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 June 30, 2021 and for the three-months and six-months ended June 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 as of June 30, 2021, the results of its condensed consolidated operations
for the three-months and six-months ended June 30, 2021 and 2020, changes in its condensed consolidated statements of stockholders’
deficiency for the three-months and six-months ended June 30, 2021 and 2020 and its condensed consolidated cash flows for the six-months
ended June 30, 2021 and 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 at December 31, 2020 (“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
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 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 OTCQB listing, and low market capitalization as a result of our low
stock price.
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 $812,214
and $1,662,463
for the three-months and six-months ended
June 30, 2021, respectively, and $4,301,211
for the fiscal year ended December 31, 2020, as well as negative
operating cash flows of $688,571
for the six-months ended June 30, 2021 and
$513,001
for the fiscal year ended December 31, 2020. The Company also
had a stockholders’ deficiency of $8,816,881
at June 30, 2021 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, 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 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 amortized to the Company’s consolidated statement of operations for each reporting period.
Stock-Based
Awards
The
Company periodically issues common stock and stock options to officers, directors, Scientific Advisory Board members, consultants and
vendors for services rendered. Such issuances vest and expire according to terms established at the issuance date of each grant.
The
Company accounts for stock-based payments to officers, directors, outside consultants and vendors by measuring the cost of services received
in exchange for equity awards based on the grant date 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 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.
There
were no stock or stock option grants during the six-months ended June 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 six-months ended June 30, 2021 and 2020,
respectively.
There
were warrants to purchase 380,568
shares of common stock issued as compensation
or for services during the six-months ended June 30, 2021 and none
during the six-months ended June 30, 2020. Warrants,
if issued for services, are typically issued to placement agents or brokers for fund raising services. In addition warrants to purchase
11,256,333
shares of common stock were issued during
the six-months ended June 30, 2021 to lenders 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 June 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 June 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
June 30, 2021 and 2020 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.
Schedule of Anti-dilutive Securities Excluded from Computation of Earnings Per Share
|
|
|
June
30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Series B convertible preferred
stock
|
|
|
1
|
|
|
|
1
|
|
|
Convertible notes payable
|
|
|
33,623,313
|
|
|
|
5,557,827
|
|
|
Common stock warrants
|
|
|
38,633,473
|
|
|
|
12,451,465
|
|
|
Common stock options
|
|
|
7,112,907
|
|
|
|
418,863
|
|
|
Total
|
|
|
79,369,694
|
|
|
|
18,428,156
|
|
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. Management is currently evaluating the impact the guidance will have on our consolidated financial statements.
4.
Notes Payable
Convertible
Notes Payable
On
April 1, 2021, May 3, 2021, May 10, 2021 and June 30, 2021, the Company closed on financings, pursuant to which,
four convertible notes were issued to three separate investors, due in each case, one year from the effective date (which
for the first, second and fourth closings was March 31, 2021, April 30, 2021 and June 29, 2021, respectively),
with maturity amounts of $112,500, $150,000, $150,000 and
$115,000, respectively.
In addition, the noteholders received as consideration, warrants to purchase 2,400,000, 3,200,000, 3,200,000 and 2,453,333 shares
of common stock, respectively, each exercisable at $0.02 per
share for five years. The Company received net proceeds of $96,750, $123,400, $123,400 and
$100,000 respectively,
for an aggregate of $443,550. The
difference between the maturity amounts and the net proceeds were due to original issue discounts, investor legal fees and in two
cases, broker fees. The four 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, during the six-months
ended June 30, 2021, there were eight 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 two 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 June 30, 2021 and the repayments
by conversion during the six-months ended June 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 June 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
|
|
$
|
40,000
|
|
|
|
8.00
|
%
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,368
|
|
|
$
|
(25,000
|
)
|
|
$
|
17,368
|
|
|
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
|
)
|
|
$
|
16,531
|
|
|
$
|
5,386
|
|
|
$
|
-
|
|
|
$
|
59,251
|
|
|
April 1, 2021
|
|
March 31, 2022
|
|
$
|
112,500
|
|
|
|
10.00
|
%
|
|
$
|
(112,500
|
)
|
|
$
|
28,048
|
|
|
$
|
2,805
|
|
|
$
|
-
|
|
|
$
|
30,853
|
|
|
May 3, 2021
|
|
April 30, 2022
|
|
$
|
150,000
|
|
|
|
10.00
|
%
|
|
$
|
(150,000
|
)
|
|
$
|
25,068
|
|
|
$
|
2,507
|
|
|
$
|
-
|
|
|
$
|
27,575
|
|
|
May 10, 2021
|
|
May 10, 2022
|
|
$
|
150,000
|
|
|
|
10.00
|
%
|
|
$
|
(150,000
|
)
|
|
$
|
20,959
|
|
|
$
|
2,096
|
|
|
$
|
-
|
|
|
$
|
23,055
|
|
|
June 30, 2021
|
|
June 29, 2022
|
|
$
|
115,000
|
|
|
|
10.00
|
%
|
|
$
|
(115,000
|
)
|
|
$
|
315
|
|
|
$
|
32
|
|
|
$
|
-
|
|
|
$
|
347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
892,000
|
|
|
|
|
|
|
$
|
(711,701
|
)
|
|
$
|
163,122
|
|
|
$
|
26,205
|
|
|
$
|
(248,511
|
)
|
|
$
|
158,449
|
|
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 June 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. See
Note 9 for additional information.
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 $9,321
as of June 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 June 30, 2021 and December 31, 2020:
Schedule of Convertible Notes Payable
|
|
|
June
30, 2021
|
|
|
December
31, 2020
|
|
|
Principal amount of notes payable
|
|
$
|
75,000
|
|
|
$
|
75,000
|
|
|
Accrued interest payable
|
|
|
71,256
|
|
|
|
64,357
|
|
|
Foreign
currency transaction adjustment
|
|
|
|
|
|
|
|
|
|
Total
note payable
|
|
$
|
146,256
|
|
|
$
|
139,357
|
|
As
of June 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 $51,111, of which $26,111 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 June 30, 2021 all of the outstanding Original Convertible Notes, inclusive of accrued interest, were convertible into an aggregate
of 1,286 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 six-months ended June 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 June 30, 2021 and December 31, 2020:
Schedule of Convertible Notes Payable
|
|
|
June
30, 2021
|
|
|
December
31, 2020
|
|
|
Principal
amount of note payable
|
|
$
|
399,774
|
|
|
$
|
399,774
|
|
|
Accrued
interest payable
|
|
|
435,174
|
|
|
|
411,384
|
|
|
Foreign
currency transaction adjustment
|
|
|
21,138
|
|
|
|
53,393
|
|
|
Total
note payable
|
|
$
|
856,086
|
|
|
$
|
864,551
|
|
Interest
expense with respect to this promissory note was $23,789
and $23,921
for the six-months ended June 30, 2021 and
2020, respectively, and $11,960
for the three-months ended June 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: $3,062 and $2,817 for
the three-months ended June 30, 2021 and 2020, respectively, and $ 6,097 and $5,633 for the six-months ended June
30, 2021 and 2020, respectively.
The following amounts
were charged to interest expense with respect to notes
payable to Dr. James S. Manuso: $4,651 and $4,228 for the three-months ended June 30, 2021 and 2020, respectively, and $9,252 and
$8,439 for the six-months ended June 30, 2021 and 2020, respectively.
As
of September 30, 2018, Dr. James S. Manuso resigned as executive officer in all capacities and as a member of the board of directors
of RespireRx (the “Board of Directors”).
Other
Short-Term Notes Payable
Other
short-term notes payable at June 30, 2021 and December 31, 2020 consisted of premium financing agreements with respect to various insurance
policies. At June 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 June 30, 2021 and December 31, 2020, the aggregate amount of the short-term notes payable was
$71,060
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 $83,859
as of June 30, 2021 after payments totaling
$20,000
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 June 30, 2021 and December 31, 2020, including accrued interest at 4.5% annually from February 26, 2018, the date of the judgment, through June 30, 2021, totaling $27,954. The
Company had previously entered into a settlement agreement with Salamandra that is no longer in effect. RespireRx 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, RespireRx 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 as of June 30, 2021. 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 RespireRx 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 payment due on July 1, 2021 was timely paid.
The
due date of the $100,000 annual amount payable to the University of Illinois 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 June 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 June 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 June 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 June 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 June 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 June 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 1,821,470,177
shares of the Company’s common stock
available for future issuances as of June 30, 2021. After accounting for incremental excess reserves contractually required by the
various convertible notes and certain warrants, there were 1,744,916,143,
shares of common stock available for future issuances as of June 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 six-months ended June 30,
2021. No options were exercised during the six-months ended June 30, 2021. No warrants or options were exercised after June 30, 2021.
Common
Stock Warrants
A
summary of warrant activity for the six-months ended June 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
|
|
|
12,561,174
|
|
|
|
0.02
|
|
|
|
|
|
|
Expired
|
|
|
(8,595
|
)
|
|
|
|
|
|
|
|
|
|
Cancelled upon exchange
|
|
|
(1,062,500
|
)
|
|
|
0.07
|
|
|
|
|
|
|
Exercised
|
|
|
(1,665,958
|
)
|
|
|
0.02
|
|
|
|
|
|
|
Warrants outstanding at June 30, 2021
|
|
|
38,633,473
|
|
|
$
|
0.1002
|
|
|
|
1.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable at June 30, 2020
|
|
|
12,451,465
|
|
|
$
|
0.3272
|
|
|
|
3.79
|
|
|
Warrants exercisable at June 30, 2021
|
|
|
38,633,473
|
|
|
$
|
0.1002
|
|
|
|
1.78
|
|
The
exercise prices of common stock warrants outstanding and exercisable are as follows at June 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
|
|
|
|
10,514,648
|
|
|
March 31, 2026-June 30, 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
|
|
|
|
|
|
|
38,633,473
|
|
|
|
Based
on a value of $0.0365 per share on June 30, 2021, there were 12,727,148 exercisable in-the-money common stock warrants as of June 30,
2021.
A
summary of warrant activity for the six-months ended June 30, 2020 is presented below.
The
exercise prices of common stock warrants outstanding and exercisable at June 30, 2020 ranged from $0.01485
to $79.30
and these
warrants were exercisable into an aggregate of 12,451,465
shares,
which warrants have expired or will expire, as applicable, between February
28, 2021 and October 22, 2024.
Based
on a value of $0.064 per
share on June 30, 2020, there were 12,269,098 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 June
30, 2021, there are 8,756,559
shares available in the 2015 Plan. 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 June 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
|
|
|
(52,308
|
)
|
|
|
73.78
|
|
|
|
-
|
|
|
Options outstanding at June 30, 2021
|
|
|
7,112,907
|
|
|
$
|
1.43
|
|
|
|
4.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 30, 2021
|
|
|
7,062,907
|
|
|
$
|
1.44
|
|
|
|
4.13
|
|
The
exercise prices of common stock options outstanding and exercisable were as follows at June 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
|
|
|
|
1,650,000
|
|
|
September 30, 2025
|
|
$
|
0.072
|
|
|
|
5,050,000
|
|
|
|
5,050,000
|
|
|
July 31, 2025
|
|
$
|
7.00-$195.00
|
|
|
|
362,907
|
|
|
|
362,907
|
|
|
September 12, 2021
- December 9, 2027
|
|
|
|
|
|
|
7,112,907
|
|
|
|
7,062,907
|
|
|
|
There
was no deferred compensation expense for the outstanding and unvested stock options at June 30, 2021.
Based
on a fair value of $0.0365
per share on June 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 June 30, 2021, there are 2,000,000,000
shares of common stock authorized, of which 90,396,596
are issued and outstanding. As of June 30, 2021,
there are outstanding options to purchase 7,112,907
share of common stock and 6,325
and 8,756,559
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 June 30, 2021, there are 33,623,313
shares
issuable upon conversion of convertible notes. As of June 30, 2021, there are 38,633,473
shares that may be issued upon exercise of outstanding
warrants. As of June 30, 2021, the Series B Preferred Stock may convert into 1 share of common stock. Therefore, the Company is
reserving 88,133,227
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 76,554,034
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 six-months ended June 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 June 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 June 30, 2021 and 2020 with
respect to such matters. See Note 5 for additional items and details.
On
April 29, 2021, RespireRx 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 as of June 30, 2021. 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 RespireRx 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 payment due on July 1, 2021 was
timely paid.
Significant
Agreements and Contracts
Consulting
Agreements
Richard
Purcell, the Company’s Senior Vice President of Research and Development on at-will basis since October 15, 2014, provides his
services to the Company on a month-to-month basis through his consulting firm, DNA Healthlink, Inc. (“DNA Healthlink”), through
which the Company has contracted for his services for a monthly cash fee of $12,500.
Cash compensation expense pursuant to this agreement totaled $0
and $37,500
for the three-months ended June 30, 2021
and 2020, respectively, and $0
and $75,000
for the six-months ended June 30, 2021 and
2020, respectively, which is included in research and development expenses in the Company’s condensed consolidated statements of operations
for such periods. Mr.
Purcell provided services to the Company through DNA Healthlink at a rate of $250 per hour and
totaled $5,000
during the three-months and six-months ended
June 30, 2021, respectively. Mr. Purcell and the Company are in discussions intended to amend the contract with DNA Healthlink to define
going-forward services to be provided to the Company and establish a rate therefore and to establish a payment schedule for amounts due
to DNA Healthlink currently recorded in accounts payable.
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. The Company recorded, but did not pay cash compensation expense pursuant to this agreement of $72,375 for the six-months ended June 30, 2021.
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
|
|
|
Contract year ending
|
|
|
|
|
September
30, 2021
|
|
|
September
30, 2022
|
|
|
September
30, 2023
|
|
|
|
|
Three
months
|
|
|
Twelve
months
|
|
|
Twelve
months
|
|
|
|
|
Base
|
|
|
|
|
|
Guaranteed
|
|
|
|
|
|
Base
|
|
|
|
|
|
Guaranteed
|
|
|
|
|
|
Base
|
|
|
|
|
|
Guaranteed
|
|
|
|
|
|
|
|
Salary
|
|
|
Benefits
|
|
|
Bonus
|
|
|
Total
|
|
|
Salary
|
|
|
Benefits
|
|
|
Bonus
|
|
|
Total
|
|
|
Salary
|
|
|
Benefits
|
|
|
Bonus
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy L. Jones
|
|
$
|
75,000
|
|
|
$
|
9,900
|
|
|
$
|
150,000
|
|
|
$
|
234,900
|
|
|
$
|
300,000
|
|
|
$
|
39,600
|
|
|
$
|
300,000
|
|
|
$
|
639,600
|
|
|
$
|
300,000
|
|
|
$
|
39,600
|
|
|
$
|
300,000
|
|
|
$
|
639,600
|
|
|
Arnold S. Lippa
|
|
|
75,000
|
|
|
|
9,900
|
|
|
|
-
|
|
|
|
84,900
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Jeff E. Margolis
|
|
|
75,000
|
|
|
|
5,400
|
|
|
|
—
|
|
|
|
80,400
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
225,000
|
|
|
$
|
25,200
|
|
|
$
|
150,000
|
|
|
$
|
400,200
|
|
|
$
|
300,000
|
|
|
$
|
39,600
|
|
|
$
|
300,000
|
|
|
$
|
639,600
|
|
|
$
|
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.
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 and on a
quarterly basis thereafter. The agreement terminates on June
30, 2022 unless extended upon consent of both
parties. See Note 9 for additional information.
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.
$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 June 30, 2021 and 2020, respectively, and
$50,000
during the six-months ended June 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 six-months ended June 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.
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 six-months ended June 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 June
30, 2021, aggregating $2,179,870. License
agreement amounts included in the 2021 column represents amounts contractually due from July 1, 2021 through December 31, 2021 (six
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 July 1, 2021 through September 30, 2021 (three months) 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
|
|
$
|
585,370
|
|
|
$
|
75,000
|
|
|
$
|
165,092
|
|
|
$
|
115,093
|
|
|
$
|
130,185
|
|
|
$
|
100,000
|
|
|
Employment agreements
(1)
|
|
|
1,594,500
|
|
|
|
400,200
|
|
|
|
639,600
|
|
|
|
554,700
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
$
|
2,179,870
|
|
|
$
|
475,200
|
|
|
$
|
804,692
|
|
|
$
|
669,793
|
|
|
$
|
130,185
|
|
|
$
|
100,000
|
|
|
(1)
|
The payment of certain of such amounts has been deferred indefinitely, as described above in “Employment Agreements”.
|
9.
Subsequent Events
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 and on a
quarterly basis thereafter. The agreement terminates on June
30, 2022 unless extended upon consent of both
parties.
Amendment
to Convertible Note
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.
Filing of Form 1-A
On
August 9, 2021, the Company filed a Form 1-A Preliminary Offering Statement under Regulation A of the Securities Act with
respect to a contemplated Tier 2 offering that may continue for a two-year period. No offering of securities may be made
until and unless the offering is qualified by the SEC. The proposed offering is for up to 250,000,000 shares
of common stock at a per share offering price of between $0.02 to
$0.03, with
the exact share price to be set forth by supplement to the Offering Statement, and with gross proceeds not to exceed $7,500,000.
On August 12, 2021, the Company received a letter from the SEC informing us that it does not intend to review the Offering
Statement, and that upon satisfaction of certain conditions, it will consider qualifying the Offering Statement at the
Company’s request.
