warrants outstanding
and exercisable at September 30, 2020 |
|
|
288,093,579 |
|
|
$ |
0.01474 |
|
|
|
2.88832 |
|
The
exercise prices of common stock warrants outstanding and
exercisable are as follows at September 30, 2020:
| Exercise
Price |
|
|
Warrants
Outstanding
(Shares) |
|
|
Warrants
Exercisable
(Shares) |
|
|
Expiration
Date |
| $ |
0.001600 |
|
|
|
22,125,000 |
|
|
|
22,125,000 |
|
|
May 17,
2022 |
| |
0.007000 |
|
|
|
264,399,260 |
|
|
|
264,399,260 |
|
|
September 30,
2023 |
| $ |
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 |
| $ |
7.930000 |
|
|
|
86,004 |
|
|
|
86,004 |
|
|
February 28,
2021 |
| |
|
|
|
|
288,093,579 |
|
|
|
288,093,579 |
|
|
|
Based
on a value of $0.0054 per share on September 30, 2020, there were
22,125,000 exercisable in-the-money common stock warrants as of
September 30, 2020 with an intrinsic value of $84,075.
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
at December 31, 2018 |
|
|
1,783,229 |
|
|
$ |
2.20393 |
|
|
|
3.06 |
|
| Issued |
|
|
302,372 |
|
|
|
0.95908 |
|
|
|
|
|
| Expired |
|
|
(69,558 |
) |
|
|
2.65928 |
|
|
|
|
|
| Warrants outstanding
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,
there was no intrinsic value of exercisable in-the-money common
stock warrants as of September 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. 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 grants and there were stock option grants for
67,500,000 shares of RespireRx’s Common Stock during the three
months and nine months ended September 30, 2020 and there were no
stock grants or stock option grants in the three months and nine
months ended September 30, 2019.
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 nine months ended
September 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 |
|
| Granted |
|
|
67,500,000 |
|
|
|
0.0070 |
|
|
|
|
|
| Expired |
|
|
(126,671 |
) |
|
|
(6.5757 |
) |
|
|
- |
|
| Options outstanding at
September 30, 2020 |
|
|
71,660,938 |
|
|
$ |
0.1969 |
|
|
|
4.85 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Options exercisable at
September 30, 2020 |
|
|
50,910,938 |
|
|
$ |
0.2745 |
|
|
|
4.88 |
|
The
exercise prices of common stock options outstanding and exercisable
were as follows at September 30, 2020:
|
Exercise
Price |
|
|
Options
Outstanding (Shares) |
|
|
Options
Exercisable
(Shares)
|
|
|
Expiration
Date |
| $ |
0.0070 |
|
|
|
50,500,000 |
|
|
|
34,750,000 |
|
|
September 30,
2025 |
| $ |
0.0070 |
|
|
|
17,000,000 |
|
|
|
12,000,000 |
|
|
July 31,
2025 |
| $ |
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 |
|
|
|
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 |
| |
|
|
|
|
71,660,938 |
|
|
|
50,910,938 |
|
|
|
Based
on a fair value of $0.0054 per share on September 30, 2020, there
were no exercisable in-the-money common stock options as of
September 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.
A
description of advances and notes payable to officers is provided
at Note 4. Notes Payable.
On March
21, 2020, July 13, 2020 and September 30, 2020, Dr. Lippa and Jeff
E. Margolis, forgave an aggregate of $1,656,000 of accrued
compensation and benefits and received Series H Preferred Stock. On
September 30, 2020, Timothy Jones forgave $28,218 or accrued
compensation and benefits and received Series H Preferred Stock.
See Note 8. Commitments and Contingencies – Significant
Agreements and Contracts-Employment Agreements for a more
detailed description of these transactions.
8.
Commitments and Contingencies
Pending or Threatened Legal Action and Claims
On
February 21, 2020, Sharp Clinical Services, Inc. (“Sharp”), a
vendor of the Company, filed a complaint against the Company 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 the Company, and on September
4, 2020, a final judgment by default was entered against the
Company in the amount of $104,217. The Company has recorded a
liability to Sharp of $103,859 as of September 30, 2020.
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 September 30, 2020 and
December 31, 2019, including accrued interest at 4.5% annually from
February 26, 2018, the date of the judgment, through September 30,
2020, totalling $22,186. See Note 5 for further
information.
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
September 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 September 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
Equity Purchase
Agreement and Registration Rights Agreement
On July
28, 2020, RespireRx and White Lion entered into an equity purchase
agreement, dated July 28, 2020 (the “White Lion EPA”) and a
registration rights agreement (the “White Lion Registration Rights
Agreement”). Pursuant to the White Lion EPA, White Lion agreed to
invest up to $2,000,000 to purchase Common Stock at a purchase
price of 85% of the lowest daily volume weighted average price of
Common Stock for the five trading days prior to a given closing
date.
Additionally, the
Commitment Note was issued pursuant to the White Lion EPA and to
induce White Lion to execute the White Lion EPA. See Note 4. Notes
Payable—Convertible Notes Payable—Q3 2020 Convertible
Notes—Convertible Note and Equity Purchase
Agreement with White Lion Capital, LLC .
Pursuant
to the Registration Rights Agreement, RespireRx is obligated to
register for resale under the Securities Act the shares of Common
Stock to be issued and sold to White Lion pursuant to the White
Lion EPA. On October 14, 2020, Respire Rx filed a registration
statement on Form S-1 with respect to the resale of up to
115,000,000 of the shares of Common Stock to be issued and sold to
White Lion pursuant to the White Lion EPA, and on October 29, 2020,
the registration statement became effective. The registration
statement does not necessarily represent all of the shares that may
be sold to White Lion in order to fulfill its purchase commitment
of $2,000,000 under the White Lion EPA.
The shares
of Common Stock to be issued and sold to White Lion pursuant to the
White Lion 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 U.S. federal and
state securities laws, which include Section 4(a)(2) of the
Securities Act, and Rule 506 of Regulation D promulgated
thereunder. White Lion represented to the Company under the White
Lion EPA, among other representations, that it was an “accredited
investor” as that term is defined in Rule 501(a) of Regulation D
under the Securities Act.
The White
Lion EPA terminates on the earlier of (i) June 30, 2021, (ii) the
date on which White Lion has purchased $2,000,000 of Common Stock,
(iii) the date on which the White Lion Registration Rights
Agreement is no longer in effect, (iv) upon White Lion’s material
breach of the White Lion EPA, (v) in the event a voluntary or
involuntary bankruptcy petition is filed with respect to the
Company, or (vi) if a custodian is appointed for the Company for
all or substantially all of its property or the Company makes a
general assignment for the benefit of its creditors.
On October
28, 2020, RespireRx issued a purchase notice pursuant to the White
Lion EPA to White Lion requiring that White Lion purchase
29,000,000 shares of Common Stock and deposit $195,750 into an
escrow account maintained at an independent commercial bank. White
Lion paid gross proceeds of $68,256 for such shares and RespireRx
received net proceeds of $62,186 after paying $4,000 of upfront
escrow fees and $2,070 of transaction fees. On November 13, 2020,
RespireRx issued a purchase notice pursuant to the White Lion EPA
to White Lion requiring White Lion to purchase 18,000,000 shares of
Common Stock and on that date White Lion deposited $108,000 into an
escrow account maintained at an independent commercial bank. Gross
and net proceeds pursuant to this purchase notice will not be
determinable until the close of business on November 23, 2020. See
Note 9. Subsequent Events - Issuances of Common Stock –
White Lion Capital LLC.
Consulting Agreements
DNA
Healthlink, Inc. and Richard Purcell
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. Stockholders’
Deficiency. Cash compensation expense pursuant to this agreement
totaled $37,500 and $112,500 for the three months and nine months
ended September 30, 2020 and 2019, which is included in research
and development expenses in the Company’s consolidated statements
of operations for such periods.
David
Dickason
The
Company entered into a consulting contract with David Dickason
effective September 15, 2020 pursuant to which Mr. Dickason was
appointed to and serves as the Company’s Senior Vice President of
Pre-Clinical Product Development on an at-will basis at the rate of
$250 per hour. Mr. Dickason began providing services under this
contract and began invoicing RespireRx with respect this contract
in October 2020. Pursuant to this contract, on September 30, 2020,
Mr. Dickason was granted an option to purchase 2,000,000 shares of
RespireRx Common Stock at a price of $0.0054 per share, which
option expires on September 30, 2025. The option vests 25% on each
of December 31, 2020, March 31, 2021, June 30, 2021 and September
30, 2021.
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
expired 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. The
guaranteed bonus of $200,000 that was due on October 31, 2020 was
not paid and is accrued and payable as of that date. 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, 25% of which vested on September 30,
2020, and 25% of which will vest on each of 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 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 September 30, 2020, the Company
accrued $122,941 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 September 30, 2020. On September 30, 2020, Mr.
Jones, pursuant to an exchange agreement, forgave $28,218 of
accrued Board of Directors and other fees owed to him in exchange
for 28.218 shares of Series H Preferred Stock which, on the same
day, was converted into 4,409,063 shares of Common Stock and a
warrant to purchase 4,409,063 shares of RespireRx Common
Stock.
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 nine month periods ended September 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 totaled
$84,900 and $254,700 for each of the three months and nine months
ended September 30, 2020 and 2019, respectively. After forgiveness
of the compensation described below, the accrued compensation
payable to Dr. Lippa at September 30, 2020 was $165,800. Dr.
Lippa’s cash compensation is included in accrued compensation and
related expenses in the Company’s condensed consolidated balance
sheet at September 30, 2020 and in research and development
expenses in the Company’s condensed consolidated statement of
operations for the three months and nine months ended September 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, pursuant to an exchange agreement, Dr.
Lippa forgave $600,000 of accrued compensation and benefits and in
exchange received 600 shares of Series H Preferred Stock. On
September 30, 2020, pursuant to an additional exchange agreement,
Dr. Lippa forgave $100,000 of accrued compensation and benefits and
in exchange received 100 shares of Series H Preferred Stock.
Between July 13, 2020 and September 30, 2020, Dr. Lippa earned
2.6333333 shares of Series H Preferred Stock as dividends in-kind.
On July 13, 2020 and September 30, 2020, Dr. Lippa contributed all
of his Series H Preferred Stock to a family trust. On September 30,
2020, the family trust converted all of its Series H Preferred
Stock into 109,786,458 shares of RespireRx Common Stock and a
warrant to purchase 109,786,458 shares of Common Stock.
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 totaled $80,400 and
$241,200 for the three months and nine months ended September 30,
2020 and 2019, respectively. After forgiveness of the compensation
described below, the accrued compensation payable to Mr. Margolis
at September 30, 2020 was $161,800. Mr. Margolis’ cash compensation
is included in accrued compensation and related expenses in the
Company’s condensed consolidated balance sheet as of September 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, pursuant to an exchange agreement, Mr. Margolis
forgave $500,000 of accrued compensation and benefits and in
exchange received 500 shares of Series H Preferred Stock. On
September 30, 2020, pursuant to an additional exchange agreement,
Mr. Margolis forgave $150,000 of accrued compensation and benefits
and in exchange received 150 shares of Series H Preferred Stock.
Between July 13, 2020 and September 30, 2020, Mr. Margolis earned
2.194444 shares of Series H Preferred Stock as dividends in-kind.
On July 13, 2020 and September 30, 2020, Mr. Margolis contributed
all of his Series H Preferred Stock to three family trusts. On
September 30, 2020, the family trusts converted all of their Series
H Preferred Stock into 101,905,382 shares of RespireRx Common Stock
and a warrant to purchase 101,905,382 shares of Common
Stock.
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, 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. One-time milestone payments may become due
based upon the achievement of certain development milestones.
$350,000 will be due within five days after the dosing of the first
patient is a Phase III human clinical trial anywhere in the world.
$500,000 will be due within five days after the first NDA filing
with the U.S. Food and Drug Administration (the “FDA”) or a foreign
equivalent. $1,000,000 will be due within twelve months of the
first commercial sale. One-time royalty payments may also become
due and payable. Annual royalty payments may also become due. In
the year after the first application for market approval is
submitted to the FDA or a foreign equivalent and until approval is
obtained, the minimum annual royalty will increase to $150,000. In
the year after the first market approval is obtained from the FDA
or a foreign equivalent and until the first sale of a product, the
minimum annual royalty will increase to $200,000. In the year after
the first commercial sale of a product, the minimum annual royalty
will increase to $250,000.
During
each of the three months and nine months ended September 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 nine months ended September 30,
2020 and 2019, respectively.
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 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.
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.
Vendor Exchange Agreements
On
September 30, 2020, RespireRx entered into exchange agreements with
two vendors to settle certain accounts payable with such vendors.
Pursuant to one exchange agreement, RespireRx issued 135.65498
shares of Series H Preferred Stock to a designee of one vendor,
which vendor and designee are related parties, to settle $135,659
of accounts payable to such vendor. The vendor designee then
converted on the same day, all 135.65948 Series H Preferred Shares
into 21,196,794 shares of Common Stock and 21,196,794 warrants to
purchase Common Stock. Since the vendor and its designee are both
related parties, there was no gain or loss on the settlement.
Pursuant to the other exchange agreement, RespireRx issued 105.45
shares of Series H Preferred Stock to two designees of such vendor
to settle $105,450 of accounts payable to such vendor. Such
vendor’s designees then converted on the same day, all 105.45
shares of Series H Preferred Stock into 16,476,563 shares of Common
Stock and 16,476,563 warrants to purchase Common Stock. Since the
vendor and its designees were not related parties, a loss on the
settlement of $65,906 was recorded.
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,
2020, aggregating $3,230,470. License agreement amounts included in
the 2020 column represents amounts contractually due from October
1, 2020 through December 31, 2020 (three 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 October 1, 2020 through September 30, 2021 (one year) 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 |
|
$ |
485,370 |
|
|
$ |
25,000 |
|
|
$ |
115,092 |
|
|
$ |
115,093 |
|
|
$ |
130,185 |
|
|
$ |
100,000 |
|
| Employment agreements
(1) |
|
|
2,745,100 |
|
|
|
450,200 |
|
|
|
1,100,600 |
|
|
|
639,600 |
|
|
|
554,700 |
|
|
|
- |
|
| Total |
|
$ |
3,230,470 |
|
|
$ |
475,200 |
|
|
$ |
1,215,692 |
|
|
$ |
754,693 |
|
|
$ |
684,885 |
|
|
$ |
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, 2020 and the 2020 obligations include the
three months of obligations through December 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
Issuances of Common Stock
Registration
Statement on Form S-1
On October
14, 2020, RespireRx filed a registration statement on Form S-1
pursuant to the White Lion Registration Rights Agreement naming
White Lion as the selling stockholder and registering the resale of
up to 115,000,000 shares of Common Stock which represents a portion
of the $2,000,000 purchase commitment under the White Lion EPA. The
registration statement on Form S-1 was declared effective on
October 28, 2020.
White
Lion Capital, LLC
On October
28, 2020 RespireRx issued a purchase notice pursuant to the White
Lion EPA to White Lion requiring that White Lion purchase
29,000,000 shares of Common Stock and deposit $195,750 into an
escrow account maintained at an independent commercial bank. White
Lion paid gross proceeds of $68,256 for such shares and RespireRx
received net proceeds of $62,186 after paying $4,000 of upfront
escrow fees and $2,070 of transaction fees. On November 13, 2020,
RespireRx issued a purchase notice pursuant to the White Lion EPA
to White Lion requiring White Lion to purchase 18,000,000 shares of
Common Stock and on that date White Lion deposited $108,000 into an
escrow account maintained at an independent commercial bank. A
closing is scheduled for November 24, 2020.
Convertible Note Repayment
Power
Up Lending Group LLC
On
October 22, 23 and 26, 2020, Power Up converted the outstanding
principal amount of $53,000 and all accrued and unpaid interest
totaling $3,180 for a total of $56,180, related to the April 2020
Note into 28,804,407 shares of Common Stock. Upon the last of these
conversions the April 2020 Note was deemed repaid and
terminated.
Schedule 14A
Notice
of Special Meeting of Stockholders
On October
30, 2020, RespireRx filed a definitive proxy statement on Schedule
14A indicating that a Special Meeting of the Stockholders of
RespireRx will be held virtually via a live webcast on November 24,
2020 at 9:00am Eastern Time to approve (i) an amendment to the
Certificate of Incorporation to effect, at the discretion of our
Board of Directors, a ten-to-one (10:1) reverse stock split of all
of the outstanding shares of our Common Stock, and (ii) an
amendment to the Certificate of Incorporation to increase the
number of RespireRx’s authorized shares of stock at 2,005,000,000
(two billion five million) shares consisting of 2,000,000,000 (two
billion) shares designated as Common Stock and 5,000,000 (five
million) shares designated as preferred stock. If both
proposals are approved by stockholders at the special meeting,
RespireRx plans to file one or more amendments to its Certificate
of Incorporation to effect both of these proposals as soon as
practical. The increase in the authorized number of shares of
Common Stock would allow the Company to remain in compliance with
contractual reserve requirements following the November 25, 2020
expiration of the waivers of such requirements.
ITEM 2. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion and analysis should be read in conjunction
with the condensed consolidated financial statements (unaudited)
and notes related thereto appearing elsewhere in this
document.
Overview
The
mission of the Company is to develop innovative and revolutionary
treatments to combat disorders caused by disruption of neuronal
signaling. We are developing treatment options that address
conditions that affect millions of people, but for which there are
limited or poor treatment options, including obstructive sleep
apnea (“OSA”), attention deficit hyperactivity disorder (“ADHD”)
epilepsy, chronic pain, including inflammatory and neuropathic
pain, recovery from spinal cord injury (“SCI”), as well as other
areas of interest based on results of animal studies to
date.
RespireRx
is developing a pipeline of new drug products based on our broad
patent portfolios across two distinct drug platforms:
|
|
(i) |
our
pharmaceutical cannabinoids platform (which we refer to as
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 EndeavourRx) is made
up of two programs: (a) our ampakines program, including
proprietary compounds that are positive allosteric modulators
(“PAMs”) of AMPA-type glutamate receptors to promote neuronal
function and (b) our GABAkines program, including proprietary
compounds that are PAMs of GABAA receptors, which was
recently established pursuant to our entry with the University of
Wisconsin-Milwaukee Research Foundation, Inc., an affiliate of the
University of Wisconsin-Milwaukee (“UWMRF”), into a patent license
agreement (the UWMRF Patent License Agreement”). |
In
order to facilitate our business activities and product
development, we are organizing our drug platforms into two separate
business units. The business unit focused on pharmaceutical
cannabinoids is named ResolutionRx and the business unit focused on
neuromodulators is named EndeavourRx. It is anticipated that the
Company will use, at least initially, its management personnel to
provide management, operational and oversight services to these two
business units.
Management
intends to organize our ResolutionRx and EndeavourRx business units
into two subsidiaries: (i) a ResolutionRx subsidiary, into which we
intend to contribute our pharmaceutical cannabinoid platform and
its related tangible and intangible assets and certain of its
liabilities and (ii) an EndeavourRx subsidiary, into which we plan
to contribute our neuromodulator platform, including both the
AMPAkine and GABAkine programs and their related tangible and
intangible assets and certain of their liabilities.
Management
believes that there are advantages to separating these platforms
formally into newly formed subsidiaries, including but not limited
to optimizing their asset values through separate finance channels
and making them more attractive for capital raising as well as for
strategic deal making.
The
Company is also engaged in a number of business development efforts
(licensing/sub-licensing, joint venture and other commercial
structures) with a view to securing strategic partnerships that
represent strategic and operational infrastructure additions, as
well as cash and in-kind funding opportunities. These efforts have
focused on, but have not been limited to, transacting with brand
and generic pharmaceutical and biopharmaceutical companies as well
as companies with potentially useful formulation or manufacturing
capabilities, significant subject matter expertise and financial
resources. No assurance can be given that any transaction will come
to fruition and that if it does, that the terms will be favorable
to the Company.
Neurotransmission
RespireRx
is developing drugs to modify neurotransmission and create advanced
treatments for disorders with high unmet needs. Neurotransmission
is the basic process in the brain by which specialized nerve cells
called neurons communicate information with each other.
 |
|
As
illustrated in this figure, during neurotransmission, neurons
release chemicals called neurotransmitters which attach to
receptors, very specific protein structures residing on adjacent
neurons. This enables neurons to communicate with one another by
either increasing or decreasing the excitability of the neuron
receiving the communication. For example, glutamate is the primary
excitatory neurotransmitter in the brain, while gamma-amino-butyric
acid (“GABA”) is the primary inhibitory neurotransmitter. Neurons
also contain receptors for the brain’s own natural cannabinoid
(endocannabinoid) substances. |
ResolutionRx – Pharmaceutical Cannabinoids
Background
Cannabinoids
are pharmacologically active substances found within the marijuana
plant. Due to the liberalization of state laws regulating the use
and sales of marijuana over the last 5 years, a major industry has
grown around the commercialization of marijuana for both medical
and recreational use. However, while personal marijuana use has
been legalized in certain states, it still is not legal under
federal statutes and regulations. The medical use of any
pharmacological agent must be approved by the U.S Food and Drug
Administration (“FDA”) and, to date, the FDA has not recognized or
approved the marijuana plant as medicine nor is it federally legal
to sell products that contain cannabinoids as drugs or dietary
supplements without its approval.
Worldwide
clinical research efforts have established the cannabinoid class of
compounds as bona fide pharmaceutical products, or
“pharmaceutical cannabinoids,” which are being developed and
commercialized according to FDA regulatory and industry guidelines.
Scientific research and commercial development to date has focused
primarily on two major cannabinoids, THC and cannabidiol (“CBD”).
This research and development began in 1985 when dronabinol, a
synthetic form of THC, was approved as Marinol® by the
FDA for the treatment of AIDS-related anorexia and later for the
treatment of chemotherapy-induced nausea and vomiting. Dronabinol,
in its Marinol® formulation as well as numerous generic
formulations, is available in 2.5 mg, 5 mg, and 10 mg capsules,
with a maximum labelled dosage of 20 mg/day for the AIDS
indication, or 15 mg/m2 per dose for
chemotherapy-induced nausea and vomiting.
This
initial breakthrough subsequently led to the recent FDA approval of
Epidiolex®, a proprietary oral solution of highly
purified, plant-derived CBD sold by GW Pharmaceuticals plc (“GW
Pharma”) for the treatment of certain rare, treatment-resistant
forms of epilepsy. Nabiximol®, an oromucosal spray
containing THC and CBD, was approved under the tradename
Sativex® by applicable regulatory authorities in 25
countries outside the United States and is sold by GW Pharma in
those countries for the treatment of multiple sclerosis.
The
commercialization of these pharmaceutical cannabinoids has opened
the door to an expanding market sector. In order to capitalize upon
this opportunity, the Company is implementing an internal
restructuring plan by forming ResolutionRx as a stand-alone
business focused on the pharmaceutical cannabinoid market.
ResolutionRx’s initial primary focus has been and will be the
re-purposing of dronabinol using new proprietary formulations and
therapeutic indications. Because dronabinol already is an approved
drug, we intend to use publicly available information, particularly
safety data, in support of a 505(b)(2) New Drug Application
(“NDA”), a much more rapid route to FDA approval than a standard
505(b)(1) NDA.
OSA
and Existing Treatments
The
Company is developing dronabinol for the treatment of OSA, a
sleep-related breathing disorder that afflicts an estimated 29
million people in the United States according to the American
Academy of Sleep Medicine (“AASM”), and an additional 26 million in
Germany and 8 million in the United Kingdom, as presented at the
European Respiratory Society’s annual Congress in Paris, France in
September 2018. OSA involves a decrease or complete halt in airflow
despite an ongoing effort to breathe during sleep. When the muscles
relax during sleep, soft tissue in the back of the throat collapses
and obstructs the upper airway. OSA remains significantly
under-recognized, as only 20% of cases in the United States
according to the AASM and 20% of cases globally have been properly
diagnosed. About 24 percent of adult men and 9 percent of adult
women are believed to have the breathing symptoms of OSA with or
without daytime sleepiness. OSA significantly impacts the lives of
sufferers who do not get enough sleep; their quality of sleep is
deteriorated such that daily function is compromised and limited.
OSA is associated with decreased quality of life, significant
functional impairment, and increased risk of road traffic
accidents, especially in professions like road and rail
transportation and shipping.
Research
has established links between OSA and several important
co-morbidities, including hypertension, type II diabetes, obesity,
stroke, congestive heart failure, coronary artery disease, cardiac
arrhythmias, and even early mortality. The consequences of
undiagnosed and untreated OSA are medically serious and
economically costly. According to the AASM, the estimated economic
burden of OSA in the United States is approximately $162 billion
annually. All current treatment options have serious drawbacks. We
believe that a new drug therapy that is effective in reducing the
medical and economic burden of OSA would have major benefits for
the treatment of this costly disease indication.
Continuous
Positive Airway Pressure (“CPAP”) is the most common treatment for
OSA. CPAP devices work by blowing pressurized air into the nose (or
mouth and nose), which keeps the pharyngeal airway open. Patients
must use the device whenever they sleep. Reduction of the
apnea/hypopnea index (“AHI”) is the standard objective measure of
therapeutic response in OSA. Apnea is the cessation of breathing
for 10 seconds or more and hypopnea is a reduction in breathing.
AHI is the sum of apnea and hypopnea events per hour. In the sleep
laboratory, CPAP is highly effective at reducing AHI. However, the
device is cumbersome and difficult for many patients to tolerate.
Most studies describe that 25-50% of patients refuse to initiate or
completely discontinue CPAP use within the first several months and
that most patients who continue to use the device do so only
intermittently.
Oral
devices may be an option for patients who cannot tolerate CPAP.
Several dental devices are available. The cost of these devices
tends to be high and side effects associated with them include
night-time pain, dry lips, tooth discomfort, and excessive
salivation.
Patients
with clinically significant OSA who cannot be treated adequately
with CPAP or oral devices may elect to undergo surgery, the most
common form of which involves the removal of excess tissue in the
throat to make the airway wider. Patients who undergo surgery for
the treatment of OSA risk complications. Surgery is often
unsuccessful, and at present, no method exists to reliably predict
therapeutic outcome from surgery.
Recently,
another surgical option has become available based on upper airway
stimulation. It is a combination of an implantable nerve stimulator
and an external remote controlled by the patient. The implanted
device stimulates the hypoglossal nerve, which controls the tongue,
with every attempted breath, regardless of whether such stimulation
is needed for that breath. The device is turned on at night and off
in the morning by the patient with the remote.
The
Company’s Research Efforts Regarding the Treatment of OSA with
Cannabinoids
The
Company conducted a 21-day, randomized, double-blind,
placebo-controlled, dose escalation Phase 2A clinical study in 22
patients with OSA, in which dronabinol produced a statistically
significant reduction in AHI, the primary therapeutic end-point,
and was observed to be safe and well tolerated, with the frequency
of side effects no different from placebo. This clinical trial
provided data supporting the submission of patent applications
claiming unique dosage strengths, blood levels and controlled
release formulations optimized for use in the treatment of OSA. If
approved, these pending patents would extend market exclusivity
until at least 2031.
With
approximately $5 million in funding from the National Heart, Lung
and Blood Institute of the National Institutes of Health (“NIH”),
Dr. David Carley of the University of Illinois at Chicago (“UIC”),
along with his colleagues at UIC and Northwestern University,
completed a Phase 2B multi-center, double-blind, placebo-controlled
clinical trial of dronabinol in patients with OSA. This study,
named “Pharmacotherapy of Apnea with Cannabimimetic Enhancement”
(“PACE”) replicated the earlier Phase 2A study. The authors
published in January 2018 in the journal SLEEP and reported that,
in a dose-dependent fashion, treatment with 2.5 mg and 10 mg of
dronabinol once per day at night, significantly reduced, compared
to placebo, AHI during sleep in 56 evaluable patients with moderate
to severe OSA who completed the study. Additionally, treatment with
10 mg of dronabinol significantly improved daytime sleepiness as
measured by the Epworth Sleepiness Scale and achieved the greatest
overall patient satisfaction. As in the previous Phase 2A study,
dronabinol was observed to be safe and well tolerated, with the
frequency of side effects no different from placebo. The Company
did not manage this clinical trial, which was funded entirely by
the National Heart, Lung and Blood Institute of NIH.
The
Opportunity to Improve Dronabinol Formulations
Dronabinol
is currently marketed as a soft gelatin capsule that suffers from
several major deficiencies.
First,
dronabinol exhibits poor and erratic absorption. Δ9-THC is not
water soluble. The market-dominant commercial gelcap formulation of
dronabinol is currently formulated as a sesame oil-based liquid
within a soft gelatin capsule. The absorption of dronabinol after
oral administration is poor and highly variable with some patients
achieving very high levels and others achieving very low levels.
This erratic absorption may be responsible for the variable
therapeutic responses observed in dronabinol clinical trials.
Syndros®, on the other hand, is formulated as a solution
in dehydrated alcohol, polyethylene glycol and other materials and
exhibits its own challenges and deficiencies, including but not
limited to it being classified as a Schedule II drug by the U.S.
Drug Enforcement Administration (the “DEA”) as compared to the
capsule formulation that is classified as a Schedule III
drug.
Second,
dronabinol is rapidly and extensively (approximately 80%)
metabolized upon first pass through the liver, resulting in low
blood levels. Additionally, dronabinol has a relatively short
half-life (approximately 3 – 4 hours) and, in its present
formulation, is not optimally suited for therapeutic indications
requiring blood levels to be sustained for 6 hours or
longer.
Third,
in order to achieve sustained, therapeutic blood levels, we have
found it necessary to use higher doses of dronabinol in our OSA
clinical trials. For example, over an 8-hour period, the 2.5 mg and
10 mg doses produced therapeutically equivalent effects during the
first 4 hours, but only the 10 mg dose produced therapeutic effects
during the second 4 hours. Unfortunately, the 10 mg dose produces a
higher occurrence of side effects than the 2.5 mg dose (as
described in the Marinol® package insert). We anticipate
focusing on new formulations that would achieve the blood levels
produced by the lower doses for a sustained time period, resulting
in the desired therapeutic effect(s) while minimizing undesirable
side effects.
The
Company’s Cannabinoid Intellectual Property Rights
In
order to expand RespireRx’s respiratory disorders program and
develop cannabinoids for the treatment of OSA, RespireRx acquired
100% of the issued and outstanding equity securities of Pier
Pharmaceuticals, Inc. (“Pier”) effective August 10, 2012 pursuant
to an Agreement and Plan of Merger. Pier was a clinical stage
pharmaceutical company developing a pharmacologic treatment for OSA
and had been engaged in research and clinical development
activities.
Through
the merger, RespireRx gained access to an Exclusive License
Agreement (as amended, the “2007 License Agreement”) that Pier had
entered into with UIC on October 10, 2007. The 2007 License
Agreement covered certain patents and patent applications in the
United States and other countries claiming the use of certain
compounds referred to as cannabinoids, of which dronabinol is a
specific example, for the treatment of sleep-related breathing
disorders, including sleep apnea.
The
2007 License Agreement was terminated effective March 21, 2013 and
the Company entered into a new license agreement (the “2014 License
Agreement”) with UIC on June 27, 2014, the material terms of which
were substantially similar to the 2007 License Agreement. The 2014
License Agreement grants the Company, among other provisions,
exclusive rights: (i) to practice certain patents in the United
States, Germany and the United Kingdom, as defined in the 2014
License Agreement, that are held by UIC; (ii) to identify, develop,
make, have made, import, export, lease, sell, have sold or offer
for sale any related licensed products; and (iii) to grant
sub-licenses of the rights granted in the 2014 License Agreement,
subject to the provisions of the 2014 License Agreement. The
Company is required under the 2014 License Agreement, among other
terms and conditions, to pay UIC a license fee, royalties, patent
costs and certain milestone payments.
The 2014
License Agreement obligates the Company to pay UIC a license fee,
royalties, patent costs and certain milestones. Royalty payments
include 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
and paid on July 7, 2020. One-time milestone payments may become
due based upon the achievement of certain development milestones.
$350,000 will be due within five days after the dosing of the first
patient in a Phase III human clinical trial anywhere in the world.
$500,000 will be due within five days after the first NDA filing
with the FDA, as defined below, or a foreign equivalent. $1,000,000
will be due within twelve months of the first commercial sale.
One-time and annual royalty payments may also become due and
payable. 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 three
month and nine month periods ended September 30, 2020 and 2019, the
Company recorded a charge to operations of $25,000 and $75,000,
respectively, as its minimum annual royalty obligation, which is
included in research and development expenses in the Company’s
condensed consolidated statements of operations for the three
months and nine months ended September 30, 2020 and 2019,
respectively.
RespireRx
has exclusive rights to issued and pending patents claiming
cannabinoid compositions and methods for treating
cannabinoid-sensitive disorders, including sleep apnea, pain,
glaucoma, muscular spasticity, anorexia and other conditions. In
October 2019, we filed a continuation-in-part for our pending
patent that describes and claims novel doses, controlled release
compositions and methods of use for cannabinoids, as well as a new
U.S. provisional patent application further disclosing novel dosage
and controlled release compositions and methods of use for
cannabinoids, alone or in combination, including with cannabinoid
and non-cannabinoid molecules. Specific claims describe low dosage
strengths and controlled release formulations for attaining a
therapeutic window of cannabinoid blood levels that produce the
desired therapeutic effect(s) for a controlled period of time,
while minimizing undesirable side effects. Certain original patents
were filed by RespireRx and are now included in the 2014 License
Agreement. See Note 8. Commitments and Contingencies—University
of Illinois 2014 Exclusive License Agreement in the notes to
condensed consolidated financial statements as of September 30,
2020 for more information on the 2014 License Agreement. While no
assurance can be provided that the claims in this
continuation-in-part or the U.S. provisional patent application
will be allowed in whole or in part, or that the patents will
ultimately issue, we believe that these new filings, if allowed,
will provide market protections through at least 2031.
We
believe our intellectual property initiatives may afford expanding
strategic options and market exclusivity in the burgeoning
pharmaceutical cannabinoid business sector. New cannabinoid
formulation technology is headed in the direction of enhanced
absorption. These technologies, including nano- and micro-emulsions
and thin films, have been shown to bypass the normal route of
absorption and liver metabolism of cannabinoids, thus dramatically
increasing blood levels and allowing for the use of low doses.
Similarly, technologies may be used to achieve a controlled release
of dronabinol, and we believe that our pending patent priority
relating back to 2010 predates the efforts of others seeking to
develop low-dose or extended release formulations of cannabinoids.
Thus, to the extent that new technologies result in lower doses
and/or controlled release formulations, we believe they would
infringe on our pending patents once issued, not only for use in
the treatment of OSA but potentially a wide variety of other
indications as well.
Data from
our Phase 2 clinical trials has allowed us to design new
proprietary formulations of dronabinol, disclosed in our patent
filings and optimized for the treatment of not only OSA, but also
other indications. New formulation technology has emerged
potentially allowing for the creation of a proprietary dronabinol
formulation with optimized dose and duration of action for treating
OSA. We have discussions in progress with a number of companies
that have existing cannabinoid formulation technologies, expertise,
and licensure capabilities, which may lead to the development of a
proprietary formulation of dronabinol for RespireRx based on our
pending patents for low-dose and extended release dronabinol and
may lead to the development of a marketable proprietary formulation
of dronabinol. In support of this formulation program, David
Dickason joined the Company as Senior Vice-President Preclincial
Product Development on September 15, 2020. Mr. Dickason has an
extensive background in product formulation development. We believe
that the development of a novel, proprietary formulation of
dronabinol would only extend time to market entry by approximately
12 months compared to the market entry with a currently available
generic soft gel capsule, but would dramatically extend market
exclusivity; however, no assurance can be provided that any of the
formulation technologies that we are currently analyzing will
result in viable products or that formulation agreements will be
consummated on terms acceptable to us. The failure to consummate a
formulation agreement would materially and adversely affect the
Company.
Proposed
Regulatory Process
In
conjunction with its management and consultants, the Company
intends to file a new NDA under Section 505(b)(2) of the Federal
Food, Drug and Cosmetic Act (as amended, the “FDCA” and such NDA a
“505(b)(2) NDA”), claiming the efficacy and safety of our proposed
proprietary dronabinol formulation in the treatment of OSA. We
believe the use of dronabinol for the treatment of OSA is a novel
indication for an already approved drug, making it eligible for a
505(b)(2) NDA, as opposed to the submission and approval of a full
505(b)(1) NDA.
The
505(b)(2) NDA was created by the Hatch-Waxman Act, as amended (the
“Hatch-Waxman Act”), which amended the FDCA to help avoid
unnecessary duplication of studies already performed on a
previously approved drug. As amended, the FDCA gives the FDA
express permission to rely on data not developed by the NDA
applicant. Accordingly, a 505(b)(2) NDA contains full safety and
effectiveness reports but allows at least some of the information
required for NDA approval, such as safety and efficacy information
on the active ingredient, to come from studies not conducted by or
for the applicant. This can result in a less expensive and faster
route to approval, compared with a traditional development path,
such as 505(b)(1), while still allowing for the creation of new,
differentiated products. The 505(b)(2) NDA regulatory path offers
the applicant market protections, such as market exclusivity, under
the Hatch-Waxman Act and the rules promulgated thereunder. Other,
international regulatory routes are available to pursue proprietary
formulations of dronabinol and would provide further market
protections. For example, in Europe, a regulatory approval route
similar to the 505(b)(2) pathway is the hybrid procedure based on
Article 10 of Directive 2001/83/EC.
We
have worked with regulatory consultants who will assist with FDA
filings and regulatory strategy. If we can secure sufficient
financing, of which no assurance can be provided, we anticipate
requesting a pre-IND (pre-Investigational New Drug application)
meeting with the FDA. This meeting also could create the type of
dialogue with the FDA that is normally communicated at an
end-of-Phase 2 meeting. The FDA responses to this meeting will be
incorporated into an IND.
If we can
secure sufficient financing and successfully create a proprietary
formulation of Δ 9-THC, of which no assurance can be provided, we
plan to propose conducting the appropriate clinical studies with
our proprietary controlled release formulation in OSA patients to
determine safety, pharmacokinetics (“PK”) and efficacy, as well as
a standard Phase 1 clinical study to determine potential abuse
liability. When a Phase 3 study is required for a 505(b)(2),
usually only one study with fewer patients is necessary versus the
two, large scale, confirmatory studies generally required for the
standard 505(b)(1) NDA. While no assurance can be provided, with an
extensive safety database tracking chronic, long-term use of
Marinol® and generics, we believe that the FDA should not have
major safety concerns with dronabinol in the treatment of
OSA.
The
Company has worked with the investigators who conducted the Phase
2B clinical trial and our Clinical Advisory Panel to design a draft
Phase 3 protocol that, based on the experience and results from the
Phase 2A and Phase 2B trials, we believe will provide sufficient
data for FDA approval of a RespireRx dronabinol controlled release
formulation for OSA. The current version of the protocol is
designed as a 90-day randomized, blinded, placebo-controlled study
of dronabinol in the treatment of OSA. Depending on feedback from
the FDA, the Company estimates that the Phase 3 trial would require
between 120 and 300 patients at 15 to 20 sites, and take 18 to 24
months to complete, at a cost of between $10 million and $14
million.
We
believe our rights under the Purisys Agreement would help
facilitate regulatory approval. See “Information with Respect to
our Company—Description of Business—Manufacturing” for
information on the Purisys Agreement. Under the Purisys Agreement,
Purisys has agreed to (i) provide all of the API estimated to be
needed for the clinical development process for first- and
second-generation products, three validation batches for NDA
filings and adequate supply for the initial inventory stocking for
the wholesale and retail channels, subject to certain limitations,
(ii) maintain or file valid 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 DEA meetings as appropriate and as related to the
API.
In
consideration for these supplies and services, the Company has
agreed to (i) purchase exclusively from Purisys, during the
commercialization phase, all API for these products at a
pre-determined price subject to certain producer price adjustments
and (ii) allow Purisys’s participation in the economic success of
the commercialized products up to the earlier of the achievement of
a maximum dollar amount or the expiration of a period of
time.
Large
Commercial Opportunity
As a
serious public health issue, the important need for diagnosing and
ultimately treating OSA has recently been highlighted by the FDA
clearance of several sleep apnea home test kits that are now third
party reimbursed. Further highlighting this need, CVS Health
Corporation (NYSE: CVS) announced the implementation of a program
to diagnose and treat OSA initially within their own in-store,
walk-in MinuteClinics. If implemented throughout their HealthHUB
store network, the number of people diagnosed with sleep apnea and
eligible for treatment should increase dramatically. Fitbit, Inc.,
(NYSE: FIT), a health oriented smart watch company is seeking
clearance from the FDA to diagnose sleep apnea. We believe that the
combination of more efficient and patient friendly diagnostic
procedures and, ultimately, pharmaceutical treatments such as those
we are developing will encourage more patients to seek diagnosis
and treatment. As noted above, there are approximately 29 million
OSA patients in the United States and an additional 26 million in
Germany and 8 million in the United Kingdom. There are currently no
drugs approved for the treatment of OSA.
EndeavourRx – Neuromodulators
Background
As
described above, during the neurotransmission process, neurons
release neurotransmitters that attach to specific receptors
residing on adjacent neurons, enabling them to communicate with one
another and produce excitatory or inhibitory effects. For example,
glutamate is the primary excitatory neurotransmitter in the brain
and GABA is the primary inhibitory neurotransmitter. While the
neurotransmitter attachment site on each of these receptors does
not change, the receptor protein subunit structures can vary so
that the receptors can produce a variety of effects. With the AMPA
glutamate receptor, the binding of glutamate or an artificial
agonist to its attachment site causes a change in the structure of
the AMPA receptor resulting in an increased excitability. Likewise,
in the case of the GABAA receptor, the binding of GABA
or an artificial agonist to its attachment site causes a change in
the structure of the GABAA receptor ion channel and
increases the flow of chloride ions (negatively charged anion) into
the cell, resulting in a decreased excitability.
Neurotransmitter
receptor proteins also may contain auxiliary “allosteric” binding
sites, which are located adjacent to the agonist binding sites at
which neurotransmitters act. Unlike neurotransmitters,
neuromodulators are drugs that act at these allosteric binding
sites rather than directly at the agonist binding site. They can
act either as PAMs, which enhance, or as negative allosteric
modulators (“NAMs”), which reduce, the actions of neurotransmitters
at their primary receptor sites. Neuromodulators have no intrinsic
activity of their own. We have coined the terms “ampakines” and
“GABAkines” to refer to drugs that act as PAMs at the AMPA and
GABAA receptors, respectively. By enhancing the effects
of neurotransmitters without altering the normal pattern of
neuronal activity, neuromodulators offer the possibility of
developing “kinder and gentler” neuropharmacological drugs
effective in certain neurological and neuropsychiatric disorders,
with greater pharmacological specificity and reduced side
effects.
In
order to capitalize upon a possible market opportunity with respect
to neuromodulators, the Company is implementing an internal
restructuring plan by forming EndeavourRx as a stand-alone business
focused on the neuromodulator market. EndeavourRx will comprise our
ampakine program and our GABAkine program.
AMPAkines
The
Company is developing a class of proprietary compounds known as
ampakines, which are PAMs of the AMPA glutamate receptor. Ampakines
are small molecule compounds that enhance the excitatory actions of
glutamate at the AMPA receptor complex, which mediates most
excitatory transmission in the central nervous system (“CNS”).
Through an extensive translational research effort from the
cellular level through Phase 2 clinical trials, we have developed a
family of 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. CX717 and CX1739, our
lead clinical compounds, have successfully completed multiple Phase
1 safety trials with no drug-associated serious adverse events.
Both compounds have also completed Phase 2 efficacy trials
demonstrating target engagement, by antagonizing the process of
opioid-induced respiratory depression (“OIRD”). 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. 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 initiate a human
Phase 2 study with CX1739 or CX717 in patients with SCI and a human
Phase 2B study in patients with ADHD using either CX1739 or
CX717.
AMPAkines
as Treatment for ADHD
ADHD
is one of the most common neurobehavioral disorders. Currently
available treatments for ADHD include amphetamine-type stimulants
and non-stimulant agents targeting monoaminergic neurotransmitter
systems in the brain. However, these neurotransmitter systems are
not restricted to the brain and are widely found throughout the
body. Thus, while these agents can be effective in ameliorating
ADHD symptoms, they also can produce adverse cardiovascular
effects, such as increased heart rate and blood pressure. Existing
treatments also affect eating habits and can reduce weight gain and
growth in children and have been associated with suicidal ideation
in adolescents and adults. In addition, approved stimulant
treatments are DEA classified as controlled substances and present
logistical issues for distribution and protection from diversion.
Approved non-stimulant treatments, such as atomoxetine (Strattera®
and its generic equivalents), can take four to eight weeks to
become effective and undesirable side effects also have been
observed.
Various
investigators have generated data supporting the concept that
alterations in AMPA receptor function might underlie the production
of some of the symptoms of ADHD. In rodent and primate models of
cognition, ampakines have been demonstrated to reduce inattention
and impulsivity, two of the cardinal symptoms of ADHD. Furthermore,
ampakines do not stimulate spontaneous locomotor activity in either
mice or rats, unlike the stimulants presently used for the
treatment of ADHD, nor do they increase the stimulation produced by
amphetamine or cocaine. These preclinical considerations prompted
us to conduct a randomized, double-blind, placebo controlled, two
period crossover study to assess the efficacy and safety of CX717
in adults with ADHD.
In a
repeated measures analysis, a statistically significant treatment
effect on ADHD Rating Scale (ADHD-RS), the primary outcome measure,
was observed after a three-week administration of CX717, 800 mg
BID. Differences between this dose of CX717 and placebo were
observed as early as week one of treatment and continued throughout
the remainder of the study. The low dose of CX717, 200 mg BID, did
not differ from placebo. In general, results from both the ADHD-RS
hyperactivity and inattentiveness subscales, which were secondary
efficacy variables, paralleled the results of the total score.
CX717 was considered safe and well tolerated.
Based
on these clinical results, ampakines such as CX717 or CX1739 might
represent a breakthrough opportunity to develop a non-stimulating
therapeutic for ADHD with the rapidity of onset normally seen with
stimulants. Subject to raising sufficient financing (of which no
assurance can be provided), we are planning to continue this
program with a Phase 2 clinical trial in patients with adult ADHD
using one of our two lead ampakine compounds.
AMPAkines
as Treatment for SCI
Ampakines
also may have potential utility in the treatment and management of
SCI to enhance motor functions and improve the quality of life for
SCI patients. An estimated 17,000 new cases of SCI occur each year
in the United States, most a result of automobile accidents.
Currently, there are roughly 282,000 people living with spinal cord
injuries, which often produce impaired motor function.
SCI
can profoundly impair neural plasticity leading to significant
morbidity and mortality in human accident victims. Plasticity is a
fundamental property of the nervous system that enables continuous
alteration of neural pathways and synapses in response to
experience or injury. A large body of literature exists regarding
the ability of ampakines to stimulate neural plasticity, possibly
due to an enhanced synthesis and secretion of various growth
factors.
Recently,
studies of acute intermittent hypoxia (“AIH”), exposure to short
periods of low oxygen, in patients with SCI demonstrate that neural
plasticity can be induced to improve motor function. This is based
on the ability of spinal circuitry to learn how to adjust spinal
and brainstem synaptic strength following repeated hypoxic bouts.
Because AIH induces spinal plasticity, the potential exists to
harness repetitive AIH as a means of inducing functional recovery
of motor function following SCI.
The
Company has been working with Dr. David Fuller at the University of
Florida with funding from NIH, to evaluate the use of ampakines for
the treatment of compromised motor function in SCI. Using mice that
have received spinal hemi-sections, CX717 was observed to increase
motor nerve activity bilaterally. The effect on the hemisected side
was greater than that measured on the intact side, with the
recovery approximating that seen on the intact side prior to
administration of ampakine. The doses of ampakines active in SCI
were comparable to those demonstrating antagonism of OIRD,
indicating target engagement of the AMPA receptors.
These
animal models of motor nerve function following SCI support proof
of concept for a new treatment paradigm using ampakines to improve
motor functions in patients with SCI. With additional funding
granted by NIH to Dr. Fuller, the Company is continuing its
collaborative preclinical research with him while it is planning a
clinical trial program focused on developing ampakines for the
restoration of certain motor functions in patients with SCI. The
Company is working with researchers at highly regarded clinical
sites to finalize a Phase 2 clinical trial protocol. We believe
that a clinical study could be initiated within several months of
raising sufficient financing (of which no assurance can be
provided).
GABAkines
The
GABAkine program was recently established pursuant to the UWMRF
Patent License Agreement. At present, the program is focused on
developing certain GABAkines with certain GABAA receptor
subtype selectivity. We believe that there is a considerable degree
of receptor subtype heterogeneity, making subtype selectivity of
our compounds a desirable attribute.
Benzodiazepines
(“BDZs”), such as Valium® (diazepam),
Librium® (chlordiazepoxide) and Xanax®
(alprazolam) were the first major class of drugs reported to act as
GABAA PAMs, by binding at a site distinct from the
binding site for GABA. These drugs produced a wide range of
pharmacological properties, including anxiety reduction, sedation,
hypnosis, anti-convulsant, muscle relaxation, respiratory
depression, cognitive impairment, as well as tolerance, abuse and
withdrawal. For this reason, it was not surprising that BDZs were
observed to act as GABAA PAMs indiscriminately across
all GABAA receptor subtypes. Following the
identification of BDZ binding sites on GABAA receptors,
Dr. Lippa described CL218,872, the first non-BDZ to demonstrate
that these receptors were heterogeneous by binding selectively to a
subtype of GABAA receptor. This demonstration of
receptor heterogeneity led to the hypothesis that the various
pharmacological actions of the BDZs might be separable depending on
the receptor subtype involved. In animal testing, CL218,872
provided the proof of principle that such a separation could be
achieved by displaying anti-anxiety and anti-convulsant properties
in the absence of sedation, amnesia and muscular incoordination.
These findings gave impetus to the search for novel therapeutic
drugs for neurological and psychiatric illnesses that display
improvements in efficacy and reductions in side effects.
Over
the last several years, a group of scientists led by Dr. James Cook
of the University of Wisconsin and Dr. Jeffrey Witkin affiliated
with the Indiana University School of Medicine, who are advising
us, have synthesized and tested a broad series of novel drugs that
display GABAA receptor subtype selectivity and
pharmacological specificity.
Certain
of these chemical compounds are the subject of the UWMRF Patent
License Agreement. Of these compounds, we have identified KRM-II-81
as a clinical lead. KRM-II-81 is the most advanced and druggable of
a series of compounds that display certain receptor subtype
selective and pharmacological specificity. In studies using cell
cultures, brain tissues and whole animals, KRM-II-81 acts as a
GABAA PAM at selective GABAA receptor
subtypes that we feel are intimately involved in neuronal processes
underlying epilepsy, pain, anxiety and certain other indications.
KRM-II-81 has demonstrated highly desirable properties in animal
models of these and other potential therapeutic indications, in the
absence of or with greatly reduced liability to produce sedation,
motor incoordination, cognitive impairments, respiratory
depression, tolerance, abuse and withdrawal seizures, all side
effects associated with BDZs. We currently are focused on the
potential treatment of epilepsy and pain.
Epilepsy
and Existing Treatments
Epilepsy
is a chronic and highly prevalent neurological disorder that
affects millions of people world-wide and has serious consequences
for the life of the affected individual. A first-line approach to
the control of epilepsy is through the administration of
anticonvulsant drugs. Repeated, uncontrolled seizures and the side
effects arising from seizure medications have a negative effect on
the developing brain and can lead to brain cell loss and severe
impairment of neurocognitive function. The continued occurrence of
seizure activity also increases the probability of subsequent
epileptic events through sensitization mechanisms called seizure
kindling. Seizures that are unresponsive to anti-epileptic
treatments are life-disrupting and life-threatening with broad
health, life, and economic consequences.
Like
many diseases, epilepsy is still remarkably underserved by
currently available medicines. Pharmaco-resistance to
anticonvulsant therapy continues to be one of the key obstacles to
the treatment of epilepsy. Although many anticonvulsant drugs are
approved to decrease seizure probability, seizures frequently are
not fully controlled and patients are generally maintained daily on
multiple antiepileptic drugs with the hope of enhancing the
probability of seizure control. Despite this polypharmacy approach,
as many as 60% to 70% of patients continue to have seizures. As a
result of the lack of seizure control, pharmaco-resistant epilepsy
patients, including young children, sometimes require and elect to
have invasive therapeutic procedures such as surgical
resection.
Despite
the availability of a host of marketed drugs of different
mechanistic classes, the lack of seizure control in patients is the
primary factor driving the need for improved antiepileptic drugs
emphasized by researchers and patient advocacy communities.
Increasing inhibitory tone in the CNS through enhancement of
GABAergic inhibition is a proven mechanism for seizure control.
However, GABAergic medications also exhibit liabilities that limit
their antiepileptic potential. Tolerance develops to GABAergic
drugs such as BDZs, limiting their use in a chronic setting. These
drugs can produce cognitive impairment, somnolence, sedation,
tolerance and withdrawal seizures that create dosing limitations
such that they are generally used only for acute convulsive
episodes.
GABAkines
as Treatments for Epilepsy
KRM-II-81
has demonstrated efficacy in multiple rodent models and measures of
antiepileptic drug efficacy in vivo. This includes nine
acute seizure provocation models in mice and rats, four seizure
sensitization models in rats and mice, two models of chronic
epilepsy, and three models specifically testing pharmaco-resistant
antiepileptic drug efficacy. Because it appears to have a greatly
reduced side effect liability, it might be possible to use higher,
more effective doses that standard of care medications. Predictions
of superior efficacy of KRM-II-81 over standard of care
anti-epileptics comes from the efficacy of this compound across a
broad range of animal models of epilepsy. Importantly, KRM-II-81
has been shown to be effective in models assessing
pharmaco-resistant epilepsy. Under these conditions, KRM-II-81 is
efficacious in cases where standard of care medicines do not
work.
In
the absence of seizure control by anti-epileptics, surgical
resection of affected brain tissue is one potential alternative to
help with the control of seizures. In the process of this surgery,
epileptic brain tissue can become available for research into
epileptic mechanisms and the identification of novel antiepileptic
drugs. The anticonvulsant action of KRM-II-81 was confirmed by
microelectrode recordings from slices obtained from freshly excised
cortex from epileptic patients where KRM-II-81 suppressed
epileptiform electrical activity. While preliminary, these
translational data lend considerable support to the further
development of KRM-II-81 for the treatment of epilepsy.
GABAkines
as Treatments for Pain
It is
impossible not to be aware of the crisis that the opioid epidemic
has created in the treatment of chronic pain. While there is no
question as to their efficacy, the clinical use of opioids is
severely limited due to the rapid development of tolerance and the
production of OIRD, the major cause of opioid-induced lethality.
Research programs are underway nationwide to discover and develop
new non-opioid drugs that are effective analgesics without the
tolerance and abuse liability ascribed to opioids. Chronic pain is
especially difficult to treat due to its complex nature with a
variety of different etiologies. For example, chronic pain may be
produced by injury, surgery, neuropathy, the inflammation produced
by arthritis or by certain drugs such as cancer chemotherapeutics.
For these reasons, better management and control of chronic pain
continues to be a serious need in medical practice.
Data
from both preclinical and clinical studies are consistent with the
idea that GABAergic neurotransmission is an important regulatory
mechanism for the control of pain. gabapentin
(Neurontin®) and pregabalin (Lyrica®) two
commonly used drugs for the treatment of chronic pain are believed
to produce their analgesic effects by enhancing GABAergic
neurotransmission. However, although they have received FDA
approval, the clinical results have not been overwhelming. In a
published review of 37 clinical trials with a total of 5,914
patients experiencing neuropathic pain there was no difference in
the percentage of patients experiencing pain reduction of greater
than 50% when comparing gabapentin to placebo. The most common side
effects produced by gabapentin were sedation, dizziness and
problems walking. It is uncertain whether greater efficacy was not
observed because of poor intrinsic pharmacological efficacy or
insufficient dosages due to dose limiting side effects.
An
alternate approach to enhancing GABAergic neurotransmission is the
use of GABAA PAMs. This approach has been under-utilized
because of the general lack of efficacy of the BDZ PAMs. However, a
strong case for the potential value of subtype selective
GABAA PAMs for the treatment of pain can be made. First,
GABAA receptor regulated pathways are integral to pain
processing with α2/3 containing GABAA receptor subtypes
present on nerve pathways modulating pain sensation and perception.
Second, we believe that the analgesic properties of BDZs may be
masked by concurrent activation of other receptor subtypes that
mediate the side effects. Diazepam has been reported to produce
maximal analgesia if the side effects are attenuated by
GABAA subtype genetic manipulation. Third, predecessor
GABAkines, made by Dr. Cook, that selectively amplify
GABAA receptor subtype signaling are effective in pain
models in rodents at doses lower than those producing motor side
effects.
In a
number of laboratory procedures and animal studies, KRM-II-81 has
been shown to selectively bind to GABAA receptor
subtypes and enhance GABAergic neurotransmission. Sub-chronic
dosing for 22 days with KRM-II-81 and the structural analogue,
MP-III-80, demonstrated enduring analgesic efficacy without
tolerance development. In contrast, tolerance developed to the
analgesic effects of gabapentin. At a dose that produces maximal
analgesic effect in an inflammatory chronic pain model, KRM-II-81
does not substitute for the BDZ midazolam in a drug discrimination
assay, suggesting a reduced abuse liability. Furthermore, KRM-II-81
did not produce the respiratory depression observed with
alprazolam, a major problem with BDZs leading to emergency room
visits and overdose.
We
believe that the ability to attenuate both acute and chronic pain
combined with a greatly reduced side effect profile, a lack of
tolerance and a reduced abuse potential makes KRM-II-81 a promising
clinical lead and a potential advance in pain therapeutics. Results
from preliminary chemistry, metabolism and pharmacokinetic studies
support its further development.
Corporate and Product Development Plans
As
discussed above, in order to facilitate our business activities and
product development, we have organized our drug platforms into two
separate business units. ResolutionRx is focused on pharmaceutical
cannabinoids and EndeavourRx is focused on neuromodulators. Below
is a description of the Company’s product development plans within
these business units.
ResolutionRx
– Dronabinol program
For the
dronabinol program within our ResolutionRx cannabinoid platform,
the Company plans to manufacture, on a pilot scale, one or more new
proprietary formulations of dronabinol with the enhanced properties
described in our patent applications, for which we plan to spend
approximately $150,000 to bench test in vitro several
versions of dronabinol formulations in order to determine those
with the best physico-chemical properties. To finance these
efforts, the Company intends to use the estimated net proceeds from
exercise of its put right, if available, under the White Lion
EPA.
Assuming
additional financing is obtained in addition to the net proceeds
from the Company’s exercise of its put right under the White Lion
EPA, the Company intends to spend approximately $450,000 to
$600,000 of these funds on the continued development of a
proprietary formulation of dronabinol. This development would
include (i) improvements to the Company’s intellectual property
position, (ii) improvements to our dronabinol formulation’s PK
profile, (iii) improvements to regulatory compliance, and (iv)
expenditures for the initial stocking of clinical supply, packaging
and distribution in anticipation of a Phase 2 PK/PD
(pharmacodynamic) clinical trial and a pivotal Phase 3 clinical
study. The performance of the Phase 2 PK/PD clinical trial and
Phase 3 clinical study, however, would need yet additional funds
either from separate financings or a collaboration with a strategic
partner.
The
Purisys Agreement and the 2014 License Agreement will need to be
transferred or otherwise made available to ResolutionRx. See
“—Noramco Inc./Purisys, LLC - Dronabinol Development and Supply
Agreement” and “—University of Illinois 2014 Exclusive
License Agreement” in Note 8. Commitments and Contingencies in
the notes to condensed consolidated financial statements as of
September 30, 2020 for more information on these agreements .
While this subsidiary’s initial, primary focus will be on
re-purposing dronabinol for the treatment of OSA, we believe that
our broad enabling patents and a new proprietary formulation may
provide a framework for expanding into the larger burgeoning
pharmaceutical cannabinoid industry. We believe that by creating
this subsidiary, it may be possible, through separate finance
channels and potential strategic transactions, to optimize the
asset value not only of the cannabinoid platform, but our
neuromodulation platform as well.
EndeavourRx
– AMPAkines program
For the
AMPAkines program within our EndeavourRx neuromodulators platform,
the Company plans to initiate clinical testing of our AMPAkines in
the treatment of SCI. To this end, approximately $145,000 would be
utilized to assess the purity of our existing drug supplies and
finalize a clinical trial protocol for a Phase 2A clinical trial to
determine the safety and PK properties of one of our lead AMPAkines
in patients who have had SCI. These tasks are critical for applying
to the FDA for permission to amend our existing IND or initiate a
new IND enabling the commencement of clinical trials. To finance
these efforts, the Company intends to use the net proceeds to it
from exercise of its put right under the White Lion EPA.
Assuming
financing is obtained in addition to the net proceeds from the
Company’s exercise of its put right under the White Lion EPA, the
Company would continue to focus on SCI, as we believe it would be
the most efficient expenditure of our resources and yield an
actionable result in the shortest period of time. Expenditures
would include: (i) an estimated spend of $200,000 for chemistry,
manufacturing and controls (“CMC”) efforts, depending on the
assessment of our drug supplies, (ii) an estimated spend of
$400,000 on an initial Phase 2A single ascending dose safety and PK
and pharmacodynamic (“PD”) study in human SCI patients, (iii) an
estimated spend of $600,000 on a Phase 2A multiple ascending dose
safety and PK and PD study in SCI patients, and (iv) an estimated
spend of $650,000 on a Phase 2B efficacy study in SCI patients. Our
anticipated spend for ADHD would be approximately $100,000 with the
larger spends occurring later dependent upon availability of
financing.
EndeavourRx
– GABAkines program
Assuming
sufficient financing is obtained in addition to the net proceeds
from the Company’s exercise of its put right under the White Lion
EPA, the Company plans to finance efforts with respect to the
GABAkines program within our EndeavourRx neuromodulators platform.
These efforts would be in preparation of an IND to be submitted to
the FDA to commence human studies of KRM-II-81, our lead GABAkine
drug candidate, for treatment-resistant epilepsy, and expenditures
would include (i) an estimated spend of $530,000 for CMC efforts,
(ii) an estimated spend of $450,000 for pre-clinical pharmacology,
safety and absorption, distribution, metabolism, excretion (“ADME”)
studies, (iii) an estimated spend of $225,000 for animal safety
studies and (iv) an estimated spend of $65,000 for regulatory
consultants.
In
connection with the organization and development of the
ResolutionRx and EndeavourRx business units, we are planning
certain corporate and development actions as summarized below. All
of the below are subject to raising additional financing and/or
entering into strategic relationships, of which no assurance can be
given.
Proposed Creation of Subsidiaries
Pending
approval by the Board of Directors, management intends to organize
our ResolutionRx and EndeavourRx business units into two
subsidiaries: (i) a ResolutionRx subsidiary, into which we intend
to contribute our pharmaceutical cannabinoid platform and its
related tangible and intangible assets and certain of its
liabilities and (ii) an EndeavourRx subsidiary, into which we plan
to contribute our neuromodulator platform, including both the
AMPAkine and GABAkine programs and their related tangible and
intangible assets and certain of their liabilities.
Management
believes that there are several advantages to separating these
platforms formally into newly formed subsidiaries, including but
not limited to optimizing their asset values through separate
finance channels and making them more attractive for capital
raising as well as for strategic deal making.
Employee/Consultant Infrastructure Build-out
It is
anticipated that the Company will use, at least initially, its
management personnel to provide management, operational and
oversight services to these two business units.
In
order to broaden our operational expertise, we are planning to hire
a number of highly qualified individuals, either as employees or
consultants and, in tandem, increase our administrative support
function.
Our
relationship with Drs. Cook and Witkin has been highly cooperative
to date. Our intent is to contractually formalize these
relationships as consultants to the Company.
Technology
Rights
University
of Illinois License Agreement
See
Note 8. Commitments and Contingencies – Significant Agreements and
Contracts – University of Illinois 2014 Exclusive License
Agreement to our condensed consolidated financial statements at
September 30, 2020.
UWMRF
Patent License Agreement
See
Notes 1, 2, 8 and 9 to our condensed consolidated financial
statements at September 30, 2020.
Going
Concern
The
Company’s 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.
See Note
2. Business – Going Concern to our condensed consolidated
financial statements at September 30, 2020.
The
Company’s regular efforts to raise capital and to evaluate measures
to permit sustainability are time-consuming and intensive. Such
efforts may not prove successful and may cause distraction,
disruption or other adversity that limits the Company’s development
program efforts.
Recent
Accounting Pronouncements
See
Note 2 to the Company’s condensed consolidated financial statements
at September 30, 2020.
Management
does not believe that any recently issued, but not yet effective,
authoritative guidance, if currently adopted, would have a material
impact on the Company’s financial statement presentation or
disclosures.
Concentration
of Risk
See
Note 2. Significant Accounting Policies – Concentration of
Credit Risk to the Company’s condensed consolidated financial
statements at September 30, 2020.
See
Note 8. Commitments and Contingencies – Significant Agreements and
Contracts - University of Illinois 2014 Exclusive License
Agreement to the Company’s condensed consolidated financial
statements at September 30, 2020.
See Note
8. Commitments and Contingencies – Significant Agreements and
Contracts - UWMRF Patent License Agreement to the
Company’s condensed consolidated financial statements at September
30, 2020.
Critical
Accounting Policies and Estimates
The
Company prepared its condensed consolidated financial statements in
accordance with accounting principles generally accepted in the
United States of America. The preparation of these condensed
consolidated financial statements requires the use of estimates and
assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amount of
revenues and expenses during the reporting period. Management
periodically evaluates the estimates and judgments made. Management
bases its estimates and judgments on historical experience and on
various factors that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates as a
result of different assumptions or conditions.
Critical
accounting policies and estimates are described in the notes to the
Company’s condensed consolidated financial statements and
include:
|
|
- |
Stock-based
awards |
| |
- |
Research
and Development Costs |
| |
- |
License
Agreements |
| |
- |
Patent
Costs |
| |
- |
Convertible
Notes |
| |
- |
Warrant
Exercises |
See
Critical Accounting Policies and Estimates in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2019 for a
complete description.
Results
of Operations
The
Company’s unaudited consolidated statements of operations as
discussed herein are presented below.
| |
|
Three
Months Ended |
|
|
Nine
Months Ended |
|
| |
|
September
30, |
|
|
September
30, |
|
| |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
| Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative, including $492,900 and $121,600 to related
parties for the three months ended September 30, 2020 and 2019,
respectively, and $725,780 and $364,825 to related parties for the
nine months ended September 30, 2020 and 2019,
respectively |
|
$ |
1,140,204 |
|
|
$ |
279,930 |
|
|
$ |
1,969,223 |
|
|
$ |
874,834 |
|
|
Research
and development, including 144,900 and $122,400 to related parties
for the three months ended September 30, 2020 and 2019,
respectively, and $389,700 and $367,200 to related parties for the
nine months ended September 30, 2020 and 2019,
respectively |
|
|
171,776 |
|
|
|
150,527 |
|
|
|
480,242 |
|
|
|
447,877 |
|
| Total operating
expenses |
|
|
1,311,980 |
|
|
|
430,457 |
|
|
|
2,449,465 |
|
|
|
1,322,711 |
|
| Loss from
operations |
|
|
(1,311,980 |
) |
|
|
(430,457 |
) |
|
|
(2,449,465 |
) |
|
|
(1,322,711 |
) |
| Loss on extinguishment
of debt and other liabilities in exchange for equity |
|
|
(65,906 |
) |
|
|
- |
|
|
|
(389,902 |
) |
|
|
- |
|
| Interest expense,
including $2,848 and $2,589 to related parties for the three months
ended September 30, 2020 and 2019, respectively, and $8,481 and
$7,683 to related parties for the nine months ended September 30,
2020 and 2019, respectively |
|
|
(78,678 |
) |
|
|
(70,168 |
) |
|
|
(409,994 |
) |
|
|
(221,813 |
) |
| Foreign currency
transaction gain (loss) |
|
|
(22,791 |
) |
|
|
30,781 |
|
|
|
7,151 |
|
|
|
57,135 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss attributable
to common stockholders |
|
$ |
(1,479,355 |
) |
|
$ |
(469,844 |
) |
|
$ |
(3,242,210 |
) |
|
$ |
(1,487,389 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss per common
share - basic and diluted |
|
$ |
(0.01 |
) |
|
$ |
0.12
|
) |
|
$ |
(0.02 |
) |
|
$ |
(0.38 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average
common shares outstanding - basic and diluted |
|
|
224,352,033
|
|
|
|
3,874,465
|
|
|
|
131,793,037
|
|
|
|
3,873,097
|
|
Three
months Ended September 30, 2020 and 2019
Revenues.
The Company had no revenues during the three months ended September
30, 2020 and 2019.
General
and Administrative. For the three months ended September 30,
2020, general and administrative expenses were $1,140,204, an
increase of $860,274, as compared to $279,930 for the three months
ended September 30, 2019. The increase in general and
administrative expenses for the three months ended September 30,
2020, as compared to the three months ended September 30, 2019, is
primarily due to an increase in corporate legal fees of $452,365
associated primarily with three convertible note financings, an
equity purchase agreement, the preparation of a registration
statement on Form S-1, our proxy statement on Schedule 14A and the
special meeting of stockholders and advance work with respect to a
potential Regulation A offering, an increase of $315,000 of
stock-based compensation as a result of option grants and an
increase of $84,900 in compensation and related benefits with
RespireRx’s new Chief Executive Officer and President being in that
role for a full quarter in the current period but not having been
employed by the Company in the prior comparable three month period,
and smaller increases and decreases in a number of other general
and administrative expenses.
Stock-based
compensation in general and administrative expenses was $315,000
for the three months ended September 30, 2020 whereas there was no
stock-based compensation in general and administrative expenses for
the three months ended September 2019.
Research and
Development. For the three months ended September 30, 2020,
research and development expenses were $171,776, an increase of
$21,249, as compared to $150,526 for the three months ended
September 30, 2019. The increase in research and development
expenses for the three months ended September 30, 2020, as compared
to the three months ended September 30, 2019, is primarily a result
of an increase in research and development stock-based compensation
of $22,500, offset by a decrease of $1,251 in research and
development insurance related costs.
Stock-based
compensation in research and development expenses was $22,500 for
the three months ended September 30, 2020 whereas there was no
stock-based compensation in research and development expenses for
the three months ended September 2019.
Loss
on Extinguishment of Liabilities. During the three months ended
September 30, 2020, the Company incurred a $65,906 loss on the
settlement of certain accounts payable to a single vendor with the
settlement paid with Series H Preferred Stock that was converted
into Common Stock and warrants on September 30, 2020. There was no
loss on extinguishment of liabilities for the three months ended
September 30, 2019.
Interest
Expense. During the three months ended September 30, 2020,
interest expense was $78,678 as compared to $70,168 for the three
months ended September 30, 2019. The increase of $8,510 is
primarily the result of interest and amortization of note discounts
to interest expense with respect to four convertible notes in June
and July 2020 that were included in the current year three month
period but did not exist in the prior year comparable three month
period, while one convertible note that existed in the prior period
was paid in full and terminated July 2020.
Foreign
Currency Transaction (Loss) Gain. Foreign currency transaction
loss was $22,791 for the three months ended September 30, 2020, as
compared to a foreign currency transaction gain of $30,781 for the
three months ended September 30, 2019. The foreign currency
transaction (loss) gain relates to the $399,774 loan from SY
Corporation made in June 2012, which is denominated in the South
Korean Won.
Net
Loss Attributable to Common Stockholders. For the three months
ended September 30, 2020, the Company incurred a net loss of
$1,479,355 as compared to a net loss of $469,843 for the three
months ended September 30, 2019.
Nine
months Ended September 30, 2020 and 2019
Revenues. The
Company had no revenues during the nine months ended September 30,
2020 and 2019.
General
and Administrative. For the nine months ended September 30,
2020, general and administrative expenses were $1,969,223, an
increase of $1,094,389, as compared to $874,834 for the nine months
ended September 30, 2019. The increase in general and
administrative expenses for the nine months ended September 30,
2020, as compared to the nine months ended September 30, 2019, is
primarily due to an increase in corporate legal fees of $606,692
associated primarily with three convertible note financings, an
equity purchase agreement, the preparation of a registration
statement on Form S-1, our proxy statement on Schedule 14A and
special meeting of stockholders and advance work in respect of a
potential Regulation A offering, an increase of $315,000 of
stock-based compensation as a result of option grants and an
increase of $134,425 in compensation and related benefits with
RespireRx’s new Chief Executive Officer and President being in that
role for a approximately five of the nine months ended September
30, 2020 but not having been employed by the Company in the prior
comparable nine month period, and smaller increases and decreases
in a number of other general and administrative
expenses.
Stock-based
compensation in general and administrative expenses was $315,000
for the nine months ended September 30, 2020 whereas there was no
stock-based compensation in general and administrative expenses for
the nine months ended September 2019.
Research and
Development. For the nine months ended September 30, 2020,
research and development expenses were $480,241, an increase of
$32,365, as compared to $447,876 for the nine months ended
September 30, 2019. The increase in research and development
expenses for the nine months ended September 30, 2020, as compared
to the nine months ended September 30, 2019, is primarily a result
of an increase in research and development stock-based compensation
of $22,500 and smaller increases in licensing fees ($2,500 pursuant
to the UWMRF Patent License Agreement), insurance and with one
vendor.
Stock-based
compensation in research and development expenses was $22,500 for
the nine months ended September 30, 2020 whereas there was no
stock-based compensation in research and development expenses for
the three months ended September 2019.
Loss
on Extinguishment of Debt and other Liabilities. During the
nine months ended September 30, 2020, the Company incurred a
$389,902 loss on the exchange of equity for debt with respect to
exchange agreements in March 2020 and settlement of certain
accounts payable to a single vendor with the settlement paid with
Series H Preferred Stock that was converted into Common Stock and
warrants on September 30, 2020. On March 21, 2020, the Company
entered into exchange agreements with several note holders and
exchanged an aggregate of $255,786 of principal and accrued
interest for 17,052,424 shares of the Company’s stock with an
exchange price of $0.015 per share which was less than the closing
price of $0.034 per share. There was no loss on extinguishment of
debt or liabilities for the nine months ended September 30,
2019.
Interest
Expense. During the nine months ended September 30, 2020,
interest expense was $409,994 as compared to $221,813 for the nine
months ended September 30, 2019. The increase of $188,181 is
primarily the result of interest incurred with respect to new
convertible notes issued in April, June and July 2020 that were
included in the current nine month period but did not exist in the
prior year comparable nine month period while several notes that
were outstanding during the comparable prior year nine month period
were paid in full during the current nine months ended September
30, 2020.
Foreign
Currency Transaction (Loss) Gain. Foreign currency transaction
gain was $7,151 for the nine months ended September 30, 2020, as
compared to a foreign currency transaction gain of $57,135 for the
nine months ended September 30, 2019. The foreign currency
transaction (loss) gain relates to the $399,774 loan from SY
Corporation made in June 2012, which is denominated in the South
Korean Won.
Net
Loss Attributable to Common Stockholders. For the nine months
ended September 30, 2020, the Company incurred a net loss of
$3,242,210 as compared to a net loss of $1,487,388 for the nine
months ended September 30, 2019. Included in the net loss is a loss
on extinguishment of convertible debt and the loss on the
settlement of certain accounts payable.
Liquidity
and Capital Resources – September 30, 2020
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 $3,242,210 and net losses from operations of
$2,449,465 for the nine months ended September 30, 2020 and net
losses of $2,115,033 for the fiscal year ended December 31, 2019,
and negative operating cash flows of $350,724 for the nine months
ended September 30, 2020 and $487,745 for the fiscal year ended
December 31, 2019, had a stockholders’ deficiency of $7,288,185 at
September 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
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.
At
September 30, 2020, the Company had a working capital deficit of
$7,288,185, as compared to a working capital deficit of $7,444,819
at December 31, 2019 reflecting an decrease in the working capital
deficit of $156,634 for the nine months ended September 30, 2020.
The decrease in the working capital deficit is due to an decrease
in current liabilities resulting from executive officer
compensation and benefit forgiveness in exchange for equity and
settlements of two vendor accounts payable with equity and a
decrease in cash of $16,474 offset by an increase in prepaid
expenses of $27,386.
At
September 30, 2020, the Company had cash aggregating $216 as
compared to $16,690 at December 31, 2019, reflecting a decrease in
cash of $16,474 for the nine months ended September 30,
2020.
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 revenue. Management is
continuing to address numerous 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.
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 and regularly evaluates various
measures to satisfy the Company’s liquidity needs, including
development and other agreements with collaborative partners and
seeking to exchange or restructure some of 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. Though the Company actively pursues
opportunities to finance its operations through external sources of
debt and equity financing, it has limited access to such financing
and there can be no assurance that such financing will be available
on terms acceptable to the Company, or at all.
Operating
Activities. For the nine months ended September 30, 2020,
operating activities utilized cash of $350,074, as compared to
utilizing cash of $313,691 for the nine months ended September 30,
2019, to support the Company’s ongoing general and administrative
expenses as well as its research and development
activities.
Financing
Activities. For the nine months ended September 30, 2020,
financing activities consisted of $66,250 in advances from an
executive officer, net proceeds of $50,000 after payment of $3,000
of capitalized note costs from the April 2020 Note financing and
net proceeds of $40,000 after payment of $3,000 of capitalized note
costs from the June 2020 Note financing, net proceeds of $121,000
from the FirstFire Convertible Note financing in July 2020 and net
proceeds of $63,750 from the EMA Convertible Note financing in July
2020. For the nine months ended September 30, 2019, financing
activities consisted of the borrowings on convertible notes with
warrants of $353,500 and the financing with a short term note of
$71,068 in connection with the new directors and officers insurance
policy as well as other insurance policies.
Principal
Commitments
Employment Agreements
See
Note 8. Commitments and Contingencies – Significant Agreements and
Contracts – Employment Agreements to our condensed
consolidated financial statements at September 30, 2020.
University of Illinois 2014 Exclusive License
Agreement
See
Note 8. Commitments and Contingencies – Significant Agreements and
Contracts – University of Illinois 2014 Exclusive License
Agreement to our condensed consolidated financial statements at
September 30, 2019.
UWM Research Foundation Patent License Agreement
See
Note 8. Commitments and Contingencies – Significant Agreements and
Contracts - UWMRF Patent License Agreement to our condensed
consolidated financial statement at September 30, 2020.
A
table setting forth the Company’s principal cash obligations and
commitments for the next five fiscal years as of September 30,
2020, aggregating $3,230,470, is set forth in Note 8. Commitments
and Contingencies – Summary of Principal Cash Obligations and
Commitments
Off-Balance
Sheet Arrangements
At
September 30, 2020, the Company did not have any transactions,
obligations or relationships that could be considered off-balance
sheet arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK
Not
applicable.
ITEM 4. CONTROLS AND
PROCEDURES
(a)
Evaluation of Disclosure Controls and Procedures
The
Company maintains disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the “Exchange Act”) that are designed to ensure
that information required to be disclosed in the reports that the
Company files with the Securities and Exchange Commission (the
“SEC”) under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the SEC’s rules
and forms and that such information is accumulated and communicated
to the Company’s management, including its Chief Executive Officer
and Chief Financial Officer, to allow for timely decisions
regarding required disclosures.
The
Company carried out an evaluation, under the supervision and with
the participation of its management, consisting of its principal
executive officer and principal financial officer, of the
effectiveness of the Company’s disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act).
Based upon that evaluation, the Company’s principal executive
officer and principal financial officer concluded that, as of the
end of the period covered in this report, the Company’s disclosure
controls and procedures were not effective to ensure that
information required to be disclosed in reports filed under the
Exchange Act is recorded, processed, summarized and reported within
the required time periods and is accumulated and communicated to
the Company’s management, consisting of the Company’s principal
executive officer and principal financial officer, to allow timely
decisions regarding required disclosure.
Management
has been focusing on developing replacement controls and procedures
that are adequate to ensure that information required to be
disclosed in reports filed under the Exchange Act is recorded,
processed, summarized and reported within the required time periods
and is accumulated and communicated to the Company’s management to
allow timely decisions regarding required disclosure. The Company
is current in its SEC periodic reporting obligations, but as of the
date of the filing of this report, the Company had not yet
completed the process to establish adequate internal controls over
financial reporting.
The
Company’s management, consisting of its principal executive officer
and principal financial officer, does not expect that its
disclosure controls and procedures or its internal controls will
prevent all error or fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met.
Furthermore, the design of a control system must reflect the fact
that there are resource constraints and the benefits of controls
must be considered relative to their costs. Due to the inherent
limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of
fraud, if any, have been detected. In addition, as conditions
change over time, so too may the effectiveness of internal
controls. However, management believes that the financial
statements included in this report fairly present, in all material
respects, the Company’s financial condition, results of operations
and cash flows for the periods presented.
Our
management, consisting of our Chief Executive Officer and our Chief
Financial Officer, has evaluated our internal control over
financial reporting as of September 30, 2020 based on the 2013
Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations (“COSO”) of the Treadway Commission. Based
on this assessment, and taking into account the operating structure
of the Company as it has existed from October 2012 through
September 30, 2020, as well as the various factors discussed
herein, our management has concluded that material weaknesses in
the Company’s internal control over financial reporting existed as
of September 30, 2020, as a result of which our internal control
over financial reporting was not effective at September 30,
2020.
Within
the constraints of the Company’s limited financial resources and as
of the date of the filing of this report, the Company has not yet
completed this process of reestablishing adequate internal controls
over financial reporting.
(b)
Changes in Internal Controls over Financial Reporting
The
Company’s management, consisting of its principal executive officer
and principal financial officer, has determined that no change in
the Company’s internal control over financial reporting (as that
term is defined in Rules 13(a)-15(f) and 15(d)-15(f) of the
Securities Exchange Act of 1934) occurred during or subsequent to
the end of the period covered in this report that has materially
affected, or is reasonably likely to materially affect, the
Company’s internal control over financial reporting.
PART II - OTHER
INFORMATION
ITEM 1. LEGAL
PROCEEDINGS
We
are periodically subject to various pending and threatened legal
actions and claims. See Note 8. Commitments and Contingencies –
Pending or Threatened Legal Actions and Claims to our condensed
consolidated financial statements at September 30, 2020 for details
regarding these matters.
ITEM 1A. RISK FACTORS
As of
the date of this filing, there have been no material changes to the
Risk Factors included in the Company’s 2019 10-K except as
disclosed below. The Risk Factors set forth in the 2019 Form 10-K
and in this report should be read carefully in connection with
evaluating the Company’s business and in connection with the
forward-looking statements contained in this report. Any of the
risks described in the 2019 Form 10-K or this report could
materially adversely affect the Company’s business, financial
condition or future results and the actual outcome of matters as to
which forward-looking statements are made. These are not the only
risks that the Company faces. Additional risks and uncertainties
not currently known to the Company or that the Company currently
deems to be immaterial also may materially adversely affect the
Company’s business, financial condition and/or operating
results.
Risks
Related to the COVID-19 pandemic
The
novel coronavirus (COVID-19) pandemic may negatively impact our
ability to successfully develop and commercialize our product
candidates and technologies and may ultimately affect our business,
financial condition and results of operations.
In March
2020, the World Health Organization declared COVID-19 a global
pandemic, and governmental authorities around the world have
implemented measures to reduce the spread of COVID-19. These
measures have adversely affected workforces, customers, supply
chains, consumer sentiment, economies, and financial markets, and,
along with decreased consumer spending, have led to an economic
downturn across many global economies. The COVID-19 pandemic
rapidly escalated in the United States and continues to evolve,
creating significant uncertainty and economic disruption, and
leading to record levels of unemployment nationally. Numerous state
and local jurisdictions had imposed, and those and others in the
future may impose, shelter-in-place orders, quarantines, shut-downs
of non-essential businesses, and similar government orders and
restrictions on their residents to control the spread of
COVID-19.
The
COVID-19 pandemic and government responses thereto have made it
very difficult to recruit clinical trial subjects and patients and
to conduct clinical trials in general. We expect the life sciences
industry and clinical trial activity to continue to face challenges
arising from quarantines, site closures, travel limitations,
interruptions to the supply chain for investigational products and
other considerations if site personnel or trial subjects become
infected with or are significantly at risk of contracting COVID-19.
These challenges may lead to difficulties in meeting
protocol-specified procedures. Further, in response to the public
health emergency, the FDA issued guidance in March and July 2020
emphasizing that safety of trial participants is critically
important. Decisions to continue or discontinue individual patients
or the trial are expected to be made by trial sponsors in
consultation with clinical investors and Institutional Review
Boards, which may lead to the implementation of additional
protocols such as COVID-19 screening procedures, resulting in
potential delays and additional costs. The risks, strategic and
operational challenges and costs of conducting such trials as a
result of the global pandemic have exacerbated an already
challenging clinical trial process, which may negatively impact our
ability to plan or conduct trials if we secure sufficient financing
to enable us to pursue such activity.
In
addition, we expect to be impacted by the downturn in the U.S.
economy, which could have an adverse impact on our ability to raise
capital and our business operations.
The extent
to which COVID-19 ultimately impacts our business, financial
condition and results of operations will depend on future
developments, which are highly uncertain and unpredictable,
including new information which may emerge concerning the severity
and duration of the COVID-19 pandemic and the effectiveness of
actions taken to contain the COVID-19 pandemic or treat its impact,
among others. Additionally, the extent to which COVID-19 ultimately
impacts our operations will depend on a number of factors, many of
which will be outside of our control. The COVID-19 pandemic is
evolving and new information emerges regularly; accordingly, the
ultimate consequences of the COVID-19 pandemic cannot be predicted
with certainty. In addition to the disruptions adversely impacting
our business and financial results, they may also have the effect
of heightening many of the other risks described in these risk
factors, including risks relating to our ability to begin to
generate revenue, to generate positive cash flow, our relationships
with third parties, and many other factors. We will attempt to
minimize these impacts, but there can be no assurance that we will
be successful in doing so.
Risks
Related to Our Business and Our Need for Financing
Our
independent registered public accounting firm has identified
material weaknesses in our financial reporting
process.
At
December 31, 2019, our independent registered public accounting
firm identified material weaknesses in our internal control over
financial reporting. There can be no assurance that we will be able
to successfully implement our plans to remediate the material
weaknesses in our financial reporting process. Our failure to
successfully implement our plans to remediate these material
weaknesses could cause us to fail to meet our reporting
obligations, to produce timely and reliable financial information,
and to effectively prevent fraud. Additionally, such failure, or
other weaknesses that we may experience in our financial reporting
process or other internal controls, could cause investors to lose
confidence in our reported financial information, which could have
a negative impact on our financial condition and stock
price.
Common Stock
reserve requirements may restrict our ability to raise capital and
continue to operate our business
Common
Stock reserve requirements may restrict our ability to raise
capital and continue to operate our business. We have received
temporary waivers, which will expire on November 25, 2020, of
certain of the Common Stock reserve requirements associated
with certain of our convertible notes and certain related warrants.
These waivers are necessary to ensure that we do not default on
such notes or the terms of such warrants while we are seeking to
increase the number of authorized shares of our Common Stock. As of
September 30, 2020 taking into account the waivers and the
transactions effected on that date, the Company was required to
reserve 251,011,042 shares of its authorized and unissued Common
Stock with respect to such notes and warrants that were not subject
to such waivers and after reserving for outstanding options and
other outstanding warrants, and had 422,157,997 shares of
authorized but unissued shares of Common Stock, including
87,036,986 authorized, unissued and unreserved shares of Common
Stock available. If we breach the contractual reserve requirements
we will be in default of such contractual obligations which may
have material adverse consequences which may make it more difficult
to raise additional necessary capital. As described in Note 9.
Subsequent Events—Special Meeting of Stockholders, assuming
it is approved by the stockholders, RespireRx intends to effect an
increase in the number of authorized shares of Common Stock on
November 24, 2020 or November 25, 2020. This increase would allow
the Company to remain in compliance with contractual reserve
requirements following the November 25, 2020 expiration of the
waivers of such requirements.
Our
product opportunities rely on licenses from research institutions
and if we lose access to these technologies or applications, our
business could be substantially impaired.
Through
our acquisition of Pier, we gained access to a pre-existing
relationship between Pier and the UIC. Effective in September 2014,
the Company entered into the UIC License Agreement with the UIC,
which gave the Company certain exclusive rights with respect to
certain patents and patent applications in the United States and
other countries claiming the use of dronabinol and other
cannabinoids for the treatment of sleep-related breathing
disorders, including sleep apnea. The UIC License Agreement
obligates the Company to comply with various commercialization and
reporting requirements and to make various royalty payments,
including potential one-time and annual royalty payments, as well
as payments upon the achievement of certain development
milestones.
The
Company and UWMRF executed the UWMRF Patent License Agreement
effective August 1, 2020 pursuant to which RespireRx licensed the
intellectual property identified therein, including with respect to
GABAkines. In consideration for the licenses granted, the Company
will pay to UWMRF patent filing and prosecution costs, annual
license maintenance fees, one-time milestone payments, and annual
royalties.
If we are
unable to comply with the terms of these licenses, such as required
payments thereunder, these licenses might be terminated.
We
may not be able to successfully develop and commercialize our
product candidates and technologies.
The
development of our product candidates is subject to risks commonly
experienced in the development of products based upon innovative
technologies and the expense and difficulty of obtaining approvals
from regulatory agencies. Drug discovery and development is time
consuming, expensive and unpredictable. On average, only one out of
many thousands of chemical compounds discovered by researchers
proves to be both medically effective and safe enough to become an
approved medicine.
Due to our
reliance on third parties to conduct clinical trials on our behalf,
we are unable to directly control the timing, conduct, expense and
quality of our clinical trials, which could adversely affect our
clinical data and results and related regulatory approvals. All of
our product candidates are in the preclinical or early to
mid-clinical stage of development and although we have previously
completed certain Phase 2 trials, and although we are planning for
additional preclinical and clinical trials, including potentially
an advanced-clinical stage trial, we do not have any currently
active trials. Accordingly, we will require significant additional
funding for research, development and clinical testing of our
product candidates, which may not be available on favorable terms
or at all, before we are able to submit them to any of the
regulatory agencies for clearances for commercial use.
Additionally, our
success, at least in part, is dependent upon the strength of our
intellectual property, including, but not limited to licensed and
owned patents, patent applications, continuations-in-part,
provisional patent applications, know-how, trade secrets and other
forms of intellectual property. The issuance of patents with
relevant claims is subject to varying degrees of uncertainty. Our
ability to defend our intellectual property or challenge third
party intellectual property infringement claims is expensive,
time-consuming and uncertain. If our patent applications do not
issue with relevant claims or if we cannot defend our patents, or,
as appropriate, challenge interfering patents or actions of third
parties, or otherwise maintain our intellectual property, our
business and operations will be adversely affected.
The
process from discovery to development to regulatory approval can
take several years and drug candidates can fail at any stage of the
process. Late stage clinical trials often fail to replicate results
achieved in earlier studies. We cannot be certain that we will be
able to successfully complete any of our research and development
activities. One of our product candidates is based, at least in
part, on the development of one or more new formulations and the
repurposing of an approved drug, the development of which is
inherently risky while others of our product candidates have never
been approved for marketing by any regulatory bodies and are
subject to substantial research and development risks. Concerns
about the safety and efficacy of our product candidates could limit
our future success.
Even if we
do complete our research and development activities, we may not be
able to successfully market any of the product candidates or be
able to obtain the necessary regulatory approvals or assure that
healthcare providers and payors will accept our product candidates.
We also face the risk that any or all of our product candidates
will not work as intended or that they will be unsafe, or that,
even if they do work and are safe, that our product candidates will
be uneconomical to manufacture and market on a large scale. Due to
the extended testing and regulatory review process required before
we can obtain marketing clearance, we do not expect to be able to
commercialize any therapeutic drug for several years, either
directly or through our corporate partners or licensees.
We
may not be able to compete with other biopharmaceutical or
pharmaceutical companies in research, development or the marketing
our products.
The
pharmaceutical industry is characterized by intensive research
efforts, rapidly advancing technologies, intense competition and a
strong emphasis on proprietary therapeutics. Our competitors
include many companies, research institutes and universities that
are working in a number of pharmaceutical or biotechnology
disciplines to develop therapeutic products similar to those we are
currently investigating. Most of these competitors have
substantially greater financial, technical, manufacturing,
marketing, distribution or other resources than we do. In addition,
many of our competitors have experience in performing human
clinical trials of new or improved therapeutic products and
obtaining approvals from the FDA and other regulatory agencies. We
have no experience in conducting and managing later-stage clinical
testing or in preparing applications necessary to obtain regulatory
approvals. We expect that competition in this field will continue
to intensify.
Our
patents and patent applications do not cover the entire world, thus
limiting the potential exclusive commercialization of our products
to those countries in which we have intellectual property
protection. We are aware of at least one company that may be
developing a product or product similar to one of our prospective
products for our proposed indication in countries where we do not
have intellectual property protection. Such company or companies
may choose to compete with us in countries where we do have
intellectual property protection and cause us to expend resources
defending our intellectual property. A liberal regulatory
environment or unenforced or poorly enforced regulations may
encourage competition from non-drug products such as medical
marijuana or dietary supplements and similar products containing
cannabis-derived molecules making claims that would be competitive
with our proposed regulatory-approved claims. Since our target
markets are very large, there is a great deal of economic incentive
for others to enter and compete in those markets. We must compete
with other companies with respect to their research and development
efforts and for capital and other forms of funding. An inability to
compete would have a material adverse impact on our business
operations.
We
have announced a restructuring plan to facilitate the financing of
our business initiatives. We may not achieve some or all of the
expected benefits of our restructuring plan and the restructuring
may adversely affect our business.
As further
discussed in Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Proposed Creation
of Subsidiaries, the Company is considering an internal
restructuring plan that contemplates spinning out our two drug
platforms under ResolutionRx and EndeavourRx into separate
operating businesses or subsidiaries. The intent of this
restructuring is to facilitate financing of the programs and
platforms underlying ResolutionRx and EndeavourRx, and to better
align our human resources with our clinical development
strategy.
Implementation of a
restructuring plan is costly and disruptive to our business, and we
may encounter unexpected costs while implementing the restructuring
plan. Even if implemented, we may not be successful in attracting
the necessary sources of financing or recruiting the necessary
human resources to achieve the intended results. As such, we may
not be able to obtain the estimated benefits that are initially
anticipated in connection with our restructuring in a timely manner
or at all. We may need to undertake additional restructurings in
the future. As a result of any restructuring, we may experience a
loss of continuity, loss of accumulated knowledge and/or
inefficiency during transitional periods and may lose momentum in
the development of our product candidates. Additionally,
reorganization and restructuring can require a significant amount
of management and other employees’ time and focus, which may divert
attention from operating and growing our business. Any failure to
properly execute the restructuring plans could result in total
costs that are greater than expected and cause us not to achieve
the expected long-term operational benefits, and might adversely
affect our financial condition, operating results and future
operations.
We
have not voluntarily implemented various corporate governance
measures, in the absence of which stockholders may have more
limited protections against interested director transactions,
conflicts of interests and similar matters.
We have
not adopted any corporate governance measures, since our securities
are not yet listed on a national securities exchange and we are not
required to do so. We have not adopted corporate governance
measures such as separate audit or other independent committees of
our Board as we presently have only one independent director. If we
expand our board membership in future periods to include additional
independent directors, we may seek to establish an audit and other
committees of our Board. It is possible that if our Board included
additional independent directors and if we were to adopt some or
all of these corporate governance measures, stockholders would
benefit from somewhat greater assurances that internal corporate
decisions were being made by disinterested directors and that
policies had been implemented to define responsible conduct. For
example, in the absence of audit, nominating and compensation
committees comprised of at least a majority of independent
directors, decisions concerning matters such as compensation
packages to our senior officers and recommendations for director
nominees may be made by a majority of directors who have an
interest in the outcome of the matters being decided. You should
bear in mind our current lack of corporate governance measures in
formulating investment decisions.
Risks
Related to the Trading and Ownership of our Common Stock and our
Capital Structure
Our
stock price is volatile and our Common Stock could decline in
value.
Our Common
Stock is currently quoted for public trading on the OTCQB Venture
Market. The trading price of our Common Stock has been subject to
wide fluctuations and may fluctuate in response to a number of
factors, many of which will be beyond our control.
The market
price of securities of life sciences companies in general has been
very unpredictable. Broad market and industry factors may adversely
affect the market price of our Common Stock, regardless of our
operating performance. In the past, following periods of volatility
in the market price of a company’s securities, securities
class-action litigation has often been instituted. Such litigation,
if instituted, could result in substantial costs for us and a
diversion of management’s attention and resources.
The range
of sales prices of our Common Stock for the period between January
1, 2020 and September 30, 2020 and the fiscal year ended December
31, 2019, as quoted on the OTCQB, was $0.0033 to $0.1499 and
$0.0771 to $0.8500, respectively. The following factors, in
addition to factors that affect the market generally, could
significantly affect our business, and may cause volatility or a
decline in the market price of our Common Stock:
| |
● |
competitors
announcing technological innovations or new commercial
products; |
| |
● |
competitors’
publicity regarding actual or potential products under
development; |
| |
● |
regulatory
developments in the United States and foreign
countries; |
| |
● |
legal
developments regarding cannabinoids and cannabis products in the
United States and foreign countries; |
| |
● |
developments
concerning proprietary rights, including patent
litigation; |
| |
● |
public
concern over the safety of therapeutic products; |
| |
● |
changes
in healthcare reimbursement policies and healthcare
regulations; |
| |
● |
future
issuances and sales of our Common Stock, including pursuant to
conversions of our outstanding convertible instruments and this
offering; |
| |
● |
our
Common Stock being delisted from the OTCQB; and |
| |
● |
failure
to raise additional needed funds. |
At
times, our Common Stock is thinly traded and you may be unable to
sell some or all of your shares at the price you would like, or at
all, and sales of large blocks of shares may depress the price of
our Common Stock.
Our Common
Stock has historically been sporadically or “thinly” traded,
meaning that the number of persons interested in purchasing shares
of our Common Stock at prevailing prices at any given time may be
relatively small or non-existent. Recently, our Common Stock has
been more “broadly” traded, meaning that it has been trading in
higher volumes; however, there can be no assurance that this
attribute will continue. As a consequence, there may be periods of
several days or more when trading activity in shares of our Common
Stock is minimal or non-existent, as compared to a seasoned issuer
that has a large and steady volume of trading activity that will
generally support continuous sales without an adverse effect on
share price. This could lead to wide fluctuations in our share
price. You may be unable to sell our Common Stock at or above your
purchase price, which may result in substantial losses to you.
Also, as a consequence of this lack of liquidity, the trading of
relatively small quantities of shares by our stockholders may
disproportionately influence the price of shares of our Common
Stock in either direction. The price of shares of our Common Stock
could, for example, decline precipitously in the event a large
number of shares of our Common Stock are sold on the market without
commensurate demand, as compared to a seasoned issuer which could
better absorb those sales with a lesser or no adverse impact on its
share price.
A
large percentage of the Company’s shares are held by a few
stockholders, some of whom are affiliated with members of the
Company’s management and our Board of Directors. As these principal
stockholders substantially control the Company’s corporate actions,
our other stockholders may face difficulty in exerting any
influence over matters not supported by these principal
stockholders.
RespireRx’s principal
stockholders include (i) the Arnold Lippa Family Trust of 2007 (the
“Lippa Trust”), (ii) the Jeff Eliot Margolis 2016 Trust, (iii) the
Jeff Eliot Margolis Trust for the Benefit of Matthew Shane
Margolis, (iv) Jeff Eliot Margolis Trust for the Benefit of Emily
Alexa Margolis, (v) Dawn Gross Margolis 2016 Trust, (vi) Dawn Gross
Margolis Trust for the Benefit of Matthew Shane Margolis, and (vii)
Dawn Gross Margolis Trust for the Benefit of Emily Alexa Margolis
(collectively, (ii), (iii), (iv), (v), (vi) and (vii) the “Margolis
Trusts” and with the Lippa Trust, the “Trusts”). The trustee of the
Margolis trusts is the spouse of Jeff E. Margolis. Mr. Margolis,
the Company’s Senior Vice President, Chief Financial Officer,
Treasurer and Secretary, is affiliated with the Margolis Trusts and
may be deemed to have an indirect beneficial ownership interest in
the stock owned by the Trusts. Arnold S. Lippa is neither the
trustee nor the beneficiary of the Lippa Trust. In addition,
Timothy L. Jones, the Company’s President and Chief Executive
Officer and a director, owns 4,409,063 shares of Common Stock. As
of September 30, 2020, these principal stockholders collectively
owned 225,175,088 shares of Common Stock and warrants to purchase
an additional 216,100,903 shares of Common Stock. These
stockholders, acting individually or as a group, may be able to
exert control or significant influence over matters such as
electing directors, amending the Certificate of Incorporation or
Bylaws, or approving mergers or other business combinations or
transactions. In addition, because of the percentage of ownership
and voting concentration in these principal stockholders, elections
of the directors on the Board of Directors may be within the
control of these stockholders. While all of RespireRx’s
stockholders are entitled to vote on matters submitted to them for
approval, the concentration of shares and voting influence or
control presently lies with these principal stockholders. As such,
it would be difficult for stockholders to propose and have approved
proposals not supported by these principal stockholders. There can
be no assurance that matters voted upon by the RespireRx’s officers
and directors in their capacity as stockholders will be viewed
favorably by all stockholders of RespireRx. The stock ownership of
RespireRx’s principal stockholders may discourage a potential
acquirer from seeking to acquire shares of Common Stock which, in
turn, could reduce RespireRx’s stock price or prevent its
stockholders from realizing a premium over its stock
price.
Our
Certificate of Incorporation, Series H Preferred Stock and other
governing documents may prevent or delay an attempt by our
stockholders to replace or remove management.
Certain
provisions of our Certificate of Incorporation could make it more
difficult for a third party to acquire control of our business,
even if such change in control would be beneficial to our
stockholders. Our Certificate of Incorporation allows the Board of
Directors to issue up to 5,000,000 shares of preferred stock, with
characteristics to be determined by the Board of Directors, without
stockholder approval. The ability of our Board of Directors to
issue additional preferred stock may have the effect of delaying or
preventing an attempt by our stockholders to replace or remove
existing directors and management.
Historically, warrants
to purchase Common Stock have been issued as compensation for
professional services, typically related to fund raising or in
connection with the issuance of promissory notes.
In
addition, certain executive officers, members of the Board of
Directors and certain vendors have offered to forgive accrued
compensation and other amounts due to them, and the Board of
Directors accepted such offers in exchange for either shares of
Common Stock, options to purchase Common Stock, or preferred stock
convertible into Common Stock. Specifically, in fiscal year 2020,
three officers and directors exchanged the right to receive payment
of accrued compensation in return for shares of Common Stock and
for shares of Series H Preferred Stock, which entitles these
officers to that number of votes equal to two times the number of
Common Stock into which such holder’s Series H Preferred Stock
would be convertible. All such outstanding shares of Series H
Preferred Stock have been fully converted into shares of Common
Stock and warrants to purchase shares of Common Stock.
If
executive officers offer and if the Board of Directors accepts such
offers in the future, a significant number of shares of Common
Stock or one or more options to purchase, or shares of preferred
stock convertible into, a significant number of shares of Common
Stock could be issued or granted. The ability of our Board of
Directors to issue additional shares of Common Stock, options to
purchase shares of Common Stock, warrants to purchase shares of
Common Stock, or preferred stock convertible into Common Stock may
have the effect of delaying or preventing an attempt by our
stockholders to replace or remove existing directors and
management.
Our
Common Stock is deemed a “penny stock,” which a broker-dealer may
find more difficult to trade and an investor may find more
difficult to acquire or dispose of in the secondary
market.
Our Common
Stock is subject to the so-called “penny stock” rules. The SEC has
adopted regulations that define a “penny stock” to be any equity
security that has a market price per share of less than $5.00,
subject to certain exceptions, such as any securities listed on a
national securities exchange. For any transaction involving a
“penny stock,” unless exempt, the rules impose additional sales
practice requirements on broker-dealers, subject to certain
exceptions. If our Common Stock remains a “penny stock,” a
broker-dealer may find it more difficult to trade our Common Stock
and an investor may find it more difficult to acquire or dispose of
our Common Stock on the secondary market. Recently, our Common
Stock has been trading below a penny. Many broker-dealers do not
accept for deposit shares of common stock that trade below a penny,
and those that do accept such shares for deposit place limitations
on the deposit or charge higher fees associated with the deposit,
the transactions in the shares of common stock or with respect to
the account in general. Taking these additional factors together,
and investor may find it even more difficult to acquire or dispose
of our Common Stock.
We
may issue additional shares of our Common Stock, and investment in
our company is likely to be subject to substantial
dilution.
Stockholders’
interests in the Company will be diluted and stockholders may
suffer dilution in their net book value per share when we issue
additional shares. Dilution is the difference between what
investors pay for their stock and the net tangible book value per
share immediately after the additional shares are purchased. We are
authorized to issue up to 1,000,000,000 shares of Common Stock and
our Board of Directors has authorized an increase to 2,000,000,000,
subject to stockholder approval. Our financing activities in the
past focused on convertible note financing that requires us to
issue shares of Common Stock to satisfy principal, interest and any
applicable penalties related to these convertible notes. When
required under the terms and conditions of the convertible notes,
we issue additional shares of Common Stock that have a dilutive
effect on our stockholders. We anticipate that all or at least a
substantial portion of our future funding, if any, will be in the
form of equity financing from the sale of our Common Stock and so
any investment in the Company will likely be diluted, with a
resulting decline in the value of our Common Stock.
Additional
financing may not be available on terms acceptable to us, and our
ability to raise capital through equity financing may be limited by
the number of authorized shares of our Common Stock. In order to
raise significant additional amounts from equity financing, we will
need to seek, and have sought, stockholder approval to amend our
Certificate of Incorporation to increase the number of authorized
shares of our Common Stock, and any such amendment would require
the approval of the holders of a majority of the outstanding shares
of our Common Stock. If we are unable to obtain needed financing on
acceptable terms, we may not be able to implement our business
plan, which could have a material adverse effect on our business,
financial condition, results of operations and
prospects.
Our
Common Stock may be subject to removal from the OTC Markets OTCQB
quotation service if our stock does not have a closing bid price of
at least $0.01 per share for a period of 10 consecutive trading
days on or before December 10, 2020, and our financing instrument
with Power Up may impede a successful corporate action to address
this issue.
Our Common Stock currently trades, and for a period in excess of 30
calendar days has traded, below $0.01 per share on the OTCQB
Venture Market. To continue to meet the OTCQB Venture Market
Standards for Continued Eligibility for OTCQB as per the OTCQB
Standards, Section 2.3(2), our Common Stock must have a closing bid
of $0.01 per share for more for 10 consecutive trading days. We
have received an extension of time until December 10, 2020 to cure
the deficiency.
To bring the Company’s stock price back into compliance, the
Company is seeking stockholder approval for a ten-to-one (10:1)
reverse stock split as described in Note 9. Subsequent
Events—Special Meeting of the Stockholders. However, the Financial
Industry Regulatory Authority (“FINRA”) will delay the announcement
to the U.S. financial markets of the reverse stock split, if such
corporate action is approved by the Company’s stockholders, due to
the Company’s financing arrangements with Power Up Lending Group
Ltd. (“Power Up”). See Note 4. Notes Payable for information on
these financing arrangements. FINRA has decided to perform a
secondary review of Power Up’s connection to the Company, which
will delay the date of FINRA’s notification to the U.S. financial
markets of the contemplated reverse stock split beyond the December
10, 2020 deadline set by the OTCQB Venture Market by which the
Company has to cure the deficiency with respect to its share price.
FINRA has notified the Company of the fact that one or more of
Power Up’s principals was involved with a former SEC cease and
desist proceeding and a separate civil action brought by the
Manhattan U.S. Attorney. Management intends to request a further
extension from the OTCQB Venture Market, which cannot be
guaranteed. The OTCQB Venture has informed the Company that the
extension to December 10, 2020, which the Company had previously
received, would be a final extension.
If we do not cure the deficiency, our Common Stock would no longer
be eligible to trade on the OTCQB Venture Market. A downgrade to a
lower OTC Pink market would likely have a material adverse impact
on the trading of our Common Stock because fewer brokerage firms
would be making markets in our Common Stock or eligible to transact
business in our Common Stock. Stocks that trade on OTC Pink are
often considered to be stocks of companies in financial distress,
not current or less transparent in their financial reporting.
Furthermore, we may not issue shares for consideration of less than
par value of $0.001, and should the share price of our Common Stock
fall below par value, our ability to exercise put options to White
Lion would be materially impacted, which could render the equity
line unavailable to us and impact our operations.
Delaware law, our Certificate of Incorporation and our Bylaws
provides for the indemnification of our officers and directors at
our expense, and correspondingly limits their liability, which may
result in a major cost to us and hurt the interests of our
shareholders because corporate resources may be expended for the
benefit of officers and/or directors.
Our Certificate of Incorporation and By-Laws of the Company, as
amended (the “Bylaws”) include provisions that eliminate the
personal liability of our directors for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any
breach of the director’s duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper
personal benefit. These provisions eliminate the personal liability
of our directors and our shareholders for monetary damages arising
out of any violation of a director of his fiduciary duty of due
care, but do not affect a director’s liabilities under the federal
securities laws or the recovery of damages by third parties.
We
do not intend to pay cash dividends on any investment in the shares
of stock of our Company and any gain on an investment in our
Company will need to come through an increase in our stock’s price,
which may never happen.
We have
never paid any cash dividends and currently do not intend to pay
any cash dividends for the foreseeable future. To the extent that
we require additional funding currently not provided for, our
funding sources may prohibit the payment of a dividend. Because we
do not currently intend to declare dividends, any gain on an
investment in our Company will need to come through an increase in
our Common Stock’s price. This may never happen, and investors may
lose all of their investment in our Company.
FINRA sales
practice requirements may also limit a stockholder’s ability to buy
and sell our stock.
In
addition to the “penny stock” rules described above, FINRA has
adopted rules that require that in recommending an investment to a
customer, a broker-dealer must have reasonable grounds for
believing that the investment is suitable for that customer. Prior
to recommending speculative low-priced securities to their
non-institutional customers, broker-dealers must make reasonable
efforts to obtain information about the customer’s financial
status, tax status, investment objectives and other information.
Under interpretations of these rules, FINRA believes that there is
a high probability that speculative low-priced securities will not
be suitable for at least some customers. FINRA requirements make it
more difficult for broker-dealers to recommend that their customers
buy our Common Stock, which may limit your ability to buy and sell
our stock and have an adverse effect on the market for our
shares.
Costs and
expenses of being a reporting company under the Exchange Act are
substantial and prevent us from achieving
profitability.
We are
subject to the reporting requirements of the Exchange Act and
aspects of the Sarbanes-Oxley Act. We expect that the requirements
of these rules and regulations will continue to comprise a
substantial portion of our legal, accounting and financial
compliance costs, and to make some activities more difficult,
time-consuming and costly, placing significant strain on our
personnel, systems and resources.
If
we fail to remain current on our reporting requirements, we could
be removed from the OTCQB, which would limit the ability of
broker-dealers to sell our Common Stock and the ability of
stockholders to sell their Common Stock in the secondary
market.
Companies trading on the OTCQB must be reporting issuers under
Section 12 of the Exchange Act, and must be current in their
filings under the Exchange Act to maintain price quotation
privileges on the OTCQB. If we fail to remain current on
our reporting requirements, we could be removed from the
OTCQB and be forced to be traded on the OTC Pink Sheets, which
requires a more challenging stock purchase process. As a
result, the liquidity for our Common Stock could be adversely
affected by limiting the ability of broker-dealers to sell our
common stock and the ability of stockholders to sell their Common
Stock in the secondary market. The OTCQB is recognized by the SEC
as an established public market. The OTC Pink Sheets is the lowest
and most speculative tier of the three marketplaces for the trading
of over-the-counter stocks.
OTC Pink Sheets shares generally trade thinly and infrequently
making it hard to buy or sell when the investor wants to complete a
transaction. Accordingly, the market for our Common Stock would be
significantly diminished if we were forced to trade on the OTC Pink
Sheets market.
ITEM 2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
There were
no unregistered sales of equity securities during the nine months
ended September 30, 2020 that were not disclosed by the Company on
a Current Report on Form 8-K. There were exchanges of convertible
notes inclusive of accrued interest on July 1, 2020 and July 7,
2020 related to issuances of Common Stock, as well as forgiveness
of accrued compensation and related issuances of the Company’s
Series H Preferred Stock on each of July 13, 2020 and September 30,
2020, which shares of Series H Preferred Stock were converted into
Common Stock and warrants on September 30, 2020. Similarly, on
September 30, 2020 there were two settlements of accounts payable
by issuance of Series H Preferred Stock to two vendors. Such Series
H Preferred Stock was converted into Common Stock and warrants on
September 30, 2020. See Note 4. Notes Payable – Convertible
Notes Payable of our condensed consolidated financial
statements at September 30, 2020 and Part I, Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations – Liquidity and Capital Resources – September 30,
2020.
Additional
information with respect to the transactions described above is
provided in the Notes to the Condensed Consolidated Financial
Statements for the nine months ended September, 2020.
ITEM 3. DEFAULTS UPON SENIOR
SECURITIES
Note Payable to SY Corporation Co., Ltd.
On
June 25, 2012, the Company borrowed 465,000,000 Won (the currency
of South Korea, equivalent to approximately $400,000 United States
Dollars) from and executed a secured note payable to SY
Corporation, an approximately 20% common stockholder of RespireRx
at that time. SY Corporation was a significant stockholder and a
related party at the time of the transaction but was not considered
a significant stockholder or related party subsequent to December
31, 2015. 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 technical
default, although SY Corporation has not issued a notice of default
or a demand for repayment. RespireRx believes that SY Corporation
is in default of its obligations under its January 2012 license
agreement, as amended, with RespireRx, but RespireRx has not yet
issued a notice of default. RespireRx 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, 2020, there were no further communications between
RespireRx and SY Corporation.
Note
payable to SY Corporation consists of the following at September
30, 2020 and December 31, 2019:
| |
|
September
30, 2020 |
|
|
December
31,
2019 |
|
| Principal amount of
note payable |
|
$ |
399,774 |
|
|
$ |
399,774 |
|
| Accrued interest
payable |
|
|
399,293 |
|
|
|
363,280 |
|
| Foreign currency
transaction adjustment |
|
|
(3,969 |
) |
|
|
3,182 |
|
| |
|
$ |
795,098 |
|
|
$ |
766,236 |
|
Interest
expense with respect to this promissory note was $36,013 and
$35,881 for nine months ended September 30, 2020 and 2019,
respectively.
Default on Convertible Notes Payable
At
September 30, 2020, the amount owed on the one remaining Original
Convertible Note in default was $47,526, including principal and
interest.
ITEM 4. MINE SAFETY
DISCLOSURES
Not
applicable.
ITEM 5. OTHER
INFORMATION
Not
applicable.
ITEM 6. EXHIBITS
INDEX
TO EXHIBITS
The
following documents are filed as part of this report:
|
Exhibit
Number |
|
Description
of Document |
| |
|
|
| 3.1 |
|
Certificate of Designation, Preferences, Rights
and Limitations of Series H 2% Voting, Non-Participating,
Convertible Preferred Stock (incorporated by reference to Exhibit
3.1 of the Company’s Current Report on Form 8-K (file no.
001-16467) filed on July 13, 2020). |
| |
|
|
| 3.2 |
|
Amendment to Certificate of Designation,
Preferences, Rights and Limitations of Series H 2% Voting,
Non-Participating, Convertible Preferred Stock (incorporated by
reference to Exhibit 3.1 of the Company’s Current Report on Form
8-K (file no. 001-16467) filed on October 5,
2020). |
| |
|
|
| 10.1 |
|
Securities Purchase Agreement, dated July 2,
2020, between RespireRx Pharmaceuticals Inc. and FirstFire Global
Opportunities Fund, LLC (incorporated by reference to Exhibit 99.1
of the Company’s Current Report on Form 8-K (file no. 001-16467)
filed on July 7, 2020). |
| |
|
|
| 10.2 |
|
Convertible Promissory Note, dated July 2, 2020,
in favor of FirstFire Global Opportunities Fund, LLC (incorporated
by reference to Exhibit 99.2 of the Company’s Current Report on
Form 8-K (file no. 001-16467) filed on July 7,
2020). |
| |
|
|
| 10.3 |
|
Common Stock Purchase Warrant, dated July 2,
2020, in favor of FirstFire Global Opportunities Fund, LLC
(incorporated by reference to Exhibit 99.3 of the Company’s Current
Report on Form 8-K (file no. 001-16467) filed on July 7,
2020). |
| |
|
|
| 10.4+ |
|
Exchange Agreement, dated July 13, 2020, between
RespireRx Pharmaceuticals Inc. and Jeff Eliot Margolis
(incorporated by reference to Exhibit 99.1 of the Company’s Current
Report on Form 8-K (file no. 001-16467) filed on July 13,
2020). |
|