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 with the
Secretary of State of the State of Delaware to amend its Second Restated Certificate of Incorporation to change its name from
Cortex Pharmaceuticals, Inc. to RespireRx Pharmaceuticals Inc. While developing potential applications for respiratory disorders,
notably dronabinol, a cannabinoid, for the treatment of obstructive sleep apnea as discussed in further detail below, RespireRx
has retained and expanded its ampakine intellectual property and data with respect to neurological and psychiatric disorders and
is considering developing certain potential products in this platform, subject to raising additional financing and/or strategic
relationships, of which no assurance can be provided. On March 2, 2020, RespireRx entered into an option agreement between
the Company and the UWM Research Foundation, Inc. (“UWMRF”), an affiliate of the University of Wisconsin-Milwaukee
(the “UWMRF Option Agreement”), to license the intellectual property associated with a program involving positive
allosteric modulators (“PAMs”) of the gamma-amino-butyric acid type A (“GABA-A”) receptors. Together,
the ampakine program and the GABA-A program will be the foundation of a neuromodulator program that the Company is currently calling
Project Endeavor.
In
August 2012, RespireRx acquired Pier Pharmaceuticals, Inc. (“Pier”), which is now its wholly-owned subsidiary.
Basis
of Presentation
The
condensed consolidated financial statements are of RespireRx and its wholly-owned subsidiary, Pier (collectively referred to herein
as the “Company,” “we” or “our,” unless the context indicates otherwise). The condensed consolidated
financial statements of the Company at March 31, 2020 and for the three-months ended March 31, 2020 and 2019,
are unaudited. In the opinion of management, all adjustments (including normal recurring adjustments) have been made that
are necessary to present fairly the condensed consolidated financial position of the Company as of March 31, 2020, the
results of its condensed consolidated operations for the three-months ended March 31, 2020 and 2019, changes in
its condensed consolidated statements of stockholders’ deficiency for the three-months ended March 31, 2020 and 2019
and its condensed consolidated cash flows for the three-months ended March 31, 2020 and 2019. Condensed consolidated
operating results for the interim periods presented are not necessarily indicative of the results to be expected for a full fiscal
year. The consolidated balance sheet at December 31, 2019 has been derived from the Company’s audited consolidated
financial statements at such date.
The
condensed consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission (the “SEC”). Accordingly, certain information and note disclosures normally included
in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such
rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial
statements and other information included in the Company’s Annual Report on Form 10-K for the fiscal year ended December
31, 2019, as filed with the SEC.
2.
Business
The
mission of the Company is to develop innovative and revolutionary treatments to combat disorders caused by disruption of neuronal
signaling. We are developing treatment options that address conditions that affect millions of people, but for which there are
few or poor treatment options, including obstructive sleep apnea (“OSA”), attention deficit hyperactivity disorder
(“ADHD”) and recovery from spinal cord injury (“SCI”), as well as certain neurological orphan diseases
such as Fragile X Syndrome (“FXS”). We are developing a pipeline of new drug products based on our broad patent portfolios
for two drug platforms: (i) cannabinoids, including dronabinol (a synthetic form of ∆9-tetrahydrocannabinol (“Δ9-THC”))
that act upon the nervous system’s endogenous cannabinoid receptors and (ii) neuromodulators, which under Project Endeavor,
include (a) ampakines, proprietary compounds that positively modulate AMPA-type glutamate receptors to promote neuronal function
and (b) PAMs of GABA-A receptors that are the subject of the UWMRF Option Agreement.
Cannabinoids
With
respect to the cannabinoid platform, two Phase 2 clinical trials have been completed demonstrating the ability of dronabinol to
statistically significantly reduce the symptoms of OSA, which management believes is potentially a multi-billion-dollar market.
Subject to raising sufficient financing (of which no assurance can be provided), we believe that we have put most of the necessary
pieces into place to rapidly initiate a Phase 3 clinical trial program. By way of definition, when a new drug is allowed by the
United States Food and Drug Administration (“FDA”) to be tested in humans, Phase 1 clinical trials are conducted in
healthy people to determine safety and pharmacokinetics. If successful, Phase 2 clinical trials are conducted in patients to determine
safety and preliminary efficacy. Phase 3 trials, large scale studies to determine efficacy and safety, are the final step prior
to seeking FDA approval to market a drug.
With
the cannabinoid platform, we plan to create a wholly-owned private subsidiary of RespireRx (“Newco”, official name
not yet determined) with its own management team and board of directors.
Neuromodulators
– Project Endeavor - Ampakines and GABA-A
Neurotransmitters
are chemicals released by neurons that enable neurons to communicate
with one another. This process is called neurotransmission. Neurons release neurotransmitters that attach to a very specific protein
structure, termed a receptor, residing on an adjacent neuron. This neurotransmission process can either increase or decrease the
excitability of the neuron receiving the message.
Neuromodulators
do not act directly at the neurotransmitter binding site, but instead act at accessory sites that enhance (Positive Allosteric
Modulators – “PAMs”) or reduce (Negative Allosteric Modulators – “NAMs”) the actions of neurotransmitters
at their primary receptor sites. Neuromodulators have no intrinsic activity of their own. We believe that neuromodulators offer
the possibility of developing “kinder and gentler” neuropharmacological drugs with greater pharmacological specificity
and reduced side effects compared to present drugs, especially in disorders for which there is a significant unmet or poorly met
clinical need such as ADHD”, SCI, Autism Spectrum Disorder (“ASD”), FXS and CNS-driven disorders. We
are focused presently on developing drugs that act as PAMs at the AMPA and GABA-A receptors.
Building
upon our ampakine platform as a foundation, we also are planning the establishment of a second business unit, which we now call
collectively with the ampakines, Project Endeavor, that will focus on developing novel neuromodulators for disorders due to alterations
in neurotransmission.
Through
an extensive ampakine translational research effort from the cellular level through Phase 2 clinical trials, the Company has developed
a family of novel, low impact ampakines, including CX717, CX1739 and CX1942 that may have clinical application in the treatment
of CNS-driven neurobehavioral and cognitive disorders, spinal cord injury, neurological diseases, and certain orphan indications.
From our ampakine platform, our lead clinical compounds, CX717 and CX1739, have successfully completed multiple Phase 1 safety
trials. Both compounds have also completed Phase 2 efficacy trials demonstrating target engagement, by antagonizing the ability
of opioids to induce respiratory depression. CX717 has successfully completed a Phase 2 trial demonstrating the ability to statistically
significantly reduce the symptoms of adult ADHD. In an early Phase 2 study, CX1739 improved breathing in patients with central
sleep apnea. Preclinical studies have highlighted the potential ability of these ampakines to improve motor function in animals
with spinal injury. Subject to raising sufficient financing (of which no assurance can be provided), we believe that we will be
able to rapidly initiate a human Phase 2 study with CX1739 and/or CX717 in patients with spinal cord injury and a human Phase
2B study in patients with ADHD with either CX717 or CX1739.
In
order to expand the asset base of Project Endeavor, we have entered into an option agreement with UWMRF whereby RespireRx has
a six-month option commencing on March 2, 2020, to license certain intellectual property regarding chemical compounds that act
as PAMs at receptors for GABA-A, a major inhibitory transmitter in the brain.
Certain
of these compounds have shown impressive activity in a broad range of animal models of refractory/resistant epilepsy and other
convulsant disorders, as well as in brain tissue samples obtained from epileptic patients in research conducted at the University
of Wisconsin-Milwaukee by Drs. James Cook and Jeffrey Witkin among others and at collaborating institutions. Epilepsy is a chronic
and highly prevalent neurological disorder that affects millions of people world-wide. While many anticonvulsant drugs have been
approved to decrease seizure probability, seizures are not well controlled and, in as many as 60-70% of patients, existing drugs
are not efficacious at some point in the disease progression. We believe that the medical and patient community are in clear agreement
that there is desperate need for improved antiepileptic drugs. In addition, these compounds have shown positive activity in animal
models of migraine, inflammatory and neuropathic pain, as well as other areas of interest. Because of their GABA receptor subunit
specificity, the compounds have a greatly reduced liability to produce sedation, motor incoordination, memory impairments and
tolerance, side effects commonly associated with non-specific GABA PAMs, such as benzodiazepines.
Financing
our Platforms
Our
major challenge has been to raise substantial equity or equity-linked financing to support research and development programs for
our two drug 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, limited float and low market capitalization as a result
of our low stock price. For this reason, the Company is considering an internal restructuring plan that contemplates spinning
out our two drug platforms into separate operating businesses.
We
believe that by creating Newco and Project Endeavor, it may be possible, through separate finance channels, to optimize the asset
values of both the cannabinoid platform and the neuromodulator platform.
Going
Concern
The
Company’s condensed consolidated financial statements have been presented on the basis that it is a going concern, which
contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred
net losses of $946,718 for the three-months ended March 31, 2020 and $2,115,033 for the fiscal year ended December 31, 2019, as
well as negative operating cash flows of $17,859 for the three-months ended March 31, 2020 and $487,745 for the fiscal
year ended December 31, 2019. The Company also had a stockholders’ deficiency of $7,451,419 at March 31, 2020 and expects
to continue to incur net losses and negative operating cash flows for at least the next few years. As a result, management has
concluded that there is substantial doubt about the Company’s ability to continue as a going concern, and the Company’s
independent registered public accounting firm, in its report on the Company’s consolidated financial statements for the
year ended December 31, 2019, expressed substantial doubt about the Company’s ability to continue as a going concern.
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 assurances that the Company will be able to secure additional financing
in the amounts necessary to fully fund its operating and debt service requirements. If the Company is unable to access sufficient
cash resources, the Company may be forced to discontinue its operations entirely and liquidate.
3.
Summary of Significant Accounting Policies
Principles
of Consolidation
The
accompanying condensed consolidated financial statements are prepared in accordance with United States generally accepted accounting
principles (“GAAP”) and include the financial statements of RespireRx and its wholly-owned subsidiary, Pier. Intercompany
balances and transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates
and assumptions affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates
include, among other things, accounting for potential liabilities, and the assumptions used in valuing stock-based compensation
issued for services. Actual amounts may differ from those estimates.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents.
The Company limits its exposure to credit risk by investing its cash with high quality financial institutions. The Company’s
cash balances may periodically exceed federally insured limits. The Company has not experienced a loss in such accounts to date.
Value
of Financial Instruments
The
authoritative guidance with respect to value of financial instruments established a value hierarchy that prioritizes the inputs
to valuation techniques used to measure value into three levels and requires that assets and liabilities carried at value be classified
and disclosed in one of three categories, as presented below. Disclosure as to transfers into and out of Levels 1 and 2, and activity
in Level 3 value measurements, is also required.
Level
1. Observable inputs such as quoted prices in active markets for an identical asset or liability that the Company has the ability
to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active-exchange traded
securities and exchange-based derivatives.
Level
2. Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly
observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include
fixed income securities, non-exchange based derivatives, mutual funds, and fair-value hedges.
Level
3. Unobservable inputs in which there is little or no market data for the asset or liability which requires the reporting entity
to develop its own assumptions. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded, non-exchange-based
derivatives and commingled investment funds, and are measured using present value pricing models.
The
Company determines the level in the value hierarchy within which each value measurement falls in its entirety, based on the lowest
level input that is significant to the value measurement in its entirety. In determining the appropriate levels, the Company performs
an analysis of the assets and liabilities at each reporting period end.
The
carrying amounts of financial instruments (consisting of cash, cash equivalents, and accounts payable and accrued expenses) are
considered by the Company to be representative of the respective values of these instruments due to the short-term nature of those
instruments. With respect to the note payable to SY Corporation (as defined below) and the convertible notes payable, management
does not believe that the credit markets have materially changed for these types of borrowings since the original borrowing date.
The Company considers the carrying amounts of the notes payable to officers, inclusive of accrued interest, to be representative
of the respective values of such instruments due to the short-term nature of those instruments and their terms.
Deferred
Financing Costs
Costs
incurred in connection with ongoing debt and equity financings, including legal fees, are deferred until the related financing
is either completed or abandoned.
Costs
related to abandoned debt or equity financings are charged to operations in the period of abandonment. Costs related to completed
equity financings are netted against the proceeds.
Capitalized
Financing Costs
The
Company presents debt issuance costs related to debt obligations in its consolidated balance sheet as a direct deduction
from the carrying amount of that debt obligation, consistent with the presentation for debt discounts.
Convertible
Notes Payable
Convertible
notes are evaluated to determine if they should be recorded at amortized cost. To the extent that there are associated warrants
or a beneficial conversion feature, the convertible notes and warrants are evaluated to determine if there are embedded derivatives
to be identified, bifurcated and valued in connection with and at the time of such financing.
Notes
Exchanges
In
cases where debt or other liabilities are exchanged for equity, the Company compares the carrying value of debt, inclusive of
accrued interest, if applicable, being exchanged, to the value of the equity issued and records any loss or gain as a result of
such exchange. See Note 4. Notes Payable.
Extinguishment
of Debt and Settlement of Liabilities
The
Company accounts for the extinguishment of debt and settlement of liabilities by comparing the carrying value of the debt
or liability to the value of consideration paid or assets given up and recognizing a loss or gain in the condensed consolidated
statement of operations in the amount of the difference in the period in which such transaction occurs.
Prepaid
Insurance
Prepaid
insurance represents the premium paid in March 2020 for directors and officers insurance, as well as the amortized amount
of an April 2019 premium payment for office-related insurances and clinical trial coverage. Directors’ and officers’
insurance tail coverage, purchased in March 2013 expired in March 2020 and all prepaid amounts have been fully amortized. The
amounts of prepaid insurance amortizable in the ensuing twelve-month period is recorded as prepaid insurance in the Company’s
consolidated balance sheet at each reporting date and amortized to the Company’s consolidated statement of operations for
each reporting period.
Stock-Based
Awards
The
Company periodically issues common stock and stock options to officers, directors, Scientific Advisory Board members, consultants
and vendors for services rendered. Such issuances vest and expire according to terms established at the issuance date of each
grant.
The
Company accounts for stock-based payments to officers, directors, outside consultants and vendors by measuring the cost of services
received in exchange for equity awards based on the grant date value of the awards, with the cost recognized as compensation expense
on the straight-line basis in the Company’s consolidated financial statements over the vesting period of the awards.
Stock
grants, which are sometimes subject to time-based vesting, are measured at the grant date fair value and charged to operations
ratably over the vesting period.
Stock
options granted to members of the Company’s outside consultants and other vendors are valued on the grant date. As the stock
options vest, the Company recognizes this expense over the period in which the services are provided.
The
value of stock options granted as stock-based payments is determined utilizing the Black-Scholes option-pricing model, and is
affected by several variables, the most significant of which are the life of the equity award, the exercise price of the stock
option as compared to the fair market value of the common stock on the grant date, and the estimated volatility of the common
stock over the term of the equity award. Estimated volatility is based on the historical volatility of the Company’s common
stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The fair market value
of common stock is determined by reference to the quoted market price of the Company’s common stock.
Stock
options and warrants issued to non-employees as compensation for services to be provided to the Company or in settlement of debt
are accounted for based upon the fair value of the services provided or the estimated fair value of the stock option or warrant,
whichever can be more clearly determined. Management uses the Black-Scholes option-pricing model to determine the fair value of
the stock options and warrants issued by the Company. The Company recognizes this expense over the period in which the services
are provided.
There
were no stock or stock option grants during the three-months ended March 31, 2020.
On
March 22, 2020, two executive officers forgave a portion of their accrued compensation and received restricted stock equal in
value to the compensation forgiven.
The
Company recognizes the value of stock-based payments in general and administrative costs and in research and development costs,
as appropriate, in the Company’s condensed consolidated statements of operations. The Company issues new shares of common
stock to satisfy stock option and warrant exercises. There were no stock options exercised during the three-months ended March
31, 2020 and 2019, respectively.
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 March 31, 2020, the Company did not have any unrecognized tax benefits related to various federal and state income tax matters
and does not anticipate any material amount of unrecognized tax benefits within the next 12 months.
The
Company is subject to U.S. federal income taxes and income taxes of various state tax jurisdictions. As the Company’s net
operating losses have yet to be utilized, all previous tax years remain open to examination by Federal authorities and other jurisdictions
in which the Company currently operates or has operated in the past.
The
Company accounts for uncertainties in income tax law under a comprehensive model for the financial statement recognition, measurement,
presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns as prescribed by GAAP.
The tax effects of a position are recognized only if it is “more-likely-than-not” to be sustained by the taxing authority
as of the reporting date. If the tax position is not considered “more-likely-than-not” to be sustained, then no benefits
of the position are recognized. As of March 31, 2020, the Company had not recorded any liability for uncertain tax positions.
In subsequent periods, any interest and penalties related to uncertain tax positions will be recognized as a component of income
tax expense.
Foreign
Currency Transactions
The
note payable to SY Corporation (as defined below), which is denominated in a foreign currency (the South Korean Won), is
translated into the Company’s functional currency (the United States Dollar) at the exchange rate on the balance sheet date.
The foreign currency exchange gain or loss resulting from translation is recognized in the related condensed consolidated statements
of operations.
Research
and Development
Research
and development costs include compensation paid to management directing the Company’s research and development activities,
including but not limited to compensation paid to our then Interim Chief Executive Officer and Interim President who is also our
Chief Scientific Officer and fees paid to consultants and outside service providers and organizations (including research institutes
at universities), and other expenses relating to the acquisition, design, development and clinical testing of the Company’s
treatments and product candidates.
License
Agreements
Obligations
incurred with respect to mandatory payments provided for in license agreements are recognized ratably over the appropriate period,
as specified in the underlying license agreement, and are recorded as liabilities in the Company’s condensed consolidated
balance sheet, with a corresponding charge to research and development costs in the Company’s condensed consolidated statement
of operations. Obligations incurred with respect to milestone payments provided for in license agreements are recognized when
it is probable that such milestone will be reached and are recorded as liabilities in the Company’s condensed consolidated
balance sheet, with a corresponding charge to research and development costs in the Company’s condensed consolidated statement
of operations. Payments of such liabilities are made in the ordinary course of business.
Patent
Costs
Due
to the significant uncertainty associated with the successful development of one or more commercially viable products based on
the Company’s research efforts and any related patent applications, all patent costs, including patent-related legal and
filing fees, are expensed as incurred and recorded as general and administrative expenses.
Earnings
per Share
The
Company’s computation of earnings per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as
the income (loss) attributable to common stockholders divided by the weighted average common shares outstanding for the period.
Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., warrants
and options) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common
shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded
from the calculation of diluted EPS.
Net
loss attributable to common stockholders consists of net loss, as adjusted for actual and deemed preferred stock dividends declared,
amortized or accumulated.
Loss
per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during
the respective periods. Basic and diluted loss per common share is the same for all periods presented because all warrants and
stock options outstanding are anti-dilutive.
At
March 31, 2020 and 2019, the Company excluded the outstanding securities summarized below, which entitle the holders thereof to
acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.
|
|
March
31,
|
|
|
|
2020
|
|
|
2019
|
|
Series B convertible preferred
stock
|
|
|
11
|
|
|
|
11
|
|
Convertible notes payable
|
|
|
126,537,571
|
|
|
|
16,893
|
|
Common stock warrants
|
|
|
2,191,043
|
|
|
|
1,874,828
|
|
Common stock
options
|
|
|
4,286,071
|
|
|
|
4,337,609
|
|
Total
|
|
|
133,014,696
|
|
|
|
6,229,341
|
|
Reclassifications
Certain
comparative figures in 2019 have been reclassified to conform to the current quarter’s presentation. These reclassifications
were immaterial, both individually and in the aggregate.
Recent
Accounting Pronouncements
In
March 2020, The FASB issued Accounting Standards Update No. 2020-03, Codification Improvements to Financial Instruments. There
are seven issues addressed in this update. Issues 1 through 5 were clarifications and codifications of previous updates.
Issue 3 relates only to depository and lending institutions and therefore would not be applicable to the Company. Issue 6 was
a clarification on determining the contractual term of a net investment in a lease for purposes of measuring expected credit losses,
an issue not applicable to the Company. Issue 7 relates to the regaining control of financial assets sold and the recordation
of an allowance for credit losses. The amendment related to issues 1, 2, 4 and 5 become effective immediately upon adoption of
the update. Issue 3 becomes effective for fiscal years beginning after December 15, 2019. Issues 6 and 7 become effective on varying
dates that relate to the dates of adoption other updates. Management’s initial analysis is that it does not believe the
new guidance will substantially impact the Company’s financial statements.
4.
Notes Payable
Convertible
Notes Payable
2019
Convertible Notes
On
November 4, 2019, October 22, 2019, August 19, 2019, May 17, 2019 and April 24, 2019, the Company issued a series of convertible
notes (“2019 Convertible Notes”), all similar in nature, all subject to debt issuance costs (“DIC”) and
original issue discount (“OID”) and beneficial conversion (“BCF”) features and some subject to the issuance
of warrants (“NW”) and/or commitment shares (“CS”) and placement agent fees. Two of the notes had maturity
dates nine months after issuance and three were for one year. One note was a master note agreement in the amount of $150,000,
but with an initial drawdown of $50,000. The Company evaluated all of the terms of the 2019 Convertible Notes and determined that,
in accordance with ASC 815, there were no derivatives to be bifurcated or separately valued. The 2019 Convertible Notes as of
March 31, 2020 are summarized in the table below.
Inception
date
|
|
Maturity
date
|
|
|
Original
principal amount
|
|
|
Interest
rate
|
|
|
Original
aggregate DIC, OID, BCF, NW and CS
|
|
|
Cumulative
amortization of DIC, OID, BCF, NW and CS
|
|
|
Principal
remaining at March 31, 2020
|
|
|
Accrued
Interest at March 31, 2020
|
|
|
Balance
sheet carrying amount at March 31, 2020 inclusive of accrued interest
|
|
November 4, 2019
|
|
|
November
4, 2020
|
|
|
$
|
170,000
|
|
|
|
10
|
%
|
|
$
|
170,000
|
|
|
$
|
69,208
|
|
|
$
|
170,000
|
|
|
$
|
6,940
|
|
|
$
|
76,147
|
|
October 22, 2019
|
|
|
July
22, 2020
|
|
|
$
|
60,000
|
|
|
|
10
|
%(1)
|
|
$
|
64,003
|
|
|
$
|
37,038
|
|
|
$
|
60,000
|
|
|
$
|
2,663
|
|
|
$
|
35,698
|
(2)
|
August 19, 2019
|
|
|
May
19, 2020
|
|
|
$
|
55,000
|
|
|
|
10
|
%
|
|
$
|
55,000
|
|
|
$
|
44,507
|
|
|
$
|
46,850
|
|
|
$
|
3,337
|
|
|
$
|
39,695
|
|
May 17, 2019
|
|
|
May
17, 2020
|
|
|
$
|
50,000
|
|
|
|
10
|
%
|
|
$
|
50,000
|
|
|
$
|
45,396
|
|
|
$
|
44,952
|
|
|
$
|
4,355
|
|
|
$
|
44,704
|
|
April 24, 2019
|
|
|
April
24, 2020
|
|
|
$
|
58,500
|
|
|
|
12
|
%
|
|
$
|
48,450
|
|
|
$
|
48,450
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
393,500
|
|
|
|
|
|
|
$
|
387,453
|
|
|
$
|
244,599
|
|
|
$
|
321,802
|
|
|
$
|
17,296
|
|
|
$
|
196,244
|
|
|
(1)
|
Rate
adjusted to 12% on April 24, 2020 in accordance with terms of the related note.
|
|
(2)
|
$25,000
added to principal subsequent to March 31, 2020 in accordance with terms of related note.
|
2018
Q4 and 2019 Q1 Notes and Original Convertible Notes
On
December 6, 2018, December 7, 2018 and December 31, 2018 the Company issued convertible notes (each a “2018 Q4 Note”)
and on January 2, 2019, February 27, 2019, March 6, 2019 and March 14, 2019, the Company issued additional convertible
notes (each a “2019 Q1 Note”, respectively and collectively with the “2018 Q4, the “2018 Q4
and 2019 Q1 Notes”) bearing interest at 10% per year. All of the 2018 Q4 and 2019 Q1 Notes matured on either February
28, 2019 or April 30, 2019. The original aggregate principal amount was $190,000. None of the 2018 Q4 and 2019 Q1 Notes were repaid
at maturity. The 2018 Q4 and 2019 Q1 Note investors also received an aggregate of 190,000 common stock purchase warrants. The
warrants were valued using the Black Scholes option pricing model calculated on the date of each grant and had an aggregate value
of $146,805. Total value received by the investors was $336,805, the sum of the face value of the convertible note and the value
of the warrant. Therefore, the Company recorded a debt discount associated with the warrant issuance of $82,159 and an initial
value of the convertible notes of $107,841 using the relative fair value method. All debt discounts were fully amortized by the
original maturity dates. On March 21, 2020, all except one of the 2018 Q4 and 2019 Q1 Note holders exchanged the outstanding principal
amount and accrued interest for shares of common stock. The exchange price was $0.015 per share of common stock. The closing price
on March 20, 2020, the last trading day before the closing of the exchange agreements which took place on a Saturday, was
$0.034 per share of common stock. An aggregate of $155,000 of principal and $17,911 of accrued interest was exchanged for
11,527,407 shares of common stock. The Company recorded a loss on the extinguishment of the exchanged 2018 Q4 Notes and 2019 Q1
Notes of $219,021. There remains one outstanding 2018 Q4 Note and one outstanding 2019 Q1 Note, both held by a single investor,
with an aggregate principal amount of $35,000 and aggregate accrued interest of $4,340 as of March 31, 2020. The 2019 Convertible
Notes discussed above, which the Company does not consider to have arisen from one or more offerings, may be interpreted
in such a way that the remaining 2018 Q4 Note and 2019 Q1 Note holders had the right to convert or exchange into such
notes. However, no holder of the Q4 2018 and 2019 Notes has requested such a conversion or exchange. The Company
does not believe that an offering occurred as of March 31, 2020 or as of the date of the issuance of these financial statements.
Therefore, the number of shares of common stock (or preferred stock) into which the remaining 2018 Q4 Note and the remaining 2019
Q1 Note may convert is not determinable and the Company has not accounted for any additional consideration. The warrants to purchase
190,000 shares of common stock issued in connection with the sale of the 2018 Q4 and 2019 Q1 Notes are exercisable at a fixed
price of $1.50 per share of common stock, provide no right to receive a cash payment, and included no reset rights or other protections
based on subsequent equity transactions, equity-linked transactions or other events. The warrants issued to the Q4 2018 and
Q1 2019 Note holders expire on December 30, 2023. The Company determined that there were no embedded derivatives to be identified,
bifurcated and valued in connection with this financing.
The
2018 Q4 Notes and 2019 Q1 Notes consist of the following at March 31, 2020 and December 31, 2019:
|
|
March
31, 2020
|
|
|
December
31, 2019
|
|
Principal amount of notes
payable
|
|
$
|
35,000
|
|
|
$
|
190,000
|
|
Discount associated with issuance of
warrants net of amortization
|
|
|
-
|
|
|
|
-
|
|
Accrued interest
payable
|
|
|
4,340
|
|
|
|
17,976
|
|
|
|
$
|
39,340
|
|
|
$
|
207,976
|
|
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 convertible
notes have either been exchanged as part of April and May 2016 note and warrant exchange agreements or expired on September 15,
2016.
On
March 21, 2020, the holder of one of the Original Convertible Notes, exchanged $50,000 of principal and $32,875 of accrued interest
for 5,525,017 shares of the Company’s common stock. The exchange price was $0.015 per share of common stock. The closing
price on March 20, 2020, the last trading day before the closing of the exchange agreements which took place on a Saturday,
was $0.034 per share of common stock. The Company recorded a loss on the extinguishment of the exchanged Original Convertible
Note of $104,975.
The
remaining outstanding Original Convertible Notes (including those for which default notices have been received) consist of the
following at March 31, 2020 and December 31, 2019:
|
|
March
31, 2020
|
|
|
December
31, 2019
|
|
Principal amount of notes
payable
|
|
$
|
75,000
|
|
|
$
|
125,000
|
|
Accrued interest
payable
|
|
|
54,286
|
|
|
|
82,060
|
|
|
|
$
|
129,286
|
|
|
$
|
207,060
|
|
As
of March 31, 2020, principal and accrued interest on the Original Convertible Note that is subject to a default notice accrues
annual interest at 12% instead of 10%, totaled $44,948, of which $19,948 was accrued interest. As of December 31, 2019, principal
and accrued interest on Original Convertible Notes subject to default notices totaled $43,666 of which $18,666 was accrued interest.
As
of March 31, 2020 all of the outstanding Original Convertible Notes, inclusive of accrued interest, were convertible into an aggregate
of 11,366 shares of the Company’s common stock. Such Original Convertible Notes will continue to accrue interest until exchanged,
paid or otherwise discharged. There can be no assurance that any of the additional holders of the remaining Original Convertible
Notes will exchange their Original Convertible Notes.
Note
Payable to SY Corporation Co., Ltd.
On
June 25, 2012, the Company borrowed 465,000,000 Won (the currency of South Korea, equivalent to approximately $400,000 United
States Dollars as of that date) from and executed a secured note payable to SY Corporation Co., Ltd., formerly known as
Samyang Optics Co. Ltd. (“SY Corporation”), an approximately 20% common stockholder of the Company at that time. SY
Corporation was a significant stockholder and a related party at the time of the transaction but has not been a significant stockholder
or related party of the Company subsequent to December 31, 2014. The note accrues simple interest at the rate of 12% per annum
and had a maturity date of June 25, 2013. The Company has not made any payments on the promissory note. At June 30, 2013 and subsequently,
the promissory note was outstanding and in default, although SY Corporation has not issued a notice of default or a demand for
repayment. Management believes that SY Corporation is in default of its obligations under its January 2012 license agreement,
as amended, with the Company, but the Company has not yet issued a notice of default. The Company has in the past made several
efforts towards a comprehensive resolution of the aforementioned matters involving SY Corporation. During the three-months ended
March 31, 2020, there were no further communications between the Company and SY Corporation.
The
promissory note is secured by collateral that represents a lien on certain patents owned by the Company, including composition
of matter patents for certain of the Company’s high impact ampakine compounds and the low impact ampakine compounds CX2007
and CX2076, and other related compounds. The security interest does not extend to the Company’s patents for its ampakine
compounds CX1739 and CX1942, or to the patent for the use of ampakine compounds for the treatment of respiratory depression.
Note
payable to SY Corporation consists of the following at March 31, 2020 and December 31, 2019:
|
|
March
31, 2020
|
|
|
December
31, 2019
|
|
Principal amount of note
payable
|
|
$
|
399,774
|
|
|
$
|
399,774
|
|
Accrued interest payable
|
|
|
375,241
|
|
|
|
363,280
|
|
Foreign currency
transaction adjustment
|
|
|
(35,376
|
)
|
|
|
3,182
|
|
|
|
$
|
739,639
|
|
|
$
|
766,236
|
|
Interest
expense with respect to this promissory note was $11,960 and $11,829 for the three-months ended March 31, 2020 and 2019, respectively.
Notes
Payable to Officers and Former Officers
For
the three-months ended March 31, 2020 and 2019, $2,816 and $2,533 was charged to interest expense with respect to Dr. Arnold S.
Lippa’s notes, respectively.
For
the three-months ended March 31, 2020 and 2019, $4,212 and $3,801 was charged to interest expense with respect to Dr. James S.
Manuso’s notes, respectively.
As
of September 30, 2018, Dr. James S. Manuso resigned as executive officer in all capacities and as a member of the board of
directors of RespireRx (the “Board of Directors”). All of the $4,212 of interest expense noted above for
the three-months ended March 31, 2019, was incurred while Dr. Manuso was no longer an officer.
Other
Short-Term Notes Payable
Other
short-term notes payable at March 31, 2020 and December 31, 2019 consisted of premium financing agreements with respect to various
insurance policies. At March 31, 2020, a premium financing agreement was payable in the initial amount of $70,762, with interest
at11% per annum, in nine monthly installments of $8,256. In addition, there is $2,317 of short term financing of office and clinical
trials insurance premiums. At March 31, 2020 and December 31, 2019, the aggregate amount of the short-term notes payable
was $73,079 and $4,635 respectively.
5.
Settlement and Payment Agreements
On
December 16, 2019, RespireRx and Salamandra, LLC (“Salamandra”) entered into an amendment (the “Amendment”)
to the settlement agreement and release, executed August 21, 2019 (the “Original Settlement Agreement” and as amended,
the “Amended Settlement Agreement”) regarding $202,395 owed by the Company to Salamandra (as reduced by any further
payments by the Company to Salamandra, the “Full Amount”) in connection with an arbitration award previously granted
in favor of Salamandra in the Superior Court of New Jersey. Under the terms of the Original Settlement Agreement, the Company
was to pay Salamandra $125,000 on or before November 30, 2019 in full satisfaction of the Full Amount owed, subject to conditions
regarding the Company’s ability to raise certain dollar amounts of working capital. Under the Amended Settlement Agreement,
(i) the Company was to pay and the Company paid to Salamandra $25,000 on or before December 21, 2019, (ii) upon such payment,
Salamandra ceased all collection efforts against the Company until March 31, 2020 (the “Threshold Date”), and (iii)
the Company was to pay to Salamandra $100,000 on or before the Threshold Date if the Company had at that time raised $600,000
in working capital. Such payments by the Company would have constituted satisfaction of the Full Amount owed and would have served
as consideration for the dismissal of the action underlying the arbitration award and the mutual releases set forth in the Amended
Settlement Agreement. If the Company had raised less than $600,000 in working capital before the Threshold Date, the Company was
to pay to Salamandra an amount equal to 21% of the working capital amount raised, in which case such payment would have reduced
the Full Amount owed on a dollar-for-dollar basis, and Salamandra would then have been able to seek collection
on the remainder of the debt. The Company made the initial payment of $25,000 in December 2019, but did not make the subsequent
required payment on March 31, 2020 and has initiated further discussions with the intent of reaching a revised settlement
agreement which cannot be assured.
In
February 2020, the Company and a vendor agreed to discuss amendments to an agreement in principal reached on September 23, 2019
regarding the payment schedule of undisputed amounts owed by the Company to the vendor. The current discussions include, among
other things, an extension of time to raise the amounts owed. Neither the original agreement in principal nor the discussion of
amendments has resulted in a formal agreement. The original agreement in principal called for a payment of a minimum of $100,000
on or before November 30, 2019 assuming the Company has raised at least $600,000 by that date and thereafter called for a payment
of $50,000 per month until paid in full.
The
due date of the $100,000 annual amount payable to the University of Illinois that was originally due on December 31, 2019 pursuant
to the 2014 License Agreement, was extended to June 30, 2020.
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 March 31, 2020 and December 31, 2019, 1,250,000 shares were designated as 9% Cumulative Convertible
Preferred Stock (non-voting, “9% Preferred Stock”); 37,500 shares were designated as Series B Convertible Preferred
Stock (non-voting, “Series B Preferred Stock”); 205,000 shares were designated as Series A Junior Participating Preferred
Stock (non-voting, “Series A Junior Participating Preferred Stock”); and 1,700 shares were designated as Series G
1.5% Convertible Preferred Stock. Accordingly, as of March 31, 2020 and December 31, 2019, 3,505,800 shares of preferred
stock were undesignated and may be issued with such rights and powers as the Board of Directors may designate.
Series
B Preferred Stock outstanding as of March 31, 2020 and 2019 consisted of 37,500 shares issued in a May 1991 private placement.
Each share of Series B Preferred Stock is convertible into approximately 0.00030 shares of common stock at an effective conversion
price of $2,208.375 per share of common stock, which is subject to adjustment under certain circumstances. As of March 31, 2020
and December 31, 2019, the shares of Series B Preferred Stock outstanding are convertible into 11 shares of common stock. RespireRx
may redeem the Series B Preferred Stock for $25,001, equivalent to $0.6667 per share, an amount equal to its liquidation preference,
at any time upon 30 days prior notice.
Common
Stock
There
were 33,693,853 shares of RespireRx’s Common Stock outstanding as of March 31, 2020. As of March 31, 2020,
RespireRx did not have enough authorized shares to reserve for all conversions of convertible debt as well as common stock
purchase options and warrants exercises. Assuming everything had been reserved, there would have been no shares of RespireRx’s
common stock available for future issuances. On March 21, 2020, the Board of Directors resolved to increase the authorized
shares of common stock from 65,000,000 to 1,000,000,000 (1 billion) subject to approval by a majority of the stockholders
of RespireRx, which approval was obtained on March 22, 2020 pursuant to a written consent of holders of a majority of the
voting stock of the corporation (RespireRx) taken without a meeting, and appropriate notification of all shareholders and
subject to the authorized officers making the appropriate filings with the Secretary of State of the State of Delaware. The increased
authorized number of shares of common stock became effective on April 30, 2020 when RespireRx filed the Fourth Certificate
of Amendment of Second Restated Certificate of Incorporation of RespireRx Pharmaceuticals Inc. with the Secretary of State of
the State of Delaware increasing the authorized number of shares of RespireRx’s common stock that may be issued to
1,000,000,000 (1 billion) shares. The amounts in the table below would have been reserved as of March 31, 2020 had there been
adequate authorized but unissued shares of common stock. Since the increase in authorized shares of common stock, an appropriate
number of shares of common stock have been reserved for each of the items specified in the table below.
Reserved
for the conversion, exercise or issuance of:
|
|
Number
of shares to have been reserved as of March 31, 2020
|
Series
B Preferred
|
|
11
|
Conversion
of convertible notes
|
|
80,144,609
|
Exercise
of warrants
|
|
2,191,043
|
Exercise
of options
|
|
4,286,071
|
Issuances
of shares or option pursuant to the 2014 Plan
|
|
63,236
|
Issuances
of shares or option pursuant to the 2015 Plan
|
|
4,427,342
|
Pier
contingent shares
|
|
6,497
|
Total
|
|
91,118,809
|
Common
Stock Warrants
Information
with respect to the issuance and exercise of common stock purchase warrants in connection with the Convertible Note Payable and
Warrant Purchase Agreement, and Notes Payable to Officers, is provided at Note 4.
A
summary of warrant activity for the three-months ended March 31, 2020 is presented below.
|
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (in Years)
|
|
Warrants
outstanding at December 31, 2019
|
|
|
|
2,191,043
|
|
|
$
|
1.87109
|
|
|
|
|
|
Issued
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Expired
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Warrants
outstanding at March 31, 2020
|
|
|
|
2,191,043
|
|
|
$
|
1,87109
|
|
|
|
2.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
exercisable at March 31, 2020
|
|
|
|
2,191,043
|
|
|
$
|
1,87109
|
|
|
|
2.40
|
|
The
exercise prices of common stock warrants outstanding and exercisable are as follows at March 31, 2020:
Exercise
Price
|
|
|
Warrants
Outstanding
(Shares)
|
|
|
Warrants
Exercisable
(Shares)
|
|
|
Expiration
Date
|
$
|
0.5000
|
|
|
|
175,000
|
|
|
|
175,000
|
|
|
October
22, 2024
|
$
|
0.5000
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
August
19, 2024
|
$
|
1.0000
|
|
|
|
916,217
|
|
|
|
916,217
|
|
|
September
20, 2022
|
$
|
1.1800
|
|
|
|
42,372
|
|
|
|
42,372
|
|
|
May
17, 2022
|
$
|
1.5000
|
|
|
|
190,000
|
|
|
|
190,000
|
|
|
December
30, 2023
|
$
|
1.5620
|
|
|
|
130,284
|
|
|
|
130,284
|
|
|
December
31, 2021
|
$
|
1.5750
|
|
|
|
238,814
|
|
|
|
238,814
|
|
|
April
30, 2023
|
$
|
2.7500
|
|
|
|
8,000
|
|
|
|
8000
|
|
|
September
20, 2022
|
$
|
4.8750
|
|
|
|
108,594
|
|
|
|
108,594
|
|
|
September
30, 2020
|
$
|
6.8348
|
|
|
|
145,758
|
|
|
|
145,758
|
|
|
September
30, 2020
|
$
|
7.9300
|
|
|
|
86,004
|
|
|
|
86,004
|
|
|
February
28, 2021
|
|
|
|
|
|
2,191,043
|
|
|
|
2,191,043
|
|
|
|
Based
on a value of $0.0115 per share on March 31, 2020, there were no exercisable in-the-money common stock warrants as of March 31,
2020.
A
summary of warrant activity for the three-months ended March 31, 2019 is presented below.
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (in Years)
|
|
Warrants outstanding at December 31, 2018
|
|
|
1,783,229
|
|
|
$
|
2.20393
|
|
|
|
|
|
Issued
|
|
|
110,000
|
|
|
|
1.50000
|
|
|
|
|
|
Expired
|
|
|
(18,401
|
)
|
|
|
5.71706
|
|
|
|
|
|
Warrants outstanding at March 31,
2019
|
|
|
1,874,828
|
|
|
$
|
2.12815
|
|
|
|
2.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable at March 31,
2019
|
|
|
1,874,828
|
|
|
$
|
2.12815
|
|
|
|
2.96
|
|
The
exercise prices of common stock warrants outstanding and exercisable are as follows at March 31, 2019:
Exercise
Price
|
|
|
Warrants
Outstanding
(Shares)
|
|
|
Warrants
Exercisable
(Shares)
|
|
|
Expiration
Date
|
$
|
1.0000
|
|
|
|
916,217
|
|
|
|
916,217
|
|
|
September 20, 2022
|
$
|
1.2870
|
|
|
|
41,002
|
|
|
|
41,002
|
|
|
April 17, 2019
|
$
|
1.5000
|
|
|
|
190,000
|
|
|
|
190,000
|
|
|
December 30, 2023
|
$
|
1.5620
|
|
|
|
130,284
|
|
|
|
130,284
|
|
|
December 31, 2021
|
$
|
1.5750
|
|
|
|
238,814
|
|
|
|
238,814
|
|
|
April 30, 2023
|
$
|
2.7500
|
|
|
|
8,000
|
|
|
|
8000
|
|
|
September 20, 2022
|
$
|
4.8500
|
|
|
|
5,155
|
|
|
|
5,155
|
|
|
September 23, 2019
|
$
|
4.8750
|
|
|
|
108,594
|
|
|
|
108,594
|
|
|
September 30, 2020
|
$
|
5.0000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
September 22, 2019
|
$
|
6.8348
|
|
|
|
145,758
|
|
|
|
145,758
|
|
|
September 30, 2020
|
$
|
7.9300
|
|
|
|
86,004
|
|
|
|
86,004
|
|
|
February 28,
2021
|
|
|
|
|
|
1,874,
828
|
|
|
|
1,874,828
|
|
|
|
Based
on a value of $0.85000 per share on March 31, 2019, there was no intrinsic value of exercisable in-the-money common stock warrants
as of March 31, 2019.
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 with respect to up to 325,025 shares of common stock, in addition to stock appreciation rights and phantom
stock, to directors, officers, employees, consultants and other service providers of the Company.
On
June 30, 2015, the Board of Directors adopted the 2015 Stock and Stock Option Plan (as amended, the “2015 Plan”).
The 2015 Plan initially provided for, among other things, the issuance of either or any combination of restricted shares of common
stock and non-qualified stock options to purchase up to 461,538 shares of the Company’s common stock for periods up to ten
years to management, members of the Board of Directors, consultants and advisors. On August 18, 2015, March 31, 2016, January
17, 2017, December 9, 2017 the Board increased the number of shares that may be issued under the 2015 Plan, and on December
28, 2018, the Board of Directors further increased the number of shares that may be issued under the 2015 Plan to 8,985,260 shares
of the Company’s common stock. As of March 31, 2020, there were 8,985,260 shares that may be issued under the 2015 Plan.
On May 5, 2020 the Board of Directors increased the number of shares that may be issued under the 2015 Plan to 58,985,260. The
Company has not and does not intend to present the 2015 Plan to stockholders for approval.
Other
than the change in the number of shares available under the 2015 Plan, no other changes were made to the 2015 Plan by these amendments
noted above.
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 three-months ended March 31, 2020 is presented below.
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in Years)
|
|
Options outstanding at December 31, 2019
|
|
|
4,287,609
|
|
|
$
|
3.3798
|
|
|
|
4.98
|
|
Expired
|
|
|
(1,538
|
)
|
|
|
16.6400
|
|
|
|
-
|
|
Options outstanding at March 31,
2020
|
|
|
4,286,071
|
|
|
$
|
3.3750
|
|
|
|
4.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December
31, 2019
|
|
|
4,287,609
|
|
|
$
|
3.3789
|
|
|
|
4.98
|
|
Options exercisable at March 31,
2020
|
|
|
4,286,071
|
|
|
$
|
3.3750
|
|
|
|
4.73
|
|
The
exercise prices of common stock options outstanding and exercisable were as follows at December 31, 2019:
Exercise
Price
|
|
|
Options
Outstanding (Shares)
|
|
|
Options
Exercisable (Shares)
|
|
|
Expiration
Date
|
$
|
0.7000
|
|
|
|
21,677
|
|
|
|
21,677
|
|
|
November 21, 2023
|
$
|
1.1200
|
|
|
|
310,388
|
|
|
|
310,388
|
|
|
April 5, 2023
|
$
|
1.2500
|
|
|
|
16,762
|
|
|
|
16,762
|
|
|
December 7, 2022
|
$
|
1.3500
|
|
|
|
34,000
|
|
|
|
34,000
|
|
|
July 28, 2022
|
$
|
1.4500
|
|
|
|
1,849,418
|
|
|
|
1,849,418
|
|
|
December 9, 2027
|
$
|
1.4500
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
December 9, 2027
|
$
|
2.0000
|
|
|
|
285,000
|
|
|
|
285,000
|
|
|
June 30, 2022
|
$
|
2.0000
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
July 26, 2022
|
$
|
3.9000
|
|
|
|
395,000
|
|
|
|
395,000
|
|
|
January 17, 2022
|
$
|
4.5000
|
|
|
|
7,222
|
|
|
|
7,222
|
|
|
September 2, 2021
|
$
|
5.6875
|
|
|
|
89,686
|
|
|
|
89,686
|
|
|
June 30, 2020
|
$
|
5.7500
|
|
|
|
2,608
|
|
|
|
2,608
|
|
|
September 12, 2021
|
$
|
6.4025
|
|
|
|
27,692
|
|
|
|
27,692
|
|
|
August 18, 2020
|
$
|
6.4025
|
|
|
|
129,231
|
|
|
|
129,231
|
|
|
August 18, 2022
|
$
|
6.4025
|
|
|
|
261,789
|
|
|
|
261,789
|
|
|
August 18, 2025
|
$
|
6.8250
|
|
|
|
8,791
|
|
|
|
8,791
|
|
|
December 11, 2020
|
$
|
7.3775
|
|
|
|
523,077
|
|
|
|
523,077
|
|
|
March 31, 2021
|
$
|
8.1250
|
|
|
|
169,231
|
|
|
|
169,231
|
|
|
June 30, 2022
|
$
|
13.9750
|
|
|
|
3,385
|
|
|
|
3,385
|
|
|
March 14, 2024
|
$
|
15.4700
|
|
|
|
7,755
|
|
|
|
7,755
|
|
|
April 8, 2020
|
$
|
15.9250
|
|
|
|
2,462
|
|
|
|
2,462
|
|
|
February 28, 2024
|
$
|
19.5000
|
|
|
|
9,487
|
|
|
|
9,487
|
|
|
July 17, 2022
|
$
|
19.5000
|
|
|
|
6,410
|
|
|
|
6,410
|
|
|
August 10,
2022
|
|
|
|
|
|
4,286,071
|
|
|
|
4,286,071
|
|
|
|
There
was no deferred compensation expense for the outstanding and unvested stock options at March 31, 2020.
Based
on a fair value of $0.0115 per share on March 31, 2020, there were no exercisable in-the-money common stock options as of March
31, 2020.
Reserved
and Unreserved Shares of Common Stock
On
January 17, 2017, the Board of Directors of the Company approved the adoption of an amendment of the Amended and Restated RespireRx
Pharmaceuticals, Inc. 2015 Stock and Stock Option Plan (as amended, the “2015 Plan”). That amendment increases the
shares issuable under the plan by 1,500,000, from 1,538,461 to 3,038,461. On December 9, 2017, the Board of Directors further
amended the 2015 Plan to increase the number of shares that may be issued under the 2015 Plan to 6,985,260 shares of the Company’s
common stock. On December 28, 2018, the Board of Directors further amended the 2015 Plan to increase the number of shares that
may be issued under the 2015 Plan to 8,985,260 shares of the Company’s common stock. On May 5, 2020 the Board of Directors
increased the number of shares that may be issued under the 2015 Plan to 58,985,260.
Other
than the change in the number of shares available under the 2015 Plan, no other changes were made to the 2015 Plan by these amendments
noted above.
At
March 31, 2020, RespireRx had 65,000,000 shares of common stock authorized and 33,693,853 shares of common stock issued
and outstanding. See Note 6. Stockholders’ Deficiency – Common Stock, above for a more detailed description of reserved
and unreserved 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 is a boutique investment banking firm specializing in the life sciences
sector that is also a full-service brokerage firm.
A
description of advances and notes payable to officers is provided at Note 4.
8.
Commitments and Contingencies
Pending
or Threatened Legal Action and Claims
On
March 10, 2020, Sharp Clinical Services, Inc. a vendor of RespireRx served a complaint and summons on the Company dated February
21, 2020 related to a December 16, 2019 demand for payment of past due invoices inclusive of late fees totaling $103,890 of which
$3,631 relates to late fees seeking $100,259 plus 1.5% interest per month on outstanding unpaid invoices. Amid settlement discussions,
the vendor stated on March 13, 2020 its intent to proceed to a default judgment against the Company, and the Company stated on
March 14, 2020 its intent to continue settlement discussions. As of March 31, 2020, the Company had recorded accounts payable
of $99,959 to
such vendor, an amount considered by the Company to be reasonable given the ongoing settlement discussions.
On
December 16, 2019, RespireRx and Salamandra, LLC (“Salamandra”) entered into an amendment (the “Amendment”)
to the settlement agreement and release, executed August 21, 2019 (the “Original Settlement Agreement” and as amended,
the “Amended Settlement Agreement”) regarding $202,395 owed by the Company to Salamandra (as reduced by any further
payments by the Company to Salamandra, the “Full Amount”) in connection with an arbitration award previously granted
in favor of Salamandra in the Superior Court of New Jersey. Under the terms of the Original Settlement Agreement, the Company
was to pay Salamandra $125,000 on or before November 30, 2019 in full satisfaction of the Full Amount owed, subject to conditions
regarding the Company’s ability to raise certain dollar amounts of working capital. Under the Amended Settlement Agreement,
(i) the Company was to pay and the Company paid to Salamandra $25,000 on or before December 21, 2019, (ii) upon such payment,
Salamandra ceased all collection efforts against the Company until March 31, 2020 (the “Threshold Date”), and (iii)
the Company was to pay to Salamandra $100,000 on or before the Threshold Date if the Company had at that time raised $600,000
in working capital. Such payments by the Company would have constituted satisfaction of the Full Amount owed and would have served
as consideration for the dismissal of the action underlying the arbitration award and the mutual releases set forth in the Amended
Settlement Agreement. If the Company had raised less than $600,000 in working capital before the Threshold Date, the Company was
to pay to Salamandra an amount equal to 21% of the working capital amount raised, in which case such payment will reduce the Full
Amount owed on a dollar-for-dollar basis, and Salamandra may then seek collection on the remainder of the debt. The Company did
not make the requirement payment on March 31, 2020 and has initiated further discussions with the intent of reaching a revised
settlement agreement which cannot be assured.
Related
to the above matter, and preceding the settlement discussions, by letter dated February 5, 2016, the Company received a demand
from a law firm representing Salamandra alleging an amount due and owing for unpaid services rendered. On January 18, 2017, following
an arbitration proceeding, an arbitrator awarded the vendor the full amount sought in arbitration of $146,082. Additionally, the
arbitrator granted the vendor attorneys’ fees and costs of $47,937. All such amounts have been accrued at March 31, 2020
and December 31, 2019, including accrued interest at 4.5% annually from February 26, 2018, the date of the judgment, through March
31, 2020, totaling $11,059.
By
letter dated May 18, 2018, the Company received notice from counsel claiming to represent TEC Edmonton and The Governors of the
University of Alberta, which purported to terminate, effective December 12, 2017, the license agreement dated May 9, 2007
between the Company and The Governors of the University of Alberta. The Company, through its counsel, disputed any grounds for
termination and notified the representative that it invoked Section 13 of that license agreement, which mandates a meeting to
be attended by individuals with decision-making authority to attempt in good faith to negotiate a resolution to the dispute. In
February 2019, the Company and TEC Edmonton tentatively agreed to terms acceptable to all parties to establish a new license agreement
and the form of a new license agreement. However, the Company has re-evaluated that portion of its ampakine program and has decided
not to enter into a new agreement at this time. The lack of entry into a new agreement at this time does not affect the Company’s
other ampakine programs and permits the Company to reallocate resources to those programs, including, but not limited to ADHD,
SCI, FXS and others.
By
email dated July 21, 2016, the Company received a demand from an investment banking consulting firm that represented the Company
in 2012 in conjunction with the Pier transaction alleging that $225,000 is due and payable for investment banking services rendered.
Such amount has been included in accrued expenses at March 31, 2020 and December 31, 2019.
The
Company is periodically the subject of various pending and threatened legal actions and claims. In the opinion of management of
the Company, adequate provision has been made in the Company’s consolidated financial statements as of March 31, 2020
and December 31, 2019 with respect to such matters, including, specifically, the matters noted above. The Company intends
to vigorously defend itself if any of the matters described above results in the filing of a lawsuit or formal claim. See Note
5. Settlement and Payment Agreements for additional items and details.
Significant
Agreements and Contracts
Consulting
Agreement
Richard
Purcell, the Company’s Senior Vice President of Research and Development since October 15, 2014, provides his services to
the Company on a month-to-month basis through his consulting firm, DNA Healthlink, Inc., through which the Company has contracted
for his services, for a monthly cash fee of $12,500. Additional information with respect to shares of common stock that have been
issued to Mr. Purcell is provided at Note 6. Cash compensation expense pursuant to this agreement totaled $37,500 for the three-months
ended March 31, 2020 and 2019, which is included in research and development expenses in the Company’s consolidated statements
of operations for such periods.
Employment
Agreements
On
October 12, 2018, after the resignation of Dr. James Manuso effective September 30, 2018, Dr. Lippa was named Interim President
and Interim Chief Executive Officer (see Note 9 to the Company’s consolidated financial statements for the fiscal years
ended December 31, 2019 and 2018). Effective May 6, 2020, with the appointment of Timothy Jones as RespireRx’s President
and Chief Executive Officer, Dr. Lippa resigned the interim officer positions. Dr. Lippa has continued to serve as RespireRx’s
Executive Chairman and as a member of the Board of Directors. On August 18, 2015, Dr. Lippa was named Chief Scientific Officer
of RespireRx, and RespireRx entered into an employment agreement with Dr. Lippa in that capacity. Pursuant to the
agreement, which was for an initial term through September 30, 2018 (and which automatically extended on September 30, 2018 and
2019 and will automatically extend annually, upon the same terms and conditions, for successive periods of one year, unless either
party provides written notice of its intention not to extend the term of the agreement at least 90 days prior to the applicable
renewal date), Dr. Lippa earned an annual base salary of $300,000. Dr. Lippa is also eligible to earn a performance-based annual
bonus award of up to 50% of his base salary, based upon the achievement of annual performance goals established by the Board of
Directors in consultation with the executive prior to the start of such fiscal year, or any amount at the discretion of the Board
of Directors. Additionally, Dr. Lippa has been granted stock options on several occasions and is eligible to receive additional
awards under RespireRx’s 2014 Plan and 2015 Plan at the discretion of the Board of Directors. Dr. Lippa did
not receive any option to purchase shares of common stock during three-month period ending March 31, 2020. Additional information
with respect to the stock options granted to Dr. Lippa is provided at Note 6. Dr. Lippa is also entitled to receive, until
such time as RespireRx establishes a group health plan for its employees, $1,200 per month, on a tax-equalized basis, as
additional compensation to cover the cost of health coverage and up to $1,000 per month, on a tax-equalized basis, as reimbursement
for a term life insurance policy and disability insurance policy. Dr. Lippa is also entitled to be reimbursed for business expenses.
Cash compensation inclusive of employee benefits accrued pursuant to this agreement totaled $84,900 for each of the three-months
ended March 31, 2020 and 2019, respectively, which amounts are included in accrued compensation and related expenses in the Company’s
consolidated balance sheet at March 31, 2020 and December 31, 2019, and in research and development expenses in the Company’s
condensed consolidated statement of operations for the three-months ended March 31, 2020 and 2019. Dr. Lippa does not receive
any additional compensation for serving as Executive Chairman and on the Board of Directors.
On
August 18, 2015, the Company also entered into an employment agreement with Jeff E. Margolis, in his role at that time as Vice
President, Secretary and Treasurer. Pursuant to the agreement, which was for an initial term through September 30, 2016 and later
amended (and which automatically extended on September 30, 2016, 2017, 2018 and 2019 and will automatically extend annually, upon
the same terms and conditions for successive periods of one year, unless either party provides written notice of its intention
not to extend the term of the agreement at least 90 days prior to the applicable renewal date), Mr. Margolis currently receives
an annual base salary of $300,000, and is eligible to receive performance-based annual bonus awards based upon the achievement
of annual performance goals established by the Board of Directors in consultation with the executive prior to the start of such
fiscal year. Additionally, Mr. Margolis has been granted stock options on several occasions and is eligible to receive
additional awards under the Company’s Plans at the discretion of the Board of Directors. Mr. Margolis is also entitled to
receive, until such time as the Company establishes a group health plan for its employees, $1,200 per month, on a tax-equalized
basis, as additional compensation to cover the cost of health coverage and up to $1,000 per month, on a tax-equalized basis, as
reimbursement for a term life insurance policy and disability insurance policy. Mr. Margolis is also entitled to be reimbursed
for business expenses. Additional information with respect to the stock options granted to Mr. Margolis is provided at Note 6.
Recurring cash compensation accrued pursuant to this amended agreement totaled $80,400 for the three-months ended March 31, 2020
and 2019 which amounts are included in accrued compensation and related expenses in the Company’s condensed consolidated
balance sheet as of March 31, 2020 and 2019, and in general and administrative expenses in the Company’s condensed consolidated
statement of operations. Mr. Margolis does not receive any additional compensation for serving on the Company’s Board of
Directors.
The
employment agreements between the Company and each of Dr. Lippa and Mr. Margolis (prior to the 2017 amendment), respectively,
provided that the payment obligations associated with the first year base salary were to accrue, but no payments were to be made,
until at least $2,000,000 of net proceeds from any offering or financing of debt or equity, or a combination thereof, was received
by the Company, at which time scheduled payments were to commence. Dr. Lippa and Mr. Margolis (who are each also directors of
the Company), have each agreed, effective as of August 11, 2016, to continue to defer the payment of such amounts indefinitely,
until such time as the Board of Directors of the Company determines that sufficient capital has been raised by the Company or
is otherwise available to fund the Company’s operations on an ongoing basis.
University
of Illinois 2014 Exclusive License Agreement
On
June 27, 2014, the Company entered into an Exclusive License Agreement (the “2014 License Agreement”) with the University
of Illinois, the material terms of which were similar to a License Agreement between the parties that had been previously terminated
on March 21, 2013. The 2014 License Agreement became effective on September 18, 2014, upon the completion of certain conditions
set forth in the 2014 License Agreement, including: (i) the payment by the Company of a $25,000 licensing fee, (ii) the payment
by the Company of outstanding patent costs aggregating $15,840, and (iii) the assignment to the University of Illinois of rights
the Company held in certain patent applications, all of which conditions were fulfilled.
The
2014 License Agreement granted the Company (i) exclusive rights to several issued and pending patents in numerous jurisdictions
and (ii) the non-exclusive right to certain technical information that is generated by the University of Illinois in connection
with certain clinical trials as specified in the 2014 License Agreement, all of which relate to the use of cannabinoids for the
treatment of sleep related breathing disorders. The Company is developing dronabinol (Δ9-tetrahydrocannabinol), a cannabinoid,
for the treatment of OSA, the most common form of sleep apnea.
The
2014 License Agreement provides for various commercialization and reporting requirements commencing on June 30, 2015. In addition,
the 2014 License Agreement provides for various royalty payments, including a royalty on net sales of 4%, payment on sub-licensee
revenues of 12.5%, and a minimum annual royalty beginning in 2015 of $100,000, which is due and payable on December 31 of each
year beginning on December 31, 2015. The minimum annual royalty obligation of $100,000 due on December 31, 2019, was extended
to June 30, 2020. One-time milestone payments may become due based upon the achievement of certain development milestones. $350,000
will be due within five days after the dosing of the first patient is a Phase III human clinical trial anywhere in the world.
$500,000 will be due within five days after the first NDA filing with FDA or a foreign equivalent. $1,000,000 will be due within
twelve months of the first commercial sale. One-time royalty payments may also become due and payable. Annual royalty payments
may also become due. In the year after the first application for market approval is submitted to the FDA or a foreign equivalent
and until approval is obtained, the minimum annual royalty will increase to $150,000. In the year after the first market approval
is obtained from the FDA or a foreign equivalent and until the first sale of a product, the minimum annual royalty will increase
to $200,000. In the year after the first commercial sale of a product, the minimum annual royalty will increase to $250,000.
During
each of the three-months ended March 31, 2020 and 2019, the Company recorded charges to operations of $25,000, respectively,
with respect to its 2019 and 2018 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 ended March 31, 2020 and 2019, respectively.
The Company did not pay the amount due on December 31, 2019 for which the Company was granted an extension until June 30, 2020.
UWM
Research Foundation Option Agreement
On
March 2, 2020, RespireRx and UWM Research Foundation, an affiliate of the University of Wisconsin-Milwaukee, entered into an option
agreement (“UWMRF Option Agreement”) pursuant to which RespireRx has a six-month option to license the identified
intellectual property pursuant to license terms substantially in the Form of a Patent License Agreement (“UWMRF License
Agreement”) that is attached to the UWMRF Option Agreement as Appendix I. The UWMRF License Agreement, if it becomes effective,
will expand the Company’s neuromodulator platform which has historically included the Company’s ampakine program
to include a GABA-A program as well. That platform, as expanded, is now called Project Endeavor.
Noramco
Inc./Purisys, LLC - Dronabinol Development and Supply Agreement
On
September 4, 2018, RespireRx entered into a dronabinol Development and Supply Agreement with Noramco Inc., one of the world’s
major dronabinol manufacturers. Noramco subsequently assigned this agreement (as assigned, the “Purisys Agreement”)
to its subsidiary, Purisys, LLC (“Purisys”). Under the terms of the Purisys Agreement, Purisys agreed to (i) provide
all of the active pharmaceutical ingredient (“API”) estimated to be needed for the clinical development process for
both the first- and second-generation products (each a “Product” and collectively, the “Products”), three
validation batches for New Drug Application (“NDA”) filing(s) and adequate supply for the initial inventory stocking
for the wholesale and retail channels, subject to certain limitations, (ii) maintain or file valid drug master files (“DMFs”)
with the FDA or any other regulatory authority and provide the Company with access or a right of reference letter entitling the
Company to make continuing reference to the DMFs during the term of the agreement in connection with any regulatory filings made
with the FDA by the Company, (iii) participate on a development committee, and (iv) make available its regulatory consultants,
collaborate with any regulatory consulting firms engaged by the Company and participate in all FDA or Drug Enforcement Agency
(“DEA”) meetings as appropriate and as related to the API.
In
consideration for these supplies and services, the Company has agreed to purchase exclusively from Purisys during the commercialization
phase all API for its Products as defined in the Development and Supply Agreement at a pre-determined price subject to certain
producer price adjustments and agreed to Purisys’s participation in the economic success of the commercialized Product or
Products up to the earlier of the achievement of a maximum dollar amount or the expiration of a period of time.
Transactions
with Bausch Health Companies Inc.
Beginning
in March 2010, the Company entered into a series of asset purchase and license agreements with Biovail Laboratories International
SRL, which after its merger with Valeant Pharmaceuticals International, Inc. was later renamed Bausch Health Companies
Inc. (“Bausch”).
In
March 2011, the Company entered into a new agreement with Bausch to 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.
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
March 31, 2020, aggregating $805,600. License agreement amounts included in the 2020 column represents amounts contractually
due from April 1, 2020 through December 31, 2020 (nine months) and in each of the subsequent years, represents the
full year. Employment agreement amounts included in the 2020 column represent amounts contractually due at from April 1,
2020 through September 30, 2020 (six months) when such contracts expire unless extended pursuant to the terms of
the contracts.
|
|
|
|
|
Payments
Due By Year
|
|
|
|
Total
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
License agreements
|
|
$
|
475,000
|
|
|
$
|
75,000
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
Employment agreements
(1)
|
|
|
330,600
|
|
|
|
330,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
805,600
|
|
|
$
|
405,600
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
(1)
The payment of such amounts has been deferred indefinitely, as described above at “Employment Agreements.” The 2020
amounts include six-months of employment agreement obligations for Dr. Lippa and Mr. Margolis as their employment contracts renewed
on September 30, 2019 and the 2020 obligations include the six months of obligations through September 30, 2020.
9.
Subsequent Events
Appointment
of Timothy Jones as New CEO and President and Resignation of Arnold S. Lippa as Interim CEO and Interim President,
but remaining as Executive Chairman and Chief Scientific Officer
On
May 6, 2020, RespireRx entered into an employment contract (the “Jones Contract”) with Timothy Jones to serve
as Chief Executive Officer (“CEO”) and President of RespireRx. The Jones Contract provides for a provisional
term through July 31, 2020, during which Mr. Jones will be employed “at will” and after which additional terms and
conditions of the Jones Contract will become effective, as set forth in the Jones Contract. If not earlier terminated during the
provisional term, or thereafter pursuant to the terms of the Jones Contract, the Jones Contract will be effective through September
30, 2023, and will renew annually thereafter unless either party terminates in writing at least 90 days before the next renewal
date. Dr. Arnold Lippa, who has been serving as RespireRx’s Interim CEO and Interim President, resigned from those positions
concurrently with the effectiveness of the Jones Contract, but will continue to serve as RespireRx’s Executive Chairman
and Chief Scientific Officer. Mr. Jones joined the Company’s Board of Directors on January 28, 2020.
In
light of Mr. Jones appointment, he has ceased to receive compensation for his service on the Board of Directors as a non-employee
member of the Board of Directors, and instead, going forward, Mr. Jones will be compensated as provided the Jones Contract.
Conversions
of Certain Convertible Notes
The
table below summarizes the conversions of several convertible notes after March 31, 2020
|
|
Date
|
|
Principal
|
|
|
Interest
|
|
|
|
|
|
Total
|
|
|
No. Shares
|
|
|
2020
|
|
converted
|
|
|
converted
|
|
|
Costs
|
|
|
converted
|
|
|
issued
|
Convertible note issued
in May 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 16
|
|
$
|
5,138
|
|
|
|
-
|
|
|
$
|
750
|
|
|
$
|
5,888
|
|
|
1,600,000
|
|
|
April 27
|
|
$
|
5,298
|
|
|
|
-
|
|
|
$
|
750
|
|
|
$
|
6,048
|
|
|
1,680,000
|
|
|
May 7
|
|
$
|
2,190
|
|
|
|
-
|
|
|
$
|
750
|
|
|
$
|
2,940
|
|
|
1,680,000
|
|
|
May
18
|
|
$
|
2,610
|
|
|
|
-
|
|
|
$
|
750
|
|
|
$
|
3,360
|
|
|
2,100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible note issued in August 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 17
|
|
$
|
7,800
|
|
|
|
-
|
|
|
$
|
1,200
|
|
|
$
|
9,000
|
|
|
1,500,000
|
|
|
April 21
|
|
$
|
7,150
|
|
|
|
-
|
|
|
$
|
500
|
|
|
$
|
7,650
|
|
|
1,500,000
|
|
|
April 28
|
|
$
|
8,500
|
|
|
|
-
|
|
|
$
|
500
|
|
|
$
|
9,000
|
|
|
1,500,000
|
|
|
May 1
|
|
$
|
7,186
|
|
|
|
-
|
|
|
$
|
500
|
|
|
$
|
7,686
|
|
|
2,000,000
|
|
|
May 5
|
|
$
|
6,575
|
|
|
|
-
|
|
|
$
|
500
|
|
|
$
|
7,075
|
|
|
2,000,000
|
|
|
May 7
|
|
$
|
5,112
|
|
|
|
-
|
|
|
$
|
500
|
|
|
$
|
5,612
|
|
|
2,000,000
|
|
|
May 11
|
|
|
3,892
|
|
|
|
-
|
|
|
$
|
500
|
|
|
$
|
4,392
|
|
|
2,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible note issued in October 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 28
|
|
$
|
2,420
|
|
|
|
-
|
|
|
$
|
1,000
|
|
|
$
|
3,420
|
|
|
1,000,000
|
|
|
May 4
|
|
$
|
4,742
|
|
|
|
-
|
|
|
$
|
1,000
|
|
|
$
|
5,742
|
|
|
2,200,000
|
|
|
May 6
|
|
$
|
4,265
|
|
|
|
-
|
|
|
$
|
1,000
|
|
|
$
|
5,265
|
|
|
2,500,000
|
|
|
May 11
|
|
$
|
3,293
|
|
|
|
-
|
|
|
$
|
1,000
|
|
|
$
|
4,293
|
|
|
2,650,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible note issued in November
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 4
|
|
$
|
7,900
|
|
|
$
|
394
|
|
|
|
-
|
|
|
$
|
8,294
|
|
|
2,194,159
|
|
|
May 7
|
|
$
|
6,900
|
|
|
$
|
350
|
|
|
|
-
|
|
|
$
|
7,250
|
|
|
2,626,714
|
|
|
May 12
|
|
$
|
6,100
|
|
|
$
|
318
|
|
|
|
-
|
|
|
$
|
6,418
|
|
|
2,971,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
97,071
|
|
|
$
|
1,062
|
|
|
$
|
11,200
|
|
|
$
|
109,333
|
|
|
35,701,952
|
On
May 17, 2020, the holder of the 2019 Note that was issued on May 17, 2019 agreed to extend the maturity date of such 2019 Note
until November 17, 2020. The Company executed Amendment Number 1 to the related note agreement effective May 17, 2020.
On
May 18, 2020, the holder of the 2019 Note that was issued on August 19, 2020, informed the Company that such holder considered
that 2019 Note and accrued interest to have been paid in full with the final conversion on May 14, 2020.
Increase
in Authorized Common Shares
The
increase in the authorized number of shares of common stock described in Note 6. Stockholders’ Deficiently – Common
Stock took effect on April 30, 2020.
Increase
in size of 2015 Stock Plan
On
May 5, 2020, the Board of Directors resolved to increase the number of shares available for issuance pursuant to the 2015 Plan
by 50,000,000 to 58,985,260 as describe in Note 6. Stockholders’ Deficiency – Stock Options.
Convertible
Note dated April 15, 2020
RespireRx
and Power Up Lending Group Ltd. (the “Lender”) entered
into a Securities Purchase Agreement (the “Power Up Agreement”), dated as of April 15, 2020, by which the Lender
loaned $53,000 to the Company in return for a convertible promissory note (the “April 2020 Note”), the Limited Guaranty
(as defined below), and the delivery into escrow of a confession of judgment in favor of the Lender for the amount of the April
2020 Note plus fees and costs to be filed by the Lender upon the occurrence of an Event of Default (as defined in the April 2020
Note) and other transaction-related documents. The proceeds of the loan, which equal $50,000 after payment of $2,500 in legal
fees and $500 in due diligence fees, are being used for general corporate purposes.
The
April 2020 Note will be payable on April 15, 2021 (the “Maturity Date”), and bear interest at a rate equal to 12%
per annum, with any amount of principal or interest which is not paid when due bearing interest at the rate of 22% per annum.
The
Lender has the right, at any time during the period beginning on the date that is 180 days following the date of the April 2020
Note and ending on the later of (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in the April
2020 Note), to convert any outstanding and unpaid amount of the April 2020 Note into shares of the Company’s common stock
or securities convertible into the Company’s common stock (“April 2020 Conversion Shares”), provided that such
conversion would not result in the Lender beneficially owning more than 4.99% of the Company’s common stock. Subject to
certain limitations and adjustments as described in the April 2020 Note, the Lender may convert at a per share conversion price
equal to 61% of the lowest trading price of the common stock as reported by the exchange on which the Company’s shares are
traded, for the twenty trading days prior to, but excluding, the day upon which a notice of conversion is received by the Company.
Upon the conversion of all amounts due under the April 2020 Note, the April 2020 Note would be deemed repaid and terminated.
The
Company may prepay the outstanding principal amount under the April 2020 Note by paying a certain percentage of the sum of the
outstanding principal, interest, default interest and other amounts owed. Such percentage varies from 120% to 145% depending on
the period in which the prepayment occurs, as set forth in the April 2020 Note. During the period in which the April 2020 Note
is outstanding, subject to certain limited exceptions, the Company must notify the Lender in advance of closing of any financing
transactions with third party investors. At the Lender’s discretion, the Company must amend and restate the April 2020 Note,
including its conversion terms, and the April 2020 Conversion Shares to be identical to the instruments evidencing such financing
transaction.
In
consideration of and to induce the Lender to consummate the transaction referenced herein, the Chief Financial Officer
of RespireRx (the “CFO”), on April 15, 2020 issued a limited guaranty in favor of the Lender (the “Limited
Guaranty”) whereby the CFO guaranteed to the Lender the prompt and full performance and observance by RespireRx of
its obligation to promptly cooperate in processing all notices of conversions issued pursuant to the April 2020 Note.
The
April 2020 Note and the shares of common stock issuable upon conversion thereof were offered and sold to the Lender in reliance
upon specific exemptions from the registration requirements of United States federal and state securities laws, which include
Section 4(a)(2) of the Securities Act of 1933, as amended (the “1933 Act”), and Rule 506 promulgated by the SEC under
the 1933 Act. Pursuant to these exemptions, the Lender represented to the Company under the Power Up Agreement, among other
representations, that it was an “accredited investor” as that term is defined in Rule 501(a) of Regulation D under
the 1933 Act.
Reimbursement
of Advances made by Officers to the Company
Advances
to the Company, included in Notes payable to officers in the Company’s condensed consolidated balance sheet as of March
31, 2020, made by Arnold S. Lippa, were repaid, in part, such repayment being $6,977.
Advances
to the Company, included in Notes payable to officers in the Company’s condensed consolidated balance sheet as of March
31, 2020 and other advances subsequent to March 31, 2020, made by Jeff Eliot Margolis, the Company’s chief financial officer
were repaid to Mr. Margolis, the total repayment being $10,775.