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, 2021 and for the three-months and nine-months ended September 30, 2021 and 2020,
are unaudited. In the opinion of management, all adjustments (including normal recurring adjustments) have been made that are necessary
to present fairly the condensed consolidated financial position of the Company, the condensed results of operations, condensed changes
in stockholders’ deficiency and condensed changes in cash flows as of and for the periods ended September 30, 2021and
2020. Condensed consolidated operating results for the interim periods presented are not necessarily indicative of the results
to be expected for a full fiscal year. The consolidated balance sheet at December 31, 2020 has been derived from the Company’s
audited consolidated financial statements at such date. For comparative purposes, certain 2021 and 2020 amounts, including, but not limited
to, share and per share amounts, par value and additional paid-in capital have been adjusted to a post-reverse stock split basis which
occurred on January 5, 2021.
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, 2020 as filed with the SEC on April 15, 2021 (“2020 Form 10-K”).
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 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 preclinical and clinical 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) is developing compounds that target the body’s endocannabinoid
system, and in particular, the re-purposing of dronabinol, an endocannabinoid CB1 and CB2 receptor agonist, for the treatment of
OSA. Dronabinol is already approved by the FDA for other indications.
|
|
|
|
|
|
|
(ii)
|
our
neuromodulators platform (which we refer to as EndeavourRx) is made up of two programs: (a) our AMPAkines program, which is developing
proprietary compounds that are positive allosteric modulators (“PAMs”) of AMPA-type glutamate receptors to promote neuronal
function and (b) our GABAkines program, which is developing proprietary compounds that are PAMs of GABAA receptors, and
which was established pursuant to our entry into a patent license agreement (the “UWMRF Patent License Agreement”) with
the University of Wisconsin-Milwaukee Research Foundation, Inc., an affiliate of the University of Wisconsin-Milwaukee (“UWMRF”).
|
Financing
our Platforms
Our
major challenge has been to raise substantial equity or equity-linked financing to support research and development plans for our pharmaceutical
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 common stock not being listed on a national exchange, and low
market capitalization as a result of our low stock price. Our shares are quoted on the OTCQB, the OTC Market’s venture
market.
For
this reason, the Company has implemented an internal restructuring plan through which our two drug platforms have been reorganized into
separate business units and may in the future be organized into subsidiaries of RespireRx. We believe that by creating one or more subsidiaries
to further the aims of ResolutionRx and EndeavourRx, it may be possible, through separate finance channels, to optimize the asset values
of each. We are also planning to commence, assuming the SEC qualifies the offering, a securities offering pursuant to Regulation A under
the Securities Act. See Note 9. Subsequent Events – Filing of Form 1-A for further information.
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 $708,682
and $2,371,145
for the three-months and nine-months ended
September 30, 2021, respectively, and $4,301,211
for the fiscal year ended December 31, 2020,
as well as negative operating cash flows of $800,622
for the nine-months ended September 30, 2021
and $513,001
for the fiscal year ended December 31, 2020. The Company also
had a stockholders’ deficiency of $9,424,888
at September 30, 2021 and expects to continue
to incur net losses and negative operating cash flows for the foreseeable future. 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, 2020,
expressed substantial doubt about the Company’s ability to continue as a going concern.
The
Company is currently, and has for some time, been in significant financial distress. It has extremely limited cash resources and current
assets and has no ongoing source of sustainable revenue. Management is continuing to address various aspects of the Company’s operations
and obligations, including, without limitation, debt obligations, financing requirements, intellectual property, licensing agreements,
legal and patent matters and regulatory compliance, and has taken steps to continue to raise new debt and equity capital to fund the
Company’s business activities from both related and unrelated parties.
The
Company is continuing its efforts to raise additional capital in order to be able to pay its liabilities and fund its business activities
on a going forward basis, including the pursuit of the Company’s planned research and development activities. The Company regularly
evaluates various measures to satisfy the Company’s liquidity needs, including development and other agreements with collaborative
partners and, when necessary, seeking to exchange or restructure the Company’s outstanding securities. The Company is evaluating
certain changes to its operations and structure to facilitate raising capital from sources that may be interested in financing only discrete
aspects of the Company’s development programs. Such changes could include a significant reorganization, which may include the formation
of one or more subsidiaries into which one or more programs may be contributed. As a result of the Company’s current financial
situation, the Company has limited access to external sources of debt and equity financing. Accordingly, there can be no assurance 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 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.
Reverse
Stock Split on January 5, 2021
On
January 5, 2021, the Company effected
a ten to one reverse-stock split of its common stock.
Every ten shares of the “old” common stock was exchanged for one “new” share of common stock rounded down to
the nearest whole share with any fractional shares of common stock paid to the stockholder in cash. Option and warrant issuances prior
to January 5, 2021 have also been proportionately adjusted by dividing the number of shares into which such options and warrants may
exercise by ten and multiplying the exercise price by ten. The effect of the reverse-stock split has been reflected retroactively in
the Company’s consolidated financial statements as of December 31, 2020 and any interim periods in 2020. Certain amount with respect
to 2019 that appear in these condensed consolidated financial statements have also been reflected on a post reverse-stock split basis.
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 Co., Ltd. (“SY Corporation”) and the convertible notes payable, management
does not believe that the credit markets have materially changed for these types of borrowings since the original borrowing date. The
Company considers the carrying amounts of the notes payable to officers, inclusive of accrued interest, to be representative of the respective
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 and accounting 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.
Debt
Issuance 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, commitment
shares of common stock or a beneficial conversion feature, the convertible notes and equity or equity-linked securities 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.
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. See Note 4 for additional information.
Prepaid
Insurance
Prepaid
insurance represents the premiums paid in March 2021 for directors and officers insurance and other insurance in April 2021. 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 then amortized to the Company’s consolidated statement of operations for each reporting
period.
Stock-Based
Awards
The
Company periodically issues common stock and stock options to officers, directors, Scientific Advisory Board members, consultants and
vendors for services rendered. Such issuances vest and expire according to terms established at the issuance date of each grant.
The
Company accounts for stock-based payments to officers, directors, outside consultants and vendors by measuring the cost of services provided
in exchange for equity awards based on the grant date fair value of the awards, with the cost recognized as compensation expense on the
straight-line basis in the Company’s consolidated financial statements over the vesting period of the awards.
Stock
grants and stock options, 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.
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
and stock option grants and warrants issued to non-employees as compensation for services to be provided to the Company is 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.
Stock
and stock option grants and warrants issued to non-employees for services already rendered represent settlement of debt or liabilities
and are accounted for by valuing both the amount of the amount of debt or liabilities settled and the value of the stock, stock option
or warrant grants and recording a gain or loss as appropriate.
Stock
and stock option grants and warrants issued to officers, directors, employees and affiliates in settlement of accrued compensation or
other amounts payable are recorded at the amount of the liability settled. Therefore, there are no gains or losses recorded with respect
to such settlements.
There
were no
stock or stock option grants during the nine-months
ended September 30, 2021.
The
Company recognizes the amortized value of stock-based payments in general and administrative costs and in research and development costs,
as appropriate, in the Company’s condensed consolidated statements of operations. The Company issues new shares of common stock
to satisfy stock option and warrant exercises. There were no
stock options exercised during the nine-months
ended September 30, 2021 and 2020, respectively.
There
were warrants to purchase 380,568
shares of common stock issued as compensation
or for services during the nine-months ended September 30, 2021 and none
during the nine-months ended September 30, 2020.
Warrants, if issued for services, are typically issued to placement agents or brokers for fund raising services. In addition warrants
to purchase 31,766,883
shares of common stock were issued to lenders
during the nine-months ended September 30, 2021 with respect to or in association with the issuance of convertible notes to such
lenders. Warrant are not issued from any of the Company’s stock and option plans, from which options issued to non-employees for
services are typically issued.
Income
Taxes
The
Company accounts for income taxes under an asset and liability approach for financial accounting and reporting for income taxes. Accordingly,
the Company recognizes deferred tax assets and liabilities for the expected impact of differences between the financial statements and
the tax basis of assets and liabilities.
The
Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. In
the event the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of its recorded
amount, an adjustment to the deferred tax assets would be credited to operations in the period such determination was made. Likewise,
should the Company determine that it would not be able to realize all or part of its deferred tax assets in the future, an adjustment
to the deferred tax assets would be charged to operations in the period such determination was made.
Pursuant
to Internal Revenue Code Sections 382 and 383, use of the Company’s net operating loss and credit carryforwards may be limited
if a cumulative change in ownership of more than 50% occurs within any three-year period since the last ownership change. The Company
may have had a change in control under these Sections. However, the Company does not anticipate performing a complete analysis of the
limitation on the annual use of the net operating loss and tax credit carryforwards until the time that it anticipates it will be able
to utilize these tax attributes.
As
of September 30, 2021, 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, 2021, the Company had not recorded any liability for uncertain tax positions. In subsequent
periods, any interest and penalties related to uncertain tax positions will be recognized as a component of income tax expense.
Foreign
Currency Transactions
The
note payable to SY Corporation, which is denominated in a foreign currency (the South Korean Won), is translated into the Company’s
functional currency (the United States Dollar) at the exchange rate on the balance sheet date. The foreign currency exchange gain or
loss resulting from translation is recognized in the related condensed consolidated statements of operations.
Research
and Development
Research
and development costs include compensation paid to management directing the Company’s research and development activities, including
but not limited to compensation paid to our Chief Scientific Officer who is also our Executive Chairman, 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 term, 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 expenses in the Company’s condensed consolidated statement of operations.
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, 2021 and 2020 the Company excluded the outstanding shares of common stock in the table below, into which the securities
described below may convert, thereby entitling the holders thereof to acquire shares of common stock, from the Company’s
calculation of earnings per share, as the effect would have been anti-dilutive.
Schedule
of Anti-dilutive Securities Excluded from Computation of Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Series
B convertible preferred stock
|
|
|
1
|
|
|
|
1
|
|
|
Convertible
notes payable
|
|
|
40,542,856
|
|
|
|
4,723,986
|
|
|
Common
stock warrants
|
|
|
59,505,140
|
|
|
|
28,809,358
|
|
|
Common
stock options
|
|
|
7,111,924
|
|
|
|
7,166,094
|
|
|
Total
|
|
|
107,159,921
|
|
|
|
40,699,439
|
|
Reclassifications
Certain
comparative figures in 2020 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
January 2020, the FASB issued ASU 2020-01, Clarifying the Interactions between Topic 321, Topic 323, Equity Method and Joint Ventures,
and Topic 815, Derivatives and Hedging which represents an amendment clarifying the interaction between accounting standards related
to equity securities, equity method investments and certain derivatives. The guidance is effective for fiscal years beginning after December
15, 2020 and interim periods within those years. Management has evaluated the guidance and determined that the implementation
of such guidance does not have a material impact on our condensed consolidated financial statements.
4.
Notes Payable
Convertible
Notes Payable
On
April 1, 2021, May 3, 2021, May 10, 2021, June 30, 2021 and August 31, 2021, the Company closed on financings, pursuant to which,
five convertible notes were issued to four separate investors, due in each case, one year from the effective date (which for the
each closing was March 31, 2021, April 30, 2021, May 10, 2021, June 29, 2021 and August 31, 2021, respectively), with maturity
amounts of $112,500,
$150,000,
$150,000,
$115,000 and
$115,000,
respectively. In addition, the noteholders received as consideration, warrants to purchase 2,400,000, 3,200,000, 3,200,000, 2,453,333 and 5,750,000 shares
of common stock, respectively, each exercisable for a period of five years at an exercise price of $0.02 per
share. The August 31, 2021 issuance triggered the most-favored nation provisions of four notes already outstanding,
resulting in the issuance of 15,121,667 additional
warrants on September 7, 2021. As a result of the note issuances, the Company received net proceeds of $96,750,
$123,400,
$123,400,
$100,000 and
$103,500 respectively,
for an aggregate of $547,050. The
difference between the maturity amounts and the net proceeds were due to original issue discounts, in four cases, investor legal
fees and in two cases, broker fees. The five notes are convertible at a fixed price of $0.02 per
share and bear interest at 10% per
year which interest is guaranteed regardless of prepayment. The Company has the right to prepay the notes during the first six
months subject to prepayment premiums that range from 0% to 15% (100% to 115% of
the maturity amount plus accrued interest and any default interest and similar costs).
The
Company periodically issues convertible notes with similar characteristics. As described in the table below, as of September 30,
2021, there were nine such notes outstanding (including the convertible notes described in the paragraph above), two of which were satisfied
in full by conversion of both principal and interest and one of which was satisfied in part, principal only, during that period. These
notes all have or had a fixed conversion price of $0.02
per share of common stock, subject to adjustment
in certain circumstances. All notes but one had an annual interest rate of 10%
which was guaranteed in full. One note had an
annual interest rate of 8%.
The convertible notes had an original issue discount (“OID”), debt issuance costs (“DIC”) that were capitalized
by the Company, a warrant (“WT”) or commitment shares (“CS”) and in three cases a beneficial conversion feature
(“BCF”). The OID, CN, WTs, CSs and BCF allocated values are amortized over the life of the notes to interest expense. All
notes mature or matured nine to fifteen months from their issuance date. All notes were prepayable by the Company during the first six
months, subject to prepayment premiums that range from 100%
to 115%
of the maturity amount plus accrued interest.
If not earlier paid, the notes were convertible by the holder into the Company’s common stock. Two of the notes were paid before
maturity.
The
table below summarizes the convertible notes with similar characteristics outstanding as of September 30, 2021 and the repayments
by conversion during the nine-months ended September 30, 2021:
Schedule
of Convertible Notes Outstanding
|
Inception
Date
|
|
Maturity
date
|
|
Original
Principal Amount
|
|
|
Interest
rate
|
|
|
Original
aggregate DIC, OID, Wts, CS and BCF
|
|
|
Cumulative
amortization of DIC, OID, Wts, CS and BCF
|
|
|
Accrued
coupon interest
|
|
|
Repayment
by
conversion
|
|
|
Balance
sheet
carrying amount
at September 30,
2021 inclusive
of accrued interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
2, 2020
|
|
April
2, 2021
|
|
$
|
137,500
|
|
|
|
10.00
|
%
|
|
$
|
(44,423
|
)
|
|
$
|
44,423
|
|
|
$
|
6,875
|
|
|
$
|
(144,375
|
)
|
|
$
|
-
|
|
|
July
28, 2020
|
|
July
28, 2021
|
|
|
45,000
|
|
|
|
8.00
|
%
|
|
|
(5,000
|
)
|
|
|
—
|
|
|
|
2,743
|
|
|
|
(25,000
|
)
|
|
|
17,743
|
|
|
July
30, 2020
|
|
October
30, 2021
|
|
|
75,000
|
|
|
|
10.00
|
%
|
|
|
(27,778
|
)
|
|
|
27,778
|
|
|
|
4,136
|
|
|
|
(79,136
|
)
|
|
|
-
|
|
|
February
17, 2021
|
|
November
17, 2021
|
|
|
112,000
|
|
|
|
10.00
|
%
|
|
|
(112,000
|
)
|
|
|
91,608
|
|
|
|
9,161
|
|
|
|
-
|
|
|
|
100,769
|
|
|
April
1, 2021
|
|
March
31, 2022
|
|
|
112,500
|
|
|
|
10.00
|
%
|
|
|
(112,500
|
)
|
|
|
56,404
|
|
|
|
5,640
|
|
|
|
-
|
|
|
|
62,044
|
|
|
May
3, 2021
|
|
April
30, 2022
|
|
|
150,000
|
|
|
|
10.00
|
%
|
|
|
(150,000
|
)
|
|
|
62,877
|
|
|
|
6,288
|
|
|
|
-
|
|
|
|
69,165
|
|
|
May
10, 2021
|
|
May
10, 2022
|
|
|
150,000
|
|
|
|
10.00
|
%
|
|
|
(150,000
|
)
|
|
|
58,767
|
|
|
|
5,877
|
|
|
|
-
|
|
|
|
64,644
|
|
|
June
30, 2021
|
|
June
29, 2022
|
|
|
115,000
|
|
|
|
10.00
|
%
|
|
|
(115,000
|
)
|
|
|
29,301
|
|
|
|
2,930
|
|
|
|
-
|
|
|
|
32,231
|
|
|
August
31, 2021
|
|
August
31, 2022
|
|
|
115,000
|
|
|
|
10.00
|
%
|
|
|
(109,675
|
)
|
|
|
9,015
|
|
|
|
945
|
|
|
|
-
|
|
|
|
15,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
1,012,000
|
|
|
|
|
|
|
$
|
(826,376
|
)
|
|
$
|
380,173
|
|
|
$
|
44,595
|
|
|
$
|
(248,511
|
)
|
|
$
|
361,881
|
|
In
addition to what appears in the table above, there is outstanding accrued interest of $2,747
from a prior floating rate convertible note that
has not been paid in cash or by conversion as of September 30, 2021.
On
July 27, 2021, the maturity date of the note scheduled to mature on July
28, 2021,
was extended to December
1, 2021 and the original and remaining principal
amount of the note was increased by $5,000
from $40,000
to $45,000
and from $15,000
to $20,000
respectively, with interest on the incremental
increase in principal amount accruing from the note inception date. Since the Company did not receive any cash proceeds from the increase
in the principal amount of the note, the increase was recorded as a debt discount to be amortized to interest expense through the maturity
date.
In
addition to the convertible notes with similar characteristics described above, on December 31, 2018 and January 2, 2019, the Company
issued convertible notes to a single investor totaling $35,000
of maturity amount with accrued interest of $10,399
as of September 30, 2021. The number of shares
of common stock (or preferred stock) into which these notes may convert is not determinable. The warrants to purchase 19,000
shares of common stock issued in connection with
the sale of these notes and other convertible notes issued December 2018 and March 2019 are exercisable at a fixed price of $15.00
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 and expire on December
30, 2023.
Other
convertible notes were also sold to investors in 2014 and 2015 (“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 as
part of note and warrant exchange agreements executed in April and May of 2016 or expired on September
15, 2016.
The
remaining outstanding Original Convertible Notes (including those for which default notices have been received) consist of the following
at September 30, 2021 and December 31, 2020:
Schedule
of Convertible Notes Payable
|
|
|
September
30, 2021
|
|
|
December
31, 2020
|
|
|
Principal
amount of notes payable
|
|
$
|
75,000
|
|
|
$
|
75,000
|
|
|
Accrued
interest payable
|
|
|
74,763
|
|
|
|
64,357
|
|
|
Foreign
currency transaction adjustment
|
|
|
(16,838
|
)
|
|
|
53,393
|
|
|
Total
note payable
|
|
$
|
149,256
|
|
|
$
|
139,357
|
|
As
of September 30, 2021, 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 $52,337,
of which $27,337
was accrued interest. As of December 31, 2020,
principal and accrued interest on Original Convertible Notes subject to default notices totaled $48,700
of which $23,700
was accrued interest.
As
of September 30, 2021 all of the outstanding Original Convertible Notes, inclusive of accrued interest, were convertible into an aggregate
of 1,317
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., (“SY Corporation”). 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, 2021, 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, dating back to January, August
and September 2007, 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 that the Company is no longer developing and where patent
rights date back to January, August and September 2007. The security interest does not extend to the Company’s patents for its
low impact ampakine compounds, such as CX717, CX1739 and CX1942 or certain related method of use patents.
The
note payable to SY Corporation consists of the following at September 30, 2021 and December 31, 2020:
Schedule
of Convertible Notes Payable
|
|
|
September
30, 2021
|
|
|
December
31, 2020
|
|
|
Principal
amount of note payable
|
|
$
|
399,774
|
|
|
$
|
399,774
|
|
|
Accrued
interest payable
|
|
|
447,266
|
|
|
|
411,384
|
|
|
Foreign
currency transaction adjustment
|
|
|
(16,838
|
)
|
|
|
53,393
|
|
|
Total
note payable
|
|
$
|
830,202
|
|
|
$
|
864,551
|
|
Interest
expense with respect to this promissory note was $35,881
and $36,013
for the nine-months ended September 30, 2021
and 2020, respectively, and $12,092
for the three-months ended September 30, 2021
and 2020.
Notes
Payable to Officers and Former Officers
The
following amounts were charged to interest expense with respect to notes payable to Dr. Arnold S. Lippa: $3,096
and $2,848
for the three-months ended September 30, 2021
and 2020, respectively, and $ 9,193
and $8,481
for the nine-months ended September 30, 2021
and 2020, respectively.
The
following amounts were charged to interest expense with respect to notes payable to Dr. James S. Manuso: $4,702
and $4,274
for the three-months ended September 30, 2021
and 2020, respectively, and $13,954
and $12,714
for the nine-months ended September 30, 2021
and 2020, respectively.
Other
Short-Term Notes Payable
Other
short-term notes payable at September 30, 2021 and December 31, 2020 consisted of premium financing agreements with respect to various
insurance policies. At September 30, 2021, a premium financing agreement was payable in the initial amount of $81,672
(after payment of a deposit of $20,347),
with interest at 11%
per annum, in eight monthly installments of $10,635.
In addition, there is $9,238
of short-term financing of office and clinical
trials insurance premiums. At September 30, 2021 and December 31, 2020, the aggregate amount of the short-term notes payable was $35,982
and $4,608
respectively.
5.
Settlement and Payment Agreements
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 related to late fees, seeking $100,259 plus 1.5% interest per month on outstanding unpaid invoices. 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.
On March 3, 2021, we executed a settlement agreement with Sharp (the “Sharp Settlement Agreement”), and on March 9, 2021,
Sharp requested of the Bergen (NJ) County Sheriff, the return of the Writ of Execution which resulted in a release of the lien in favor
of Sharp. The Sharp Settlement Agreement calls for a payment schedule of ten $10,000 payments due on April 1, 2021 and every other month
thereafter, and permitted early settlement at $75,000 if the Company had paid Sharp that lower total by August 1, 2021, but the Company
did not pay Sharp that lower amount by that date. The Company has recorded a liability to Sharp of $63,859
as of September 30, 2021 after payments totaling
$30,000
pursuant to the Sharp Settlement Agreement.
By
letter dated February 5, 2016, the Company received a demand from a law firm representing Salamandra, LLC (“Salamandra”)
alleging an amount due and owing for unpaid services rendered. On January 18, 2017, following an arbitration proceeding, an arbitrator
awarded Salamandra the full amount sought in arbitration of $146,082.
Additionally, the arbitrator granted Salamandra attorneys’ fees and costs of $47,937. All such amounts have been accrued as of
September 30, 2021 and December 31, 2020, including accrued interest at 4.5% annually from February 26, 2018, the date of the
judgment, through September 30, 2021, totaling $29,897. The Company had previously entered into a settlement agreement with Salamandra
that is no longer in effect. The Company has approached Salamandra seeking to negotiate a new settlement agreement. A lien with
respect to the amounts owed is in effect.
On
February 23, 2021, our bank received two New Jersey Superior Court Levies totaling $320,911
related to amounts owed to Sharp and Salamandra
which amounts were not in dispute. The bank debited our accounts and restricted access to those accounts pursuant to the liens placed
on the accounts. Our accounts were debited for $1,559
on February 23, 2021, which represented all of
the cash in our accounts on that date.
On
April 29, 2021, the Company entered into a payment and settlement agreement with the University of California Innovation and
Entrepreneurship, pursuant to which it agreed to a payment schedule that is reflected in accounts payable and accrued expenses in
the Company’s condensed consolidated financial statements. The total amount due is $234,657. The
agreed payment schedule is for the Company to pay $10,000 on each of July 1, 2021, September 1, 2021, November 1, 2021, January 1,
2022 and March 31, 2022. If the Company pays an aggregate of $175,000 on or before March 31, 2022, the amounts will be considered
paid in full with no further amounts due. If an aggregate of $175,000 has not been paid by March 31, 2022, the remaining unpaid
amount up to an aggregate of the original amount of $234,657 would be due and payable. The payments due on July 1, 2021 and
September 1, 2021 were timely paid.
On
September 14, 2021, the Company and DNA Healthlink, Inc. (“DNA Healthlink”) entered into a settlement agreement
(the “ DNA Healthlink Settlement Agreement”) regarding $410,000
in unpaid accounts payable owed by the Company
to DNA Healthlink (the “DNA Healthlink Settlement Amount”) for services provided by DNA Healthlink to the Company
pursuant to an agreement by and between the Company and DNA Healthlink dated October 15, 2014. Under the terms of the DNA Healthlink Settlement Agreement, the Company is obligated to pay to DNA Healthlink the full DNA Healthlink Settlement
Amount as follows: twelve monthly payments of $8,000each commencing on November 15, 2021, followed by twelve monthly payments of $10,000 each
commencing on November 15, 2022, followed by twelve monthly payments of $15,000 each commencing on November 15, 2023, followed by one final payment of $14,000
on November 15, 2024. If, prior to March 14, 2023, the Company receives one or more upfront license fee payments or any other similar fee or fees from one or more
strategic partners that aggregate at least fifteen million dollars ($15,000,000.00) (“Upfront Fees”), then the full DNA Healthlink Settlement Amount, less any amounts previously paid, will be accelerated and become due and payable in full within ninety
(90) days of receipt of any Upfront Fees. As a result of the DNA Healthlink Settlement Agreement, the Company recorded a gain with
respect to vendor settlements of $62,548.
An
annual obligation payable to the University of Illinois of $100,000
that was originally due on December 31, 2020 pursuant to the 2014 License Agreement was extended to April 19, 2021 and was paid in
full on April 1, 2021.
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, 2021 and December 31, 2020. See Note 1 for additional
information on the Pier transaction.
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, 2021 and December
31, 2020 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.
6.
Stockholders’ Deficiency
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, 2021 and December 31, 2020,
37,500
shares were designated as Series B Convertible
Preferred Stock (non-voting, “Series B Preferred Stock”).
Series
B Preferred Stock outstanding as of September 30, 2021 and 2020 consisted of 37,500
shares issued in a May 1991 private placement.
The shares of Series B Preferred Stock are convertible into 1
share of common stock. RespireRx may redeem the
Series B Preferred Stock for $25,001
at any time upon 30 days prior notice.
Although
other series of preferred stock have been designated, no other shares of preferred stock are outstanding. As of September 30, 2021 and
December 31, 2020, 3,504,424 shares
of preferred stock were undesignated and may be issued with such rights and powers as the Board of Directors may designate.
Common
Stock
RespireRx
has authorized 2,000,000,000 (2
billion) shares of common stock, par value $0.001
per share. There are 90,396,596
shares of the Company’s common stock outstanding
as of September 30, 2021. After reserving for conversions of convertible debt and convertible preferred stock, as well as exercises of
common stock purchase options (granted and available for grant within the 2014 and 2015 stock and stock option plans) and warrants and
the issuance of Pier contingent shares and before accounting for incremental contract excess reserves, there were 1,786,678,967
shares of the Company’s common stock available
for future issuances as of September 30, 2021. After accounting for incremental excess reserves contractually required by the various
convertible notes and certain warrants, there were 1,702,729,267
shares of common stock available for future issuances
as of September 30, 2021. On May 27, 2021, a holder of a warrant exercised the warrant in part, exercising into 900,000
shares of common stock on a cashless basis, what
would have exercised into 1,665,958
shares of common stock on a cash basis. The Company
did not receive any cash proceeds from the exercise. No other warrants were exercised during the nine-months ended September 30, 2021.
No options were exercised during the nine-months ended September 30, 2021. No warrants or options were exercised after September 30,
2021. See Note 9 for a description of a partial warrant exercise and a conversion of a portion of the principal amount of one convertible
note, both occurring on November 8, 2021.
Common
Stock Warrants
A
summary of warrant activity for the nine-months ended September 30, 2021 is presented below.
Schedule
of Warrants Activity
|
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (in Years)
|
|
|
Warrants
outstanding at December 31, 2020
|
|
|
28,809,352
|
|
|
$
|
0.1528
|
|
|
|
2.64
|
|
|
Issued
|
|
|
33,432,841
|
|
|
|
0.0200
|
|
|
|
|
|
|
Expired
|
|
|
(8,595
|
)
|
|
|
|
|
|
|
|
|
|
Cancelled
upon exchange
|
|
|
(1,062,500
|
)
|
|
|
0.0700
|
|
|
|
|
|
|
Exercised
- cashless
|
|
|
(1,665,958
|
)
|
|
|
0.0200
|
|
|
|
|
|
|
Warrants
outstanding at September 30, 2021
|
|
|
59,505,140
|
|
|
$
|
0.0721
|
|
|
|
2.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
exercisable at September 30, 2020
|
|
|
28,809,358
|
|
|
$
|
0.1474
|
|
|
|
2.89
|
|
|
Warrants
exercisable at September 30, 2021
|
|
|
59,505,140
|
|
|
$
|
0.0721
|
|
|
|
2.12
|
|
The
exercise prices of common stock warrants outstanding and exercisable are as follows at September 30, 2021:
Schedule
of Exercise Prices of Common Stock Warrants Outstanding and Exercisable
Exercise
Price
|
|
|
Warrants
Outstanding and Exercisable (Shares)
|
|
|
Expiration
Date
|
|
$
|
0.016
|
|
|
|
2,212,500
|
|
|
May
17, 2022
|
|
$
|
0.020
|
|
|
|
31,386,315
|
|
|
March
31, 2026-September
7, 2021
|
|
$
|
0.039
|
|
|
|
208,227
|
|
|
May
10, 2026
|
|
$
|
0.047
|
|
|
|
172,341
|
|
|
May
3, 2026
|
|
$
|
0.070
|
|
|
|
25,377,426
|
|
|
September
30, 2023
|
|
$
|
11.00
-27.50
|
|
|
|
148,331
|
|
|
December
31, 2021-December
30, 2023
|
|
|
|
|
|
|
59,505,140
|
|
|
|
Based
on a value of $0.0230
per share on September 30, 2021, there were 33,598,815
exercisable in-the-money common stock warrants
as of September 30, 2021.
The
exercise prices of common stock warrants outstanding and exercisable at September 30, 2020 ranged from $0.0161
to $79.30
and these warrants were exercisable into an aggregate
of 28,809,358
shares, which warrants have expired or will expire
as applicable, between February
28, 2021 and October 22, 2024.
The
exercise prices of common stock warrants outstanding and exercisable at September 30, 2020 ranged from $0.016 to $79.30
and these warrants were exercisable into an aggregate
of 28,809,358
shares, which warrants have expired or will expire,
as applicable, between February
28, 2021 and October 22, 2024.
Based
on a value of $0.054
per share on September 30, 2020, there were 28,652,426
exercisable in-the-money common stock warrants
as of that date.
Stock
Options
On
March 18, 2014, the stockholders of RespireRx holding a majority of the votes to be cast on the issue approved the adoption of RespireRx’s
2014 Equity, Equity-Linked and Equity Derivative Incentive Plan (the “2014 Plan”), which had been previously adopted by the
Board of Directors, subject to stockholder approval. The Plan permits the grant of options and restricted 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 September
30, 2021, there are 15,757,542
shares available in the 2015 Plan. On July 29,
2021, the Company amended the 2015 Plan to increase the number of shares by an additional 7,000,000
to 22,898,526
shares. The Company has not and does not intend
to present the 2015 Plan to stockholders for approval.
Information
with respect to the Black-Scholes variables used in connection with the evaluation of the fair value of stock-based compensation costs
and fees is provided at Note 3.
A
summary of stock option activity for the six-months ended September 30, 2021 is presented below.
Summary
of Stock Option Activity
|
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in Years)
|
|
|
Options outstanding at December 31, 2020
|
|
|
7,165,215
|
|
|
$
|
1.96
|
|
|
|
4.98
|
|
|
Expired
|
|
|
(53,291
|
)
|
|
|
73.78
|
|
|
|
-
|
|
|
Options outstanding at September 30, 2021
|
|
|
7,111,924
|
|
|
$
|
1.43
|
|
|
|
3.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at September 30, 2021
|
|
|
7,111,924
|
|
|
$
|
1.43
|
|
|
|
3.88
|
|
The
exercise prices of common stock options outstanding and exercisable were as follows at September 30, 2021:
Schedule
of Exercise Prices of Common Stock Options Outstanding and Exercisable
|
Exercise
Price
|
|
|
Options
Outstanding (Shares)
|
|
|
Options
Exercisable (Shares)
|
|
|
Expiration
Date
|
|
$
|
0.0540
|
|
|
|
1,700,000
|
|
|
|
1,700,000
|
|
|
September
30, 2025
|
|
$
|
0.072
|
|
|
|
5,050,000
|
|
|
|
5,050,000
|
|
|
July
31, 2025
|
|
$
|
7.00-$195.00
|
|
|
|
361,924
|
|
|
|
361,924
|
|
|
September
12, 2021 - December
9, 2027
|
|
|
|
|
|
|
7,111,924
|
|
|
|
7,111,924
|
|
|
|
There
was no deferred compensation expense for the outstanding and unvested stock options at September 30, 2021.
Based
on a fair value of $0.023
per share on September 30, 2021, there were no
exercisable in-the-money common stock options as of that date.
Reserved
and Unreserved Shares of Common Stock
As
of September 30, 2021, there are 2,000,000,000
shares of common stock authorized, of which 90,396,596
are issued and outstanding. As of September 30,
2021, there are outstanding options to purchase 7,111,924
shares of common stock and 6,325
and 15,757,542
shares available for issuance under the 2014
Plan and 2015 Plan, respectively. There are 649 Pier contingent shares of common stock that may be issued under certain circumstances.
As of September 30, 2021, there are 40,542,856
shares issuable upon conversion of convertible
notes. As of June 30, 2021, there are 59,505,150
shares that may be issued upon exercise of outstanding
warrants. As of September 30, 2021, the Series B Preferred Stock may convert into 1 share of common stock. Therefore, the Company is
reserving 146,542,854
shares of common stock for future issuances with
respect to conversions and exercises as well as for the Pier contingent shares. In addition, certain convertible notes and related warrants
impose an additional contractual reserve requirement, above the number of shares into which such convertible notes and related warrants
may convert or exercise respectively. Although the Company does not anticipate having to issue such shares, such incremental additional
contractual reserves total 83,949,701
shares of common stock.
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 was a boutique investment banking firm specializing in the life sciences sector that ceased its securities
related activities in April 2021. On May 5, 2021, Aurora filed to withdraw its membership with FINRA and its registration with the SEC
which withdrawal became effective in July 2021. Although Aurora has not provided services to RespireRx during the nine-months ended September
30, 2021 or the fiscal year ended December 31, 2020, Aurora had previously provided services to the Company and there remains $96,000
owed to Aurora by RespireRx which amount is included
in accounts payable and accrued expenses as of September 30, 2021.
A
description of advances and notes payable to officers is provided at Note 4.
8.
Commitments and Contingencies
Pending
or Threatened Legal Action and Claims
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 condensed consolidated financial statements as of September 30, 2021 and 2020
with respect to such matters. See Note 5 for additional items and details.
Significant
Agreements and Contracts
The
Company entered into a consulting contract with David Dickason effective September 15, 2020 pursuant to which Mr. Dickason was appointed
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. The Company recorded but did not pay cash compensation expense pursuant to this agreement of $72,375
for
the nine-months ended September 30, 2021.
See
Note 5 for details of other agreements and contracts.
Employment
Agreements
Timothy
L. Jones, Arnold S. Lippa and Jeff E. Margolis have similar employment agreements. Mr. Jones was appointed as RespireRx’s President
and Chief Executive Officer on May 6, 2020. Dr. Lippa is RespireRx’s Chief Scientific Officer and Executive Chairman and Mr. Margolis
is the Company’s Senior Vice President, Chief Financial Officer, Treasurer and Secretary. Dr. Lippa’s and Mr. Margolis’
employment agreements became effective on August 18, 2015. All three agreements are subject to automatic annual extensions on September
30th of each year beginning with the initial termination date if not earlier terminated, subject to notice in accordance with
the terms of the agreements. Mr. Jones’ initial termination date is September
30, 2023 and Dr. Lippa’s and Mr. Margolis’
agreements are in their automatic extension periods.
The
table below summarized the current cash commitments to each individual through the next September 30th renewal date and in
the case of Mr. Jones, through September 30, 2023.
Summary
of Current Cash Commitments in Employment Agreements
|
|
|
Contract year ending
|
|
|
Contract year ending
|
|
|
|
|
September
30, 2022
|
|
|
September
30, 2023
|
|
|
|
|
Twelve
months
|
|
|
Twelve
months
|
|
|
|
|
Base
|
|
|
|
|
|
Guaranteed
|
|
|
|
|
|
Base
|
|
|
|
|
|
Guaranteed
|
|
|
|
|
|
|
|
Salary
|
|
|
Benefits
|
|
|
Bonus
|
|
|
Total
|
|
|
Salary
|
|
|
Benefits
|
|
|
Bonus
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy L. Jones
|
|
$
|
265,500
|
|
|
$
|
39,600
|
|
|
$
|
300,000
|
|
|
$
|
605,100
|
|
|
$
|
300,000
|
|
|
$
|
39,600
|
|
|
$
|
300,000
|
|
|
$
|
639,600
|
|
|
Arnold S. Lippa
|
|
|
300,000
|
|
|
|
39,600
|
|
|
|
—
|
|
|
|
339,600
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Jeff E. Margolis
|
|
|
300,000
|
|
|
|
21,600
|
|
|
|
—
|
|
|
|
321,600
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
865,500
|
|
|
$
|
100,800
|
|
|
$
|
300,000
|
|
|
$
|
1,266,300
|
|
|
$
|
300,000
|
|
|
$
|
39,600
|
|
|
$
|
300,000
|
|
|
$
|
639,600
|
|
Under
certain circumstances base salaries may be contractually increased or the executives may become eligible for additional benefits and
base salaries may be increased at the discretion of the Board of Directors. All executives are eligible for stock and stock option and
similar grants at the discretion of the Board or Directors.
The
payment of certain amounts reflected in the table above have been voluntarily deferred indefinitely and payments against accrued compensation
may be made based upon the Company’s ability to make such payments.
The
second amendment to the employment agreement of Timothy Jones, the Company’s President and Chief Executive Officer (the “Employment
Agreement”) became effective on September 27, 2021 (“Amendment No. 2”). Mr. Jones is also a director of the Company.
Amendment
No. 2 reduces Mr. Jones’ annual Base Salary from $300,000
to $231,000
from October 1, 2021 through March 31, 2022 and
restores the annual Base Salary to $300,000
on April 1, 2022. Each month commencing on October
1, 2021 and ending on the last day of the month and on a monthly accumulating basis thereafter until March 31, 2022, during which the
Company raises at least $200,000
up to an aggregate amount equal to or greater
than $1,200,000,
the Base Salary must be paid in cash at the rate of $19,250
per month. In addition, the $150,000
guaranteed bonus that would have been due on
September 30, 2021 was adjusted to $0
in accordance with the terms of Amendment No.
2.
After
March 31, 2022, until such time as at least $2,500,000
has been raised, Mr. Jones’ salary
may be accrued and remain unpaid, at the discretion of the Board. In the event that a payment due in accordance with the Amendment No.
2 payment schedule, is not timely paid, and is not cured by payment during the subsequent month inclusive of such subsequent month’s
payment due, Mr.
Jones’s Base Salary will revert back to $300,000 per year, the payment schedule becomes null and void and the adjustment
to a $0 Guaranteed Bonus will also be deemed null and void and a payment of $150,000 will become due and payable as of
the same date that the Base Salary is adjusted to $300,000.
If
$10,000,000
is raised by April 30, 2022, Mr. Jones’
annual Base Salary will be adjusted to $375,000.
Furthermore, if the Board determines that a sufficient amount of funds have been raised or is otherwise available to fund the Company’s
operations on an ongoing basis, some or all of the accrued and unpaid Base Salary or Guaranteed Bonus as described in Amendment No. 2
may be paid in cash.
UWMRF
Patent License Agreement
On
August 1, 2020, the (“Effective Date”), the Company and UWMRF executed the UWMRF Patent License Agreement pursuant to which,
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.
Under
the UWMRF Patent License Agreement, in consideration for the licenses granted, the Company will pay to UWMRF the following: (i) patent
filing and prosecution costs incurred by UWMRF prior to the effective date, paid in yearly installments over three years from the Effective
Date; (ii) annual maintenance fees, beginning on the second anniversary of the Effective Date, which annual maintenance fees terminate
upon the Company’s payment of royalties pursuant to clause (iv) below; (iii) milestone payments, paid upon the occurrence of certain
dosing events of patients during clinical trials and certain approvals by the FDA; and (iv) royalties on net sales of products developed
with the licenses, subject to minimum annual payments and to royalty rate adjustments based on whether separate royalty payments by the
Company yield an aggregate rate beyond a stated threshold. The Company has also granted UWMRF certain stock appreciation rights with
respect to the Company’s neuromodulator programs, subject to certain limitations, and will pay to UWMRF certain percentages of
revenues generated from sublicenses of the licenses provided under the UWMRF Patent License Agreement by the Company to third parties.
University
of Wisconsin-Milwaukee Outreach Services Agreement
On
July 12, 2021, the Company and the Board of Regents of the University of Wisconsin System on behalf of the University of Wisconsin-Milwaukee
(“UWM”) entered into an Outreach Services Agreement pursuant to which UWM agreed to provide, among other molecules, multiple
milligram to gram quantities of KRM-II-81 (GABAkine) and the Company agreed to pay UWM an annual sum of $75,000
payable in three installments of $25,000
each beginning October 12, 2021, which amount
was timely paid, and on a quarterly basis thereafter. The agreement terminates on June
30, 2022 unless extended upon consent of both
parties.
University
of Illinois 2014 Exclusive License Agreement
The
Company and the University of Illinois entered into the Exclusive License Agreement (the “2014 License Agreement”) effective
September 18, 2014, pursuant to which the Company obtained (i) exclusive rights to several issued and pending patents in numerous jurisdictions
and (ii) the non-exclusive right to certain technical information that is generated by the University of Illinois in connection with
certain clinical trials as specified in the 2014 License Agreement, all of which relate to the use of cannabinoids for the treatment
of sleep related breathing disorders. The Company is developing dronabinol (Δ9-tetrahydrocannabinol), a cannabinoid, for the treatment
of OSA, the most common form of sleep apnea.
The
2014 License Agreement provides for various commercialization and reporting requirements 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, 2020, was extended to April
19, 2021 and was paid in full on April
1, 2021. One-time milestone payments may become
due based upon the achievement of certain development milestones. $75,000
will be due within 5 days of any one of the following,
(a) dosing of the first patient with a dronabinol product in a Phase 2 human clinical study anywhere in the world that is not sponsored
by the University of Illinois, (b) dosing of the first patient in a Phase 2 human clinical study anywhere in the world with a low dose
dronabinol (defined as less than or equal to 1 mg), or (c) dosing of the first patient in a Phase 1 human clinical study anywhere in
the world with a proprietary reformulation of dronabinol. $350,000
will be due within five days after the dosing
of the first patient is a Phase III human clinical trial anywhere in the world. $500,000
will be due within five days after the first
NDA filing with FDA or a foreign equivalent. $1,000,000
will be due within twelve months of the first
commercial sale. One-time royalty payments may also become due and payable. Annual royalty payments may also become due. In the year
after the first application for market approval is submitted to the FDA or a foreign equivalent and until approval is obtained, the minimum
annual royalty will increase to $150,000.
In the year after the first market approval is obtained from the FDA or a foreign equivalent and until the first sale of a product, the
minimum annual royalty will increase to $200,000.
In the year after the first commercial sale of a product, the minimum annual royalty will increase to $250,000.
The
Company recorded charges to operations of $25,000
during the three-months ended September 30, 2021
and 2020, respectively, and $75,000
during the nine-months ended September 30, 2021
and 2020, respectively, with respect to its 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, 2021 and
2020. As discussed above, the Company did not pay the amount due on December 31, 2020 for which the Company was granted an extension
until April 19, 2021 and which was paid in full on April 1, 2021.
Noramco
Inc. - Dronabinol Development and Supply Agreement
On
September 4, 2018, RespireRx entered into a dronabinol Development and Supply Agreement with Noramco Inc., one of the world’s major
dronabinol manufacturers, which Noramco subsequently assigned to its subsidiary, Purisys LLC (the “Purisys Agreement”). Under
the terms of the Purisys Agreement, Purisys has agreed to (i) provide all of the active pharmaceutical ingredient (“API”)
estimated to be needed for the clinical development process for both the first- and second-generation products (each a “Product”
and collectively, the “Products”), three validation batches for New Drug Application (“NDA”) filing(s) and adequate
supply for the initial inventory stocking for the wholesale and retail channels, subject to certain limitations, (ii) maintain or file
valid drug master files (“DMFs”) with the FDA or any other regulatory authority and provide the Company with access or a
right of reference letter entitling the Company to make continuing reference to the DMFs during the term of the agreement in connection
with any regulatory filings made with the FDA by the Company, (iii) participate on a development committee, and (iv) make available its
regulatory consultants, collaborate with any regulatory consulting firms engaged by the Company and participate in all FDA or Drug Enforcement
Agency (“DEA”) meetings as appropriate and as related to the API. We now refer to the second-generation product as our proprietary
formulation or proprietary product and have de-emphasized the first-generation product.
In
consideration for these supplies and services, the Company has agreed to purchase exclusively from 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 index adjustments and agreed to Purisys’ 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.
There
was no activity during the three-months ended and nine-months ended September 30, 2021 or 2020 with respect to the Purisys Agreement.
Transactions
with Bausch Health Companies Inc. (formerly known as Biovail Laboratories International SRL)
Beginning
in March 2010, the Company entered into a series of asset purchase and license agreements with Biovail Laboratories International SRL
which later merged with Valeant Pharmaceuticals International, Inc. which was later renamed Bausch Health Companies Inc. (“Bausch”).
In
March 2011, the Company entered into a new agreement with Bausch to reacquire 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 new drug application submissions and approval milestones pertaining to an intravenous dosage form of
the ampakine compounds for respiratory depression, a therapeutic area not currently pursued by the Company. 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 the compounds for respiratory depression.
At
any time following the completion of Phase 1 clinical studies and prior to the end of Phase 2A clinical studies, Bausch retains an option
to co-develop and co-market intravenous dosage forms of an ampakine compound as a treatment for respiratory depression and vaso-occlusive
crises associated with sickle cell disease. In such an event, the Company would be reimbursed for certain development expenses to date
and Bausch would share in all such future development costs with the Company. If Bausch makes the co-marketing election, the Company
would owe no further milestone payments to Bausch and the Company would be eligible to receive a royalty on net sales of the compound
by Bausch or its affiliates and licensees.
There
was no activity during the three-months ended and nine-months ended September 30, 2021 or 2020 that affect the Bausch agreement.
Summary
of Principal Cash Obligations and Commitments
The
following table sets forth the Company’s principal cash obligations and commitments for the next five fiscal years as of September
30, 2021, aggregating $2,166,177. License agreement amounts included in the 2021 column represents amounts contractually due
from October 1, 2021 through December 31, 2021 (three months) and in each of the subsequent years, represents the full year. Employment
agreement amounts included in the 2021 column represent amounts contractually due from October 1, 2021 through September 30, 2022 (twelve
months) and September 30, 2023 in the case of the employment agreement of Timothy Jones, when such contracts expire unless extended pursuant
to the terms of the contracts.
Summary
of Principal Cash Obligations and Commitments
|
|
|
|
|
|
Payments
Due By Year
|
|
|
|
|
Total
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
License agreements
|
|
$
|
520,277
|
|
|
$
|
25,000
|
|
|
$
|
120,092
|
|
|
$
|
140,185
|
|
|
$
|
110,000
|
|
|
$
|
115,000
|
|
|
Research and development contracts
|
|
|
50,000
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Employment
agreements (1)
|
|
|
1,605,900
|
|
|
|
232,950
|
|
|
|
1,118,250
|
|
|
|
254,700
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
$
|
2,166,177
|
|
|
$
|
257,950
|
|
|
$
|
1,288,342
|
|
|
$
|
394,885
|
|
|
$
|
110,000
|
|
|
$
|
115,000
|
|
|
(1)
|
The
payment of certain of such amounts has been deferred indefinitely, as described above in “Employment Agreements”.
|
9.
Subsequent Events
Amendment
to Mr. Jones’ Employment Agreement
See
Note 8. Commitments and Contingencies – Significant Agreements and Contracts – Employment Agreements for a description
of Amendment No. 2 of Mr. Jones’ employment agreement.
Filing
of Form 1-A
On
October 12, 2021, the Company filed amendment number one to its Form 1-A which had previously been filed on August 9,
2021 with the SEC with respect to a contemplated Tier 2 offering under Regulation A. The Form 1-A and preliminary offering
circular contained therein is subject to further amendment. No securities may be offered prior to qualification of the offering
by the Securities and Exchange Commission or in any jurisdiction in which such offer, solicitation or sale of securities would be unlawful
before registration or qualification under the laws of such jurisdiction.
Convertible
Note and Related Transactions
On
October 7, 2021, the Company and Dariusz Nasiek and Sara Nasiek JTTEN (the “Nasieks”) entered into a Securities Purchase
Agreement (the “Nasiek SPA”) pursuant to which the Nasieks provided a sum of $103,500
(the “Nasiek Consideration”) to the
Company in return for a convertible promissory note (the “Nasiek Note”) with a face amount of $115,000
(which difference in value as compared to the
Nasiek Consideration is due to an original issue discount of $11,500),
and a common stock purchase warrant (the “Nasiek Warrant”) exercisable for five years at an exercise price of $0.02
per share on a cash or cashless basis, to purchase
up to 5,750,000
shares of the Company’s common stock, par
value $0.001.
In addition, and to induce the Nasieks to enter into the Nasiek SPA, the Company and the Nasieks entered into a Piggy-Back Registration
Rights Agreement (the “Nasiek Registration Rights Agreement”) under which the Company has agreed to provide certain piggy-back
registration rights under the Securities Act of 1933, as amended with respect to the common stock issuable pursuant to the Nasiek SPA.
The
Note obligates the Company to pay by October 7, 2022 (the “Nasiek Maturity Date”) a principal amount of $115,000
together with interest at a rate equal to 10%
per annum. The first twelve months of interest,
equal to $11,500,
is guaranteed and earned in full as of the effective date. Any
amount of principal or interest that is not paid by the Nasiek Maturity Date would bear interest at the rate of 24% from the Nasiek Maturity
Date to the date it is paid.
The
Nasieks have the right, in their discretion, at any time, to convert any outstanding and unpaid amount of the Nasiek Note into shares
of common stock, provided that the conversion would not result in the Nasieks beneficially owning more than 4.99% of the Company’s
then outstanding common stock. The Nasieks may convert at a per share conversion price equal to $0.02, subject to equitable adjustments
for stock splits, stock dividends, combinations, recapitalizations, extraordinary distributions and similar events. Upon any conversion,
all rights with respect to the portion of the Nasiek Note being so converted will terminate, except for the right to receive common stock
or other securities, cash or other assets as provided for in the Nasiek Note.
The
Company may, in the absence of an event of default, and with prior written notice to the Nasieks, prepay the outstanding principal amount
under the Nasiek Note during the initial 180 day period after the effective date by making a payment to the Nasieks of an amount in cash
equal to 115% of the outstanding principal, interest, default interest and other amounts owed. Under certain circumstances, including
the occurrence of an event of default, a sale, merger or other business combination where the Company is not the survivor, or the conveyance
or disposition of all or substantially all of the assets of the Company, the Company may be required to prepay in cash an amount equal
to 125% of the outstanding principal, interest, default interest and other amounts owed. The Company’s wholly owned subsidiary,
Pier Pharmaceuticals, Inc., provided an unlimited guarantee of the Company’s obligations under the Nasiek Note.
The
Nasiek Note requires that the Company reserve the greater of (i) 8,625,000
shares of Common Stock or (ii) one and a half
times the number of shares into which the Nasiek Note may convert. The Nasiek Warrant requires that the Company reserve three times the
number of shares into which the Nasiek Warrant is at any time exercisable.
The
Nasiek SPA includes, among other things: (1) the grant of an option to the Nasieks to incorporate into the Nasiek Note any terms applicable
to a subsequent issuance of a convertible note or security by the Company that are more beneficial to an investor than the terms of the
Nasiek SPA and Nasiek Note are to the Nasieks; and (2) certain registration rights by reference to the Nasiek Registration Rights Agreement,
and the right to have any shares of common stock issued in connection with the conversion of the Nasiek Note or exercise of the Nasiek
Warrant included in any Regulation A offering statement that the Company files with the Securities and Exchange Commission.
Partial Conversion
of Convertible Note
On
November 8, 2021, the Company received a notice of conversion with respect to a convertible note with a maturity date of November 17,
2021, pursuant to which the holder converted $80,000 of the $112,000 principal amount of the note into 4,000,000 shares of common stock
which were issued by the Company. There remains $32,000 of principal amount plus accrued interest on that convertible note.
Cashless
Warrant Exercise
On
November 8, 2021, the Company received a partial cashless exercise notice with respect to a portion of a warrant which portion of
such warrant would have been exercisable into 1,534,042
shares of common stock if exercised for cash. Pursuant
to the cashless exercise, the Company issued 511,347
shares of common stock and cancelled a portion of the warrant with respect to 1,534,042 shares of common stock. The Company did not
receive any proceeds from the cashless exercise.