UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
Commission
file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification Number) |
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company
| |
| Emerging growth company
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
As of May 18, 2022, the Company had , shares of common stock, $0.001 par value, issued and outstanding.
RESPIRERX PHARMACEUTICALS INC.
AND SUBSIDIARY
TABLE OF CONTENTS
| 2 |
In this Quarterly Report on Form 10-Q, the terms “RespireRx,” the “Company,” “we,” “us” and “our” refer to RespireRx Pharmaceuticals Inc. a Delaware corporation, and, unless the context indicates otherwise, its consolidated subsidiaries.
INTRODUCTORY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q of RespireRx Pharmaceuticals Inc., referred to herein as our “Q1 2022 Quarterly Report” (“RespireRx” and together with RespireRx’s wholly owned subsidiary, Pier Pharmaceuticals, Inc. (“Pier”), the “Company,” “we,” or “our,” unless the context indicates otherwise) contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Company intends that such forward-looking statements be subject to the safe harbor created thereby. These might include statements regarding the Company’s future plans, targets, estimates, assumptions, financial position, business strategy and other plans and objectives for future operations, and assumptions and predictions about research and development efforts, including, but not limited to, preclinical and clinical research design, execution, timing, costs and results, future product demand, supply, manufacturing, costs, marketing and pricing factors.
In some cases, forward-looking statements may be identified by words including “assumes,” “could,” “ongoing,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” “anticipates,” “believes,” “intends,” “estimates,” “expects,” “plans,” “contemplates,” “targets,” “continues,” “budgets,” “may,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words, and such statements may include, but are not limited to, statements regarding (i) future research plans, expenditures and results, (ii) potential collaborative arrangements, (iii) the potential utility of the Company’s products candidates, (iv) reorganization plans, and (v) the need for, and availability of, additional financing. Forward-looking statements are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this Q1 2022 Quarterly Report.
These factors include but are not limited to, regulatory policies or changes thereto, available cash, research and development results, issuance of patents, competition from other similar businesses, interest of third parties in collaborations with us, and market and general economic factors, and other risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 as filed with the SEC on April 15, 2022 (the “2021 Form 10-K”) and as may be included in this Q1 2022 Quarterly Report.
You should read these risk factors and the other cautionary statements made in the Company’s filings as being applicable to all related forward-looking statements wherever they appear in this Q1 2022 Quarterly Report. We cannot assure you that the forward-looking statements in this Q1 2022 Quarterly Report or in our 2021 Annual Report will prove to be accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements. You should read this Q1 2022 Quarterly Report completely. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may change in the future.
We caution investors not to place undue reliance on any forward-looking statement that speaks only as of the date made and to recognize that forward-looking statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described in this Q1 2022 Quarterly Report and our 2021 Annual Report, as well as others that we may consider immaterial or do not anticipate at this time. These forward-looking statements are based on assumptions regarding the Company’s business and technology, which involve judgments with respect to, among other things, future scientific, economic, regulatory and competitive conditions, collaborations with third parties, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the Company’s control. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. Our expectations reflected in our forward-looking statements can be affected by inaccurate assumptions that we might make or by known or unknown risks and uncertainties, including those described in this Q1 2022 Quarterly Report and our 2021 Annual Report. These risks and uncertainties are not exclusive and further information concerning us and our business, including factors that potentially could materially affect our financial results or condition, may emerge from time to time.
Forward-looking statements speak only as of the date they are made. The Company does not undertake and specifically declines any obligation to update any forward-looking statements or to publicly announce the results of any revisions to any statements to reflect new information or future events or developments.
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PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
RESPIRERX PHARMACEUTICALS INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Deferred financing costs | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses, including amounts owed to related parties (Note 5) | $ | $ | ||||||
| Accrued compensation and related expenses | ||||||||
| Convertible notes payable, currently due and payable on demand, including accrued
interest of $ | ||||||||
| Note payable to SY Corporation, including accrued interest of $ | ||||||||
| Notes and advances payable to officers, including accrued interest (Note 4) | ||||||||
| Notes payable to former officer, including accrued interest (Note 4) | ||||||||
| Other short-term notes payable | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Long-term accounts payable associated with payment settlement agreements, including long-term accounts payable due to affiliates of $ | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 8) | ||||||||
| Stockholders’ deficiency: (Note 6) | ||||||||
| Series B convertible preferred stock, $ par value; $ | ||||||||
| Common stock, $par value; shares authorized: ; shares issued and outstanding: outstanding at March 31, 2022 and at December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficiency | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficiency | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
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RESPIRERX PHARMACEUTICALS INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three-months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Operating expenses: | ||||||||
| General and administrative | $ | $ | ||||||
| Research and development | ||||||||
| Total operating costs and expenses | $ | $ | ||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Interest expense, including related parties | ( | ) | ( | ) | ||||
| Foreign currency transaction gain | ||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Net loss per common share - basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares outstanding - basic and diluted | ||||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
| 5 |
RESPIRERX PHARMACEUTICALS INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(Unaudited)
Three-months Ended March 31, 2022
| Series B | ||||||||||||||||||||||||||||
| Convertible | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional | Total | |||||||||||||||||||||||||
| Shares | Amount | Shares | Par Value | Paid-in Capital | Accumulated Deficit | Stockholders’ Deficiency | ||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
Three-months Ended March 31, 2021
| Series B | ||||||||||||||||||||||||||||
| Convertible | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional | Total | |||||||||||||||||||||||||
| Shares | Amount | Shares | Par Value | Paid-in Capital | Accumulated Deficit | Stockholders’ Deficiency | ||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Sale of common stock | - | |||||||||||||||||||||||||||
| Costs of stock issuance | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Issuance of note commitment shares and beneficial conversion feature | - | |||||||||||||||||||||||||||
| Issuance of common stock upon conversion of convertible notes | - | |||||||||||||||||||||||||||
| Stock -based compensation | - | - | ||||||||||||||||||||||||||
| Deferred financing costs | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Adjustment due to reverse stock split | - | ( | ) | |||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
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RESPIRERX PHARMACEUTICALS INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three-months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization of original issue discount, capitalized note costs and debt discounts to interest expense | ||||||||
| Stock-based compensation included in - | ||||||||
| General and administrative expenses | ||||||||
| Research and development expenses | ||||||||
| Foreign currency transaction (gain) loss | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) decrease in - | ||||||||
| Deferred financing costs | ||||||||
| Prepaid expenses | ( | ) | ||||||
| Fees paid with shares of Common Stock | ||||||||
| Increase (decrease) in - | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Accrued compensation and related expenses | ||||||||
| Long-term liabilities | ( | ) | ||||||
| Accrued interest payable | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from convertible note financing, net of note costs and original issue discount | ||||||||
| Borrowings on short-term notes payable | ||||||||
| Proceeds from sale of Common Stock | ||||||||
| Proceeds from or repayment of officer advance | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Cash and cash equivalents: | ||||||||
| Net increase/(decrease) | ( | ) | ||||||
| Balance at beginning of period | ||||||||
| Balance at end of period | $ | $ | ||||||
(Continued)
| 7 |
RESPIRERX PHARMACEUTICALS INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
Three-months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for - | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Non-cash financing activities: | ||||||||
| Amortization of deferred financing costs | $ | $ | ||||||
| Insurance policies | ||||||||
| Debt discounts established for convertible debt | $ | $ | ||||||
| Issuance of common stock in exchange for extinguishment of convertible notes payable | $ | $ | ||||||
| Issuance of common stock as commitment for convertible note | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
| 8 |
RESPIRERX PHARMACEUTICALS INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Basis of Presentation
Organization
RespireRx Pharmaceuticals Inc. (“RespireRx”) was formed in 1987 under the name Cortex Pharmaceuticals, Inc. to engage in the discovery, development and commercialization of innovative pharmaceuticals for the treatment of neurological and psychiatric disorders. On December 16, 2015, RespireRx filed a Certificate of Amendment to its Second Restated Certificate of Incorporation (as amended, the “Certificate of Incorporation”) with the Secretary of State of the State of Delaware to amend its Second Restated Certificate of Incorporation to change its name from Cortex Pharmaceuticals, Inc. to RespireRx Pharmaceuticals Inc. In August 2012, RespireRx acquired Pier Pharmaceuticals, Inc. (“Pier”), which is now a wholly owned subsidiary. Pier was a clinical stage biopharmaceutical company developing a pharmacologic treatment for obstructive sleep apnea (“OSA”) and had been engaged in research and clinical development activities which activities are now in RespireRx.
Basis of Presentation
The condensed consolidated financial statements are of RespireRx and its wholly-owned subsidiary, Pier (collectively referred to herein as the “Company,” “we” or “our,” unless the context indicates otherwise). The condensed consolidated financial statements of the Company at March 31, 2022 and for the three-months ended March 31, 2022 and 2021, are unaudited. In the opinion of management, all adjustments (including normal recurring adjustments) have been made that are necessary to present fairly the condensed consolidated financial position of the Company, the condensed results of operations, condensed changes in stockholders’ deficiency and condensed changes in cash flows as of and for the periods ended March 31, 2022 and 2021. 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, 2021 has been derived from the Company’s audited consolidated financial statements at such date.
The condensed consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles (“GAAP”) have been omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and other information included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 as filed with the SEC on April 15, 2022 (“2021 Form 10-K”).
2. Business
The mission of the Company is to develop innovative and revolutionary treatments to combat disorders caused by disruption of neuronal signaling. We are developing treatment options that address conditions affecting millions of people, but for which there are limited or poor treatment options, including OSA, attention deficit hyperactivity disorder (“ADHD”), epilepsy, acute and chronic pain, including inflammatory and neuropathic pain, recovery from spinal cord injury (“SCI”) and certain orphan disorders. We are also considering developing treatment options for other conditions based on results of preclinical and clinical studies to date.
In order to facilitate our business activities and product development, the Company has implemented an internal restructuring plan based upon our two research platforms: pharmaceutical cannabinoids and neuromodulators. The business unit focused on pharmaceutical cannabinoids is referred to as ResolutionRx and the business unit focused on neuromodulators is referred to as EndeavourRx. It is anticipated that the Company will use, at least initially, its management personnel to provide management, operational and oversight services to these two business units.
| (i) | ResolutionRx, our pharmaceutical cannabinoids platform is developing compounds that target the body’s endocannabinoid system, and in particular, the re-purposing of dronabinol, an endocannabinoid CB1 and CB2 receptor agonist, for the treatment of OSA. Dronabinol is already approved by the FDA for other indications. | |
| (ii) | EndeavourRx, our neuromodulators platform is made up of two programs: (a) our AMPAkines program, which is developing proprietary compounds that act as positive allosteric modulators (“PAMs”) of AMPA-type glutamate receptors to promote neuronal function and (b) our GABAkines program, which is developing proprietary compounds that act as PAMs of GABAA receptors, and which was recently established pursuant to our entry into a patent license agreement (the “UWMRF Patent License Agreement”) with the University of Wisconsin-Milwaukee Research Foundation, Inc., an affiliate of the University of Wisconsin-Milwaukee (“UWMRF”). |
Management intends to organize our ResolutionRx and EndeavourRx business units into two subsidiaries: (i) a ResolutionRx subsidiary, into which we would contribute our pharmaceutical cannabinoid platform and its related tangible and intangible assets and certain of its liabilities and (ii) an EndeavourRx subsidiary, into which we would contribute our neuromodulator platform, including either or both of the AMPAkine and GABAkine programs and their related tangible and intangible assets and certain of their liabilities.
Management believes that there are advantages to separating these platforms formally into newly formed subsidiaries, including but not limited to optimizing their asset values through separate financing channels and making them more attractive for capital raising as well as for strategic transactions.
The Company is also engaged in business development efforts (licensing, sub-licensing, joint venture and other commercial structures) with a view to securing strategic partnerships that represent strategic and operational infrastructure additions, as well as cash and in-kind funding opportunities. These efforts have focused on, but have not been limited to, transacting with brand and generic pharmaceutical and biopharmaceutical companies as well as companies with potentially useful clinical development, formulation or manufacturing capabilities, significant subject matter expertise and financial resources. No assurance can be given that any transaction will come to fruition and that, if it does, the terms will be favorable to the Company.
Financing our Platforms
Our major challenge has been to raise substantial equity or equity-linked financing to support research and development plans for our cannabinoid and neuromodulator platforms, while minimizing the dilutive effect to pre-existing stockholders. At present, we believe that we are hindered primarily by our public corporate structure, our OTCQB listing, and low market capitalization as a result of our low stock price.
For this reason, the Company has effected an internal restructuring plan through which our two drug platforms have been reorganized into separate business units and may in the future, be organized into subsidiaries of RespireRx. We believe that by creating one or more subsidiaries to further the aims of ResolutionRx and EndeavourRx, it may be possible, through separate finance channels, to unlock the unrealized asset values of each.
The
Company filed a Form 1-A which included an offering circular that was qualified by The Securities and Exchange Commission on December
13, 2021 and subsequently amended. The offering is of the Company’s common stock and is up to $
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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 $
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 GAAP and include the financial statements of RespireRx and its wholly-owned subsidiary, Pier. Intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include, among other things, accounting for potential liabilities, and the assumptions used in valuing stock-based compensation issued for services. Actual amounts may differ from those estimates.
Reverse Stock Split on January 5, 2021
On
January 5, 2021,
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Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company limits its exposure to credit risk by investing its cash with high quality financial institutions. The Company’s cash balances may periodically exceed federally insured limits. The Company has not experienced a loss in such accounts to date.
Value of Financial Instruments
The authoritative guidance with respect to value of financial instruments established a value hierarchy that prioritizes the inputs to valuation techniques used to measure value into three levels and requires that assets and liabilities carried at value be classified and disclosed in one of three categories, as presented below. Disclosure as to transfers into and out of Levels 1 and 2, and activity in Level 3 value measurements, is also required.
Level 1. Observable inputs such as quoted prices in active markets for an identical asset or liability that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active-exchange traded securities and exchange-based derivatives.
Level 2. Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange based derivatives, mutual funds, and fair-value hedges.
Level 3. Unobservable inputs in which there is little or no market data for the asset or liability which requires the reporting entity to develop its own assumptions. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded, non-exchange-based derivatives and commingled investment funds, and are measured using present value pricing models.
The Company determines the level in the value hierarchy within which each value measurement falls in its entirety, based on the lowest level input that is significant to the value measurement in its entirety. In determining the appropriate levels, the Company performs an analysis of the assets and liabilities at each reporting period end.
The carrying amounts of financial instruments (consisting of cash, cash equivalents, and accounts payable and accrued expenses) are considered by the Company to be representative of the respective values of these instruments due to the short-term nature of those instruments. With respect to the note payable to SY Corporation Co., Ltd. (“SY Corporation”) and the convertible notes payable, management does not believe that the credit markets have materially changed for these types of borrowings since the original borrowing date. The Company considers the carrying amounts of the notes payable to officers, inclusive of accrued interest, to be representative of the respective values of such instruments due to the short-term nature of those instruments and their terms.
Deferred Financing Costs
Costs incurred in connection with ongoing debt and equity financings, including legal fees, are deferred until the related financing is either completed or abandoned or are unlikely to be completed.
Costs related to abandoned debt or equity financings are charged to operations in the period of abandonment. Costs related to completed equity financings are netted against the proceeds.
Debt Issuance Costs
The Company presents debt issuance costs related to debt obligations in its consolidated balance sheet as a direct deduction from the carrying amount of that debt obligation, consistent with the presentation for debt discounts.
| 11 |
Convertible Notes Payable
Convertible notes are evaluated to determine if they should be recorded at amortized cost. To the extent that there are associated warrants, commitment shares of Common Stock or a beneficial conversion feature, the convertible notes and equity or equity-linked securities are evaluated to determine if there are embedded derivatives to be identified, bifurcated and valued in connection with and at the time of such financing.
Extinguishment of Debt and Settlement of Liabilities
The Company accounts for the extinguishment of debt and settlement of liabilities by comparing the carrying value of the debt or liability to the value of consideration paid or assets given up and recognizing a loss or gain in the condensed consolidated statement of operations in the amount of the difference in the period in which such transaction occurs. See Note 4. Notes Payable.
Prepaid Insurance
Prepaid insurance represents the premium due in March 2022 for directors and officers insurance. The amounts of prepaid insurance amortizable in the ensuing twelve-month period are recorded as prepaid insurance in the Company’s consolidated balance sheet at each reporting date and amortized to the Company’s consolidated statement of operations for each reporting period.
The Company periodically issues common stock and stock options to officers, directors, Scientific Advisory Board members, consultants and vendors for services rendered. Such issuances vest and expire according to terms established at the issuance date of each grant.
The Company accounts for stock-based payments to officers, directors, outside consultants and vendors by measuring the cost of services received in exchange for equity awards based on the grant date fair value of the awards, with the cost recognized as compensation expense on the straight-line basis in the Company’s consolidated financial statements over the vesting period of the awards.
Stock grants and stock options, which are sometimes subject to time-based vesting, are measured at the grant date fair value and charged to operations ratably over the vesting period.
The value of stock options granted as stock-based payments is determined utilizing the Black-Scholes option-pricing model, and is affected by several variables, the most significant of which are the life of the equity award, the exercise price of the stock option as compared to the fair market value of the common stock on the grant date, and the estimated volatility of the common stock over the term of the equity award. Estimated volatility is based on the historical volatility of the Company’s common stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The fair market value of common stock is determined by reference to the quoted market price of the Company’s common stock.
Stock and stock option grants and warrants issued to non-employees as compensation for services to be provided to the Company or in settlement of debt are accounted for based upon the fair value of the services provided or the estimated fair value of the stock option or warrant, whichever can be more clearly determined. Management uses the Black-Scholes option-pricing model to determine the fair value of the stock options and warrants issued by the Company. The Company recognizes this expense over the period in which the services are provided.
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There were stock or stock option grants during the three-months ended March 31, 2022.
The Company recognizes the amortized value of stock-based payments in general and administrative costs and in research and development costs, as appropriate, in the Company’s condensed consolidated statements of operations. The Company issues new shares of common stock to satisfy stock option and warrant exercises. There were stock options exercised during the three-months ended March 31, 2022 and 2021, respectively.
There were warrants issued as compensation or for services during the three-months ended March 31, 2022 and 2021. Warrants, if issued for services, are typically issued to placement agents or brokers for fund raising services, or to lenders, and are not issued from any of the Company’s stock and option plans, from which options issued to non-employees for services are typically issued.
Income Taxes
The Company accounts for income taxes under an asset and liability approach for financial accounting and reporting for income taxes. Accordingly, the Company recognizes deferred tax assets and liabilities for the expected impact of differences between the financial statements and the tax basis of assets and liabilities.
The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. In the event the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of its recorded amount, an adjustment to the deferred tax assets would be credited to operations in the period such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of its deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to operations in the period such determination was made.
Pursuant to Internal Revenue Code Sections 382 and 383, use of the Company’s net operating loss and credit carryforwards may be limited if a cumulative change in ownership of more than 50% occurs within any three-year period since the last ownership change. The Company may have had a change in control under these Sections. However, the Company does not anticipate performing a complete analysis of the limitation on the annual use of the net operating loss and tax credit carryforwards until the time that it anticipates it will be able to utilize these tax attributes.
As of March 31, 2022, 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, 2022, the Company had not recorded any liability for uncertain tax positions. In subsequent periods, any interest and penalties related to uncertain tax positions will be recognized as a component of income tax expense.
Foreign Currency Transactions
The note payable to SY Corporation, which is denominated in a foreign currency (the South Korean Won), is translated into the Company’s functional currency (the United States Dollar) at the exchange rate on the balance sheet date. The foreign currency exchange gain or loss resulting from translation is recognized in the related condensed consolidated statements of operations.
| 13 |
Research and Development
Research and development costs include compensation paid to management directing the Company’s research and development activities, including but not limited to compensation paid to our Chief Scientific Officer who is also our Executive Chairman, our Interim President and our Interim Chief Executive 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 term, as specified in the underlying license agreement, and are recorded as liabilities in the Company’s condensed consolidated balance sheet, with a corresponding charge to research and development costs in the Company’s condensed consolidated statement of operations. Obligations incurred with respect to milestone payments provided for in license agreements are recognized when it is probable that such milestone will be reached and are recorded as liabilities in the Company’s condensed consolidated balance sheet, with a corresponding charge to research and development expenses in the Company’s condensed consolidated statement of operations.
Patent Costs
Due to the significant uncertainty associated with the successful development of one or more commercially viable products based on the Company’s research efforts and any related patent applications, all patent costs, including patent-related legal and filing fees, are expensed as incurred and recorded as general and administrative expenses.
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.
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Series B convertible preferred stock | ||||||||
| Convertible notes payable | ||||||||
| Common stock warrants | ||||||||
| Common stock options | ||||||||
| Total | ||||||||
Reclassifications
Certain comparative figures in 2021 have been reclassified to conform to the current quarter’s presentation. These reclassifications were immaterial, both individually and in the aggregate.
| 14 |
Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). The subtitle is Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This Accounting Standard Update (“ASU”) addresses complex financial instruments that have characteristics of both debt and equity. The application of this ASU would reduce the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models would result in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The Company has historically issued complex financial instruments and has considered whether embedded conversion features have existed within those contracts or whether derivatives would appropriately be bifurcated. To date, no such bifurcation has been necessary. However, it is possible that this ASU may have a substantial impact on the Company’s financial statements. Management is evaluating the potential impact. This ASU becomes effective for fiscal years beginning after December 15, 2023.
4. Notes Payable
Convertible Notes Payable
The
Company periodically issues convertible notes with similar characteristics. As described in the table below, during the three-months
ended March 31, 2022, there were nine such notes outstanding. Notes all have a fixed conversion price of $
| 15 |
The table below summarizes the convertible notes outstanding during the three months ended and as of March 31, 2022. There were no repayments by conversion during the three-months ended March 31, 2022, however there was one partial conversion in April 2022 (see also Note 9. Subsequent Events):
| Inception Date | Maturity date | Original Principal Amount | Interest rate | Original aggregate DIC, OID, Wts, CS and BCF | Cumulative amortization of DIC, OID, Wts, CS and BCF | Accrued coupon interest | Repayment by conversion | Balance sheet carrying amount at March 31, 2022 inclusive of accrued interest | ||||||||||||||||||||||
| July 28, 2020 | $ | % | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||||
| February 17, 2021 | % | ( | ) | ( | ) | |||||||||||||||||||||||||
| April 1, 2021 | % | ( | ) | |||||||||||||||||||||||||||
| May 3, 2021 | % | ( | ) | |||||||||||||||||||||||||||
| May 10, 2021 | % | ( | ) | |||||||||||||||||||||||||||
| June 30, 2021 | % | ( | ) | |||||||||||||||||||||||||||
| August 31, 2021 | % | ( | ) | |||||||||||||||||||||||||||
| October 7, 2021 | % | ( | ) | |||||||||||||||||||||||||||
| December 23, 2021 | % | ( | ) | |||||||||||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
In
addition to what appears in the table above, there is outstanding accrued interest of $
On
April 14, 2022, the Company issued a convertible note and related warrants to an investor with a maturity amount of $
On
December 31, 2018 and January 2, 2019, the Company issued convertible notes to a single investor totaling $
Other
convertible notes were also sold to investors in 2014 and 2015 (“Original Convertible Notes), which aggregated a total of $
| 16 |
The remaining outstanding Original Convertible Notes (including those for which default notices have been received) consist of the following at March 31, 2022 and December 31, 2021:
| March 31, 2022 | December 31, 2021 | |||||||
| Principal amount of notes payable | $ | $ | ||||||
| Accrued interest payable | ||||||||
| $ | $ | |||||||
As
of March 31, 2022, principal and accrued interest on the Original Convertible Note that is subject to a default notice accrues annual
interest at
As
of March 31, 2022 all of the outstanding Original Convertible Notes, inclusive of accrued interest, were convertible into an aggregate
of shares of the Company’s common stock at
a conversion price of approximately $
Note Payable to SY Corporation Co., Ltd.
On
June 25, 2012, the Company borrowed Won (the currency of South Korea, equivalent to approximately $
The promissory note is secured by collateral that represents a lien on certain patents owned by the Company, dating back to January, August and September 2007, including composition of matter patents for certain of the Company’s high impact ampakine compounds and the low impact ampakine compounds CX2007 and CX2076, and other related compounds that the Company is no longer developing and where patent rights date back to January, August and September 2007. The security interest does not extend to the Company’s patents for its ampakine compounds CX1739 and CX1942 or certain related method of use patents.
The note payable to SY Corporation consists of the following at March 31, 2022 and December 31, 2021:
| March 31, 2022 | December 31, 2021 | |||||||
| Principal amount of note payable | $ | $ | ||||||
| Accrued interest payable | ||||||||
| Foreign currency transaction adjustment | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Interest
expense with respect to this promissory note was $
Notes Payable to Officers and Former Officers
For
the three-months ended March 31, 2022 and 2021, $
In addition, Dr. Lippa periodically makes advances to the Company which are re-payable upon demand, do not accrue interest and are included in the total of notes payable to Officers.
For
the three-months ended March 31, 2022 and 2021, $
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Other Short-Term Notes Payable
Other
short-term notes payable at March 31, 2022 and December 31, 2021 consisted of premium financing agreements with respect to various insurance
policies. At March 31, 2022, a premium financing agreement was payable in the initial amount of $
5. Settlement and Payment Agreements
On
April 29, 2021,
On
February 21, 2020, Sharp Clinical Services, Inc. (“Sharp”), a vendor of the Company, filed a complaint against the Company
in the Superior Court of New Jersey Law Division, Bergen County related to a December 16, 2019 demand for payment of past due invoices
inclusive of late fees totaling $
By
letter dated February 5, 2016, the Company received a demand from a law firm representing Salamandra, LLC (“Salamandra”)
alleging an amount due and owing for unpaid services rendered. On January 18, 2017, following an arbitration proceeding, an arbitrator
awarded Salamandra the full amount sought in arbitration of $
On
February 23, 2021 our bank received two New Jersey Superior Court Levies totaling $
On
September 14, 2021, the Company and DNA Healthlink, Inc. (“DNA Healthlink”) entered into a settlement agreement (the
“ DNA Healthlink Settlement Agreement”) regarding $
An
annual obligation payable to the University of Illinois of $
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 $
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, 2022 and December 31, 2021 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.
| 18 |
6. Stockholders’ Deficiency
Preferred Stock
RespireRx has authorized a total of shares of preferred stock, par value $ per share. As of March 31, 2022 and December 31, 2021, shares were designated as Series B Convertible Preferred Stock (non-voting, “Series B Preferred Stock”).
Series
B Preferred Stock outstanding as of March 31, 2022 and December 31, 2021 consisted of shares issued in a May 1991 private placement.
The shares of Series B Preferred Stock are convertible into share of common stock. RespireRx may redeem the
Series B Preferred Stock for $
Although other series of preferred stock have been designated, no other shares of preferred stock are outstanding. As of March 31, 2022 and December 31, 2021, shares of preferred stock were undesignated and may be issued with such rights and powers as the Board of Directors may designate.
Common Stock
RespireRx has authorized (2 billion) shares of Common Stock, par value $ (“Common Stock”). There are shares of the Company’s Common Stock outstanding as of March 31, 2022. After reserving for conversions of convertible debt and convertible preferred stock, as well as exercises of common stock purchase options (granted and available for grant within the 2014 and 2015 stock and stock option plans) and warrants and the issuance of Pier contingent shares and before accounting for incremental contract excess reserves, there were shares of the Company’s Common Stock available for future issuances as of March 31, 2022. After accounting for incremental excess reserves contractually required by the various convertible notes and certain warrants, there were , shares of common stock available for future issuances as of March 31, 2022. No warrants or options were exercised after March 31, 2022. Options to purchase shares of Common Stock expired during the three-month period ended March 31, 2022 and such shares were added back to the shares of common stock available for issuance from the 2015 Plan. See Note 9. Subsequent Events in the notes to our condensed consolidated financial statements as of March 31, 2022.
Common Stock Warrants
A summary of warrant activity for the three-months ended March 31, 2022 is presented below.
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in Years) | ||||||||||
| Warrants outstanding at December 31, 2021 | $ | |||||||||||
| Issued | ||||||||||||
| Expired | ||||||||||||
| Warrants outstanding and exercisable at March 31, 2022 | $ | |||||||||||
The exercise prices of common stock warrants outstanding and exercisable are as follows at March 31, 2022:
Exercise Price |
Warrants Outstanding (Shares) | Warrants Exercisable (Shares) | Expiration Date | |||||||||
| $ | ||||||||||||
| $ | - | |||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | - | - | ||||||||||
Based
on a value of $
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in Years) | ||||||||||
| Warrants outstanding at December 31, 2020 | $ | |||||||||||
| Issued | ||||||||||||
| Expired | ( | ) | ||||||||||
| Warrants outstanding at March 31, 2021 | $ | |||||||||||
Exercise Price |
Warrants Outstanding (Shares) | Warrants Exercisable (Shares) | Expiration Date | |||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | - | - | ||||||||||
| 19 |
Based
on a value of $
Stock Options
On March 18, 2014, the stockholders of RespireRx holding a majority of the votes to be cast on the issue approved the adoption of RespireRx’s 2014 Equity, Equity-Linked and Equity Derivative Incentive Plan (the “2014 Plan”), which had been previously adopted by the Board of Directors, subject to stockholder approval. The Plan permits the grant of options and restricted stock in addition to stock appreciation rights and phantom stock, to directors, officers, employees, consultants and other service providers of the Company. As of March 31, 2022, there are share available in the 2014 Plan.
On June 30, 2015, the Board of Directors adopted the 2015 Stock and Stock Option Plan (as amended, the “2015 Plan”). As of March 31, 2022, there are shares available in the 2015 Plan. The Company has not and does not intend to present the 2015 Plan to stockholders for approval.
Information with respect to the Black-Scholes variables used in connection with the evaluation of the fair value of stock-based compensation costs and fees is provided at Note 3.
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in Years) | ||||||||||
| Options outstanding at December 31, 2021 | $ | |||||||||||
| Expired | ( | ) | - | |||||||||
| Options outstanding and exercisable at March 31, 2021 | $ | |||||||||||
| 20 |
| Exercise Price | Options Outstanding (Shares) | Options Exercisable (Shares) | Expiration Date | |||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | -$ | - | ||||||||||
There was no deferred compensation expense for the outstanding and unvested stock options at March 31, 2022.
Based on a fair value of $ per share on March 31, 2022, there were exercisable in-the-money common stock options as of March 31, 2022.
Reserved and Unreserved Shares of Common Stock
As
of March 31, 2022, there are
shares of Common Stock, par value $authorized, of which are issued and outstanding. As of March 31, 2022,
there were outstanding options to purchase shares of Common Stock and and shares available for issuance under the 2014
Plan and 2015 Plan respectively. There are 649 Pier contingent shares of Common Stock that may be issued under certain circumstances.
As of March 31, 2022, there are issuable upon conversion of convertible notes.
As of March 31, 2022, there are
7. Related Party Transactions
Dr.
Arnold S. Lippa and Jeff E. Margolis, officers and directors of RespireRx since March 22, 2013, have indirect ownership and managing
membership interests in Aurora Capital LLC (“Aurora”) through interests held in its members, and Jeff. E. Margolis is also
an officer of Aurora. Aurora, was a boutique investment banking firm specializing in the life sciences sector that ceased its securities
related activities in April 2021 and withdraw its membership with FINRA and its registration with the SEC in July 2021. Although Aurora
has not provided services to RespireRx during the three-months ended March 31, 2022 or the fiscal year ended December 31, 2021, Aurora
had previously provided services to the Company and there remains $
A description of advances and notes payable to officers is provided at Note 4. Notes Payable.
8. Commitments and Contingencies
Pending or Threatened Legal Action and Claims
The Company is periodically the subject of various pending and threatened legal actions and claims. In the opinion of management of the Company, adequate provision has been made in the Company’s condensed consolidated financial statements as of March 31, 2022, December 31, 2021 and March 31, 2021 with respect to such matters. See Note 5. Settlement and Payment Agreements for additional items and details.
Significant Agreements and Contracts
Consulting Agreements
| 21 |
Employment Agreements
Effective on May 6, 2020, Timothy Jones was appointed as RespireRx’s President and Chief Executive Officer and entered into an employment agreement as of that date. Effective January 31 2022, Mr. Jones resigned as RespireRx’s President and Chief Executive Officer as well as a member of RespireRx’s Board of Directors pursuant to an Employment Agreement Termination and Separation Agreement dated February 8, 2022.
Effective January 31, 2022, Dr. Lippa was appointed as RespireRx’s Interim President and Interim Chief Executive Officer. Dr. Lippa continues to serve as RespireRx’s Executive Chairman and as a member of the Board of Directors as well as the Company’s Chief Scientific Officer.
Jeff E. Margolis currently serves as the Company’s Senior Vice President, Chief Financial Officer, Treasurer and Secretary. Mr. Margolis also serves on the Company’s Board of Directors.
The table below summarized the current cash commitments to Dr. Lippa and Mr. Margolis through the next September 30th renewal date.
| Contract year ending | ||||||||||||
| September 30, 2022 | ||||||||||||
| Six months | ||||||||||||
| Base | ||||||||||||
| Salary | Benefits | Total | ||||||||||
| Arnold S. Lippa | $ | $ | $ | |||||||||
| Jeff E. Margolis | ||||||||||||
| $ | $ | $ | ||||||||||
Under certain circumstances base salaries may be contractually increased or the executives may become eligible for additional benefits and base salaries may be increased at the discretion of the Board of Directors. All executives are eligible for stock and stock option and similar grants at the discretion of the Board or Directors.
The payment of certain amounts reflected in the table above have been voluntarily deferred indefinitely and payments against accrued compensation may be made based upon the Company’s ability to make such payments.
UWMRF Patent License Agreement
On August 1, 2020, RespireRx exercised its option pursuant to its option agreement dated March 2, 2020, between RespireRx and UWM Research Foundation, an affiliate of the University of Wisconsin-Milwaukee (“UWMRF”). Upon exercise, RespireRx and UWMRF executed the UWMRF Patent License Agreement effective August 1, 2020 pursuant to which RespireRx licensed the identified intellectual property.
Under the UWMRF Patent License Agreement, the Company has an exclusive license to commercialize GABAkine products based on UWMRF’s rights in certain patents and patent applications, and a non-exclusive license to commercialize products based on UWMRF’s rights in certain technology that is not the subject of the patents or patent applications. UWMRF maintains the right to use, and, upon the approval of the Company, to license, these patent and technology rights for any non-commercial purpose, including research and education. The UWMRF Patent License Agreement expires upon the later of the expiration of the Company’s payment obligations to UWMRF or the expiration of the last remaining licensed patent granted thereunder, subject to early termination upon the occurrence of certain events. The License Agreement also contains a standard indemnification provision in favor of UWMRF and confidentiality provisions obligating both parties.
Under the UWMRF Patent License Agreement, in consideration for the licenses granted, the Company will pay to UWMRF the following: (i) patent filing and prosecution costs incurred by UWMRF prior to the effective date, paid in yearly installments over three years from the Effective Date; (ii) annual maintenance fees, beginning on the second anniversary of the Effective Date, which annual maintenance fees terminate upon the Company’s payment of royalties pursuant to clause (iv) below; (iii) milestone payments, paid upon the occurrence of certain dosing events of patients during clinical trials and certain approvals by the FDA; and (iv) royalties on net sales of products developed with the licenses, subject to minimum annual payments and to royalty rate adjustments based on whether separate royalty payments by the Company yield an aggregate rate beyond a stated threshold. The Company has also granted UWMRF certain stock appreciation rights with respect to the Company’s neuromodulator programs, subject to certain limitations, and will pay to UWMRF certain percentages of revenues generated from sublicenses of the licenses provided under the UWMRF Patent License Agreement by the Company to third parties.
| 22 |
University of Wisconsin-Milwaukee Outreach Services Agreement
On
July 12, 2021, the Company and the Board of Regents of the University of Wisconsin System on behalf of the University of Wisconsin-Milwaukee
(“UWM”) entered into an Outreach Services Agreement pursuant to which UWM agreed to provide, among other molecules, multiple
milligram to gram quantities of KRM-II-81 (GABAkine) and the Company agreed to pay UWM an annual sum of $
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 $
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
One-time
milestone payments may become due based upon the achievement of certain development milestones. $
During
the three-months ended March 31, 2022 and 2021, the Company recorded charges to operations of $
| 23 |
Noramco Inc. - Dronabinol Development and Supply Agreement
On September 4, 2018, RespireRx entered into a dronabinol Development and Supply Agreement with Noramco Inc., one of the world’s major dronabinol manufacturers, which Noramco subsequently assigned to its subsidiary, Purisys LLC (the “Purisys Agreement”). Under the terms of the Purisys Agreement, Purisys has agreed to (i) provide all of the active pharmaceutical ingredient (“API”) estimated to be needed for the clinical development process for both the first- and second-generation products (each a “Product” and collectively, the “Products”), three validation batches for New Drug Application (“NDA”) filing(s) and adequate supply for the initial inventory stocking for the wholesale and retail channels, subject to certain limitations, (ii) maintain or file valid drug master files (“DMFs”) with the FDA or any other regulatory authority and provide the Company with access or a right of reference letter entitling the Company to make continuing reference to the DMFs during the term of the agreement in connection with any regulatory filings made with the FDA by the Company, (iii) participate on a development committee, and (iv) make available its regulatory consultants, collaborate with any regulatory consulting firms engaged by the Company and participate in all FDA or Drug Enforcement Agency (“DEA”) meetings as appropriate and as related to the API. We now refer to the second-generation product as our proprietary formulation or proprietary product and have de-emphasized the first-generation product.
In consideration for these supplies and services, the Company has agreed to purchase exclusively from Purisys during the commercialization phase all API for its Products (as defined in the Development and Supply Agreement) at a pre-determined price subject to certain producer price index adjustments and agreed to Purisys’ participation in the economic success of the commercialized Product or Products up to the earlier of the achievement of a maximum dollar amount or the expiration of a period of time.
There was no activity during the three-months ended March 31, 2022 or 2021 with respect to the Purisys Agreement.
Summary of Principal Cash Obligations and Commitments
The
following table sets forth the Company’s principal cash obligations and commitments for the next five fiscal years as of March
31, 2021, aggregating $
| Payments Due By Year | ||||||||||||||||||||||||
| Total | 2022 | 2023 | 2024 | 2025 | 2026 | |||||||||||||||||||
| License agreements | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Employment agreements (1) | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
(1) The payment of certain of such amounts has been deferred indefinitely, as described above in “Employment Agreements”.
| 24 |
9. Subsequent Events
Convertible Note and Related Transactions
On
April 14, 2022, the Company and Barton Asset Management (“Barton”) entered into a Securities Purchase Agreement (the “Barton
SPA”) pursuant to which Barton is to provide a sum of $
The
Note obligates the Company to pay by April 14, 2023 (the “Barton Maturity Date”) a principal amount of $
The Barton Note requires that the Company reserve the greater of (i) shares of Common Stock or (ii) one and a half times the number of shares into which the Barton Note may convert. The Barton Warrant requires that the Company reserve three times the number of shares into which the Barton Warrant is at any time exercisable.
The Barton SPA includes, among other things: (1) the grant of an option to Barton to incorporate into the Barton Note any terms applicable to a subsequent issuance of a convertible note or security by the Company that are more beneficial to an investor than the terms of the Barton SPA and Barton Note are to Barton; and (2) certain registration rights by reference to the Barton Registration Rights Agreement, and the right to have any shares of common stock issued in connection with the conversion of the Barton Note or exercise of the Barton Warrant included in any Regulation A offering statement that the Company files with the Securities and Exchange Commission.
| 25 |
The
terms of the Barton SPA, Barton Note and related documents will trigger most favored nation adjustments to certain of the Company’s
outstanding notes, including, but not necessarily limited to an adjustment of the conversion prices to $
Most-Favored Nation Clauses of Certain Convertible Notes
Upon
completion of the Barton Note and related agreements described above, the most-favored nations clauses (“MFN”) of other convertible
notes and related warrants and agreements became effective. As a result, conversion prices were adjusted from $ to $ per share
of common stock. In addition, the number of shares into which the warrants could be exercised doubled and the exercise price was reduced
from $
Convertible Note Conversion
On
April 18, 2022, a convertible note holder converted as a partial conversion, $
Advance from Officer
On
April 14, 2022, the Company’s Interim President, Interim Chief Executive Officer and Chief Scientific Officer advanced $
| 26 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements (unaudited) and notes related thereto appearing elsewhere in this document, as well as the audited consolidated financial statements, notes related thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Form 10-K.
Overview
The mission of the Company is to develop innovative and revolutionary treatments to combat disorders caused by disruption of neuronal signaling. We are developing treatment options that address OSA, ADHD, epilepsy, acute and chronic pain, including inflammatory and neuropathic pain, and recovery from SCI”, which are conditions that affect millions of people but for which there are limited or poor treatment options. We are also considering developing treatment options for other conditions based on results of preclinical and clinical studies to date.
RespireRx is developing a pipeline of new drug products supported by our broad patent portfolios across two distinct drug platforms:
| (i) | ResolutionRx, our pharmaceutical cannabinoids platform (which we refer to as ResolutionRx) is developing compounds that target the body’s endocannabinoid system, and in particular, the re-purposing of dronabinol, an endocannabinoid CB1 and CB2 receptor agonist, for the treatment of OSA. Dronabinol is already approved by the FDA for other indications. | |
| (ii) | EndeavourRx, our neuromodulators platform is made up of two programs: (a) our AMPAkines program, which is developing proprietary compounds that act as PAMs of AMPA-type glutamate receptors to promote neuronal function and (b) our GABAkines program, which is developing proprietary compounds that act as PAMs of GABAA receptors, and which was recently established pursuant to our entry into a patent license agreement (the “UWMRF Patent License Agreement”) with the University of Wisconsin-Milwaukee Research Foundation, Inc., an affiliate of the University of Wisconsin-Milwaukee (“UWMRF”). |
Management intends to organize our ResolutionRx and EndeavourRx business units into two subsidiaries: (i) a ResolutionRx subsidiary, into which we would contribute our pharmaceutical cannabinoid platform and its related tangible and intangible assets and certain of its liabilities and (ii) an EndeavourRx subsidiary, into which we would contribute our neuromodulator platform, including both the AMPAkine and GABAkine programs and their related tangible and intangible assets and certain of their liabilities.
Management believes that there are advantages to separating these platforms formally into newly formed subsidiaries, including but not limited to optimizing their asset values through separate financing channels and making them more attractive for capital raising as well as for strategic transactions.
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Financing our Platforms
Our major challenge has been to raise substantial equity or equity-linked financing to support research and development plans for our cannabinoid and neuromodulator platforms, while minimizing the dilutive effect to pre-existing stockholders. At present, we believe that we are hindered primarily by our public corporate structure, our OTCQB listing, and low market capitalization as a result of our low stock price.
The Company is also engaged in business development efforts (licensing/sub-licensing, joint venture and other commercial structures) with a view to securing strategic partnerships that represent strategic and operational infrastructure additions, as well as cash and in-kind funding opportunities. These efforts have focused on, but have not been limited to, transacting with brand and generic pharmaceutical and biopharmaceutical companies as well as companies with potentially useful formulation or manufacturing capabilities, significant subject matter expertise and financial resources. No assurance can be given that any transaction will come to fruition and that if it does, that the terms will be favorable to the Company.
We filed a Form 1-A with the SEC, which was qualified on December 13, 2021 that may enable the Company to raise finance via a Regulation A Offering “Reg A Offering.” We provide no assurance that although qualified, the Company would complete any financing on terms as to price per share or other securities offered, amount of funds raised or other terms acceptable to the Company or at all. As of March 31, 2022, the Company had not completed any closings of financings pursuant to the Reg A Offering and does not anticipate closing any financings pursuant to the Reg A Offering in the near future.
Recent Developments
UIC Extension
UIC has granted the Company an extension of the due date for the payment of the minimum annual royal obligation of $100,000 that was originally due on December 31, 2021 until May 31, 2022. The Company is in discussions with UIC that include a possible further extension of the due date.
Outreach Services Agreement with the Board of Regents of the University of Wisconsin System
On July 12, 2021, the Board of Regents of the University of Wisconsin System on behalf of the University of Wisconsin Milwaukee (“UWM”) and RespireRx entered into an agreement pursuant to which UWM agreed to provide multiple milligram to gram quantities of KRM-II-81 and its salts. In addition, UWM is to supply KRM-II-81 to RespireRx within three months of the effective date. RespireRx agreed to pay $75,000 in three installments of $25,000 each beginning on October 12, 2021 and on a quarterly basis thereafter within thirty (30) days receipt of invoice. The payments that were due on January 12, 2022 and April 12, 2022 have not yet been paid. The Company and UWM are in discussions to establish an new payment schedule. The agreement terminates on June 30, 2022 unless extended upon consent of both parties.
Sharp Settlement Agreement and related Complaint
See Note 5. Settlement and Payment Agreements for detailed information about the status of the Sharp Settlement Agreement. All amounts owed have been recorded on the Company’s balance sheet as of March 31, 2022.
Salamandra
See Note 5. Settlement and Payment Agreements for detailed information about the status of the Salamandra settlement agreement. All amounts owed have been recorded on the Company’s balance sheet as of March 31, 2022.
University of California Innovation and Entrepreneurship affiliated with the Regents of the University of California
See Note 5. Settlement and Payment Agreements for detailed information about the status of the University of California Innovation and Entrepreneurship payment settlement agreement. All amounts owed have been recorded on the Company’s balance sheet as of March 31, 2022.
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Employment Agreement Termination and Separation Agreement
On January 4, 2022, Mr. Timothy L. Jones notified the Company of his intent to resign at the end of January 2022. On February 8, 2022, the Company received a resignation letter from Mr. Jones pursuant to which he resigned, effective January 31, 2022, as both the Company’s President and Chief Executive Officer and as a member of the Company’s Board of Directors pursuant to certain conditions precedent to the effectiveness of the resignation letter. The conditions precedent to the effectiveness of the registration were met upon the execution by the Company and Mr. Jones of an Employment Agreement Termination and Separation Agreement (“SA”), also on February 8, 2022, which agreement became effective upon completion of a seven-day revocation period without revocation. Pursuant to the terms of the SA, the Company has agreed to pay Mr. Jones up to a maximum of $789,267 in accordance with a schedule set forth in the SA based on amounts of funding raised by the Company all in payment for Mr. Jones’ service to the Company as President and Chief Executive Officer prior to January 31, 2022. All amounts owed have been recorded on the Company’s balance sheet as of March 31, 2022.
Mr. Jones did not resign because of any disagreement with the Company relating to the Company’s operations, policies or practices.
On February 8, 2022, the Board of Directors of the Company elected Arnold S. Lippa, PhD, the Company’s Chief Scientific Officer and Executive Chairman of the Board, as the Company’s Interim President and Interim Chief Executive Officer. Dr. Lippa will also continue in his current roles. The Company did not enter into any new compensatory plan, agreement or arrangement with Dr. Lippa in connection with his interim appointment.
DNA Healthink Inc.
See Note 5. Settlement and Payment Agreements to the Company’s condensed consolidated financial statements at March 31, 2022.
Going Concern
See Note 2. Business – Going Concern to our condensed consolidated financial statements at March 31, 2022.
The Company’s regular efforts to raise capital and to evaluate measures to permit sustainability are time-consuming and intensive. Such efforts may not prove successful and may cause distraction, disruption or other adversity that limits the Company’s development program efforts.
Recent Accounting Pronouncements
See Note 2 to the Company’s condensed consolidated financial statements at March 31, 2022.
Management does not believe that any recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.
Concentration of Risk
See Note 2. Significant Accounting Policies – Concentration of Credit Risk to the Company’s condensed consolidated financial statements at March 31, 2022.
See Note 8. Commitments and Contingencies – University of Illinois 2014 Exclusive License Agreement to the Company’s condensed consolidated financial statements at March 31, 2022.
See Note 8. Commitments and Contingencies – UWMRF Patent License Agreement to the Company’s condensed consolidated financial statements at March 31, 2022.
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Critical Accounting Policies and Estimates
The Company prepared its condensed consolidated financial statements in accordance with GAAP. The preparation of these condensed consolidated financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Management periodically evaluates the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions.
Critical accounting policies and estimates are described in the notes to the Company’s condensed consolidated financial statements and include:
| - | Stock-based awards | |
| - | Research and Development Costs | |
| - | License Agreements | |
| - | Patent Costs | |
| - | Convertible Notes |
See Critical Accounting Policies and Estimates in our 2021 Form 10-K for a complete description.
Results of Operations
The Company’s consolidated statements of operations as discussed herein are presented below.
Three-months Ended March 31, (unaudited) |
||||||||
| 2022 | 2021 | |||||||
| Operating expenses: | ||||||||
| General and administrative | $ | 495,793 | $ | 645,376 | ||||
| Research and development | 121,159 | 154,764 | ||||||
| Total operating costs and expenses | 616,952 | 800,140 | ||||||
| Loss from operations | (616,952 | ) | (800,140 | ) | ||||
| Loss on extinguishment of debt in exchange for equity | (259,647 | ) | - | |||||
| Interest expense | 16,436 | ) | (79,470 | ) | ||||
| Foreign currency transaction gain (loss) | 29,361 | ) | ||||||
| Net loss attributable to common stockholders | $ | (860,163 | ) | $ | (850,249 | ) | ||
| Net loss per common share - basic and diluted | $ | (0.01 | ) | $ | (0.01 | ) | ||
| Weighted average common shares outstanding – basic and diluted | 97,894,276 | 78,148,365 | ||||||
Three-months Ended March 31, 2022 and 2021
Revenues. The Company had no revenues during the three-months ended March 31, 2022 and 2021.
General and Administrative. For the three-months ended March 31, 2022 general and administrative expenses were $495,793, a decrease of $149,583, as compared to $645,376 for the three-months ended March 31, 2021. The decrease in general and administrative expenses for the three-months ended March 31, 2022, as compared to the three-months ended March 31, 2021, is primarily due to a guaranteed bonus of $200,000 during the three-months ended March 31, 2021 and $0 during the three-months ended March 31, 2022 and the termination of an executive officer effective January 31, 2022 resulting in a decrease of salary of $75,000 for a total reduction in compensation of $275,000. Similarly, there was a reduction in employee benefits of $9,455. In addition, there were reductions in legal fees of $52,734 and share-based expenses of $28,000. These decreases were offset by the write-off of deferred financing costs during the three-months ended March 31, 2022 of $177,883 with no comparable write-off in the prior comparable quarterly period. Patent related expenses increased $19,466, primarily as a result of the filing of a new provisional patent application related to the Company’s new formulation technology. The balance of the difference was the net of several smaller increases and decreases.
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Research and Development. For the three-months ended March 31, 2022, research and development expenses were $121,159, a decrease of $33,605, as compared to $154,764 for the three-months ended March 31, 2021. The decrease in research and development expenses for the three-months ended March 31, 2022, as compared to the three-months ended March 31, 2021, is primarily a decrease in utilization of consultants and related share-based compensation.
Interest Expense. During the three-months ended March 31, 2022, interest expense was $259,647 as compared to $79,470 for the three-months ended March 31, 2021. The increase of $180,177 is primarily the result of a full quarter of interest and the amortization to interest expense of debt discounts and capitalized note costs associated with new convertible debt, much of which commenced after March 31, 2021, in April, May, June, August, October and December of 2021.
Foreign Currency Transaction (Loss) Gain. Foreign currency transaction gain was $16,436 for the three-months ended March 31, 2022, as compared to a foreign currency transaction gain of $29,361 for the three-months ended March 31, 2021. The foreign currency transaction (loss) gain relates to the $399,774 loan from SY Corporation, made in June 2012, which is denominated in the South Korean Won.
Net Loss Attributable to Common Stockholders. For the three-months ended March 31, 2022, the Company incurred a net loss of $860,163 as compared to a net loss of $850,249 for the three-months ended March 31, 2021.
Liquidity and Capital Resources - March 31, 2022
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 $860,163 and net losses from operations of $616,952 for the three-months ended March 31, 2022 and $3,144,840 for the fiscal year ended December 31, 2021, and negative operating cash flows of $23,133 for the three-months ended March 31, 2022 and $956,172 for the fiscal year ended December 31, 2021, had a stockholders’ deficiency of $10,867,921 at March 31, 2022, 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, 2021, expressed substantial doubt about the Company’s ability to continue as a going concern.
At March 31, 2022, the Company had a working capital deficit of $10,603,921, as compared to a working capital deficit of $9,713,758 at December 31, 2021 reflecting an increase in the working capital deficit of $890,163 for the three-months ended March 31, 2022. The increase in the working capital deficit is primarily due to an increase accounts payable and accrued expenses of $243,719, an increase in convertible notes payable of $239,611 and an increase in accrued compensation and benefits of $179,800. There was also a net decrease in current assets of $105,406 due to the write-off of deferred financing fees offset by an increase in prepaid insurance that in turn, was offset by an increase in short-term financings of insurance premiums payable.
At March 31, 2021, the Company had cash of $252, as compared to $1,398 at December 31, 2021, reflecting a decrease in cash of $1,146 for the three-months ended March 31, 2022.
The limited cash of $21,987 raised in financings during the three-months ended March 31, 2022 were utilized for insurance premiums and working capital. The financings completed during fiscal year ended December 31, 2021 were utilized to pay general and administrative and research and development expenses or the related accounts payable, including, but not limited to, payments to our licensors, our independent registered public accounting firm, our patent and intellectual property law firm and for other patent and intellectual property services, our transfer agent, our financial printer and limited cash payments of compensation. Cash was also utilized, among other purposes, to make payments pursuant to directors and officers insurance and other insurance financings.
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The Company is currently, and has for some time, been in significant financial distress. It has 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 continued to raise new debt and equity capital to fund the Company’s general and administrative and research and development 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. Although we filed a Form 1-A with the SEC, which was qualified on December 13, 2021 (the “Reg A Offering”), we have not raised any funds and we provide no assurance that we will be able to raise any funds from the Reg A Offering. Accordingly, we wrote-off the deferred financing costs related to the Reg A Offering during the three-months ended March 31, 2022. The Company regularly evaluates various other 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 facilitating 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.
Operating Activities. For the three-months ended March 31, 2022, operating activities utilized cash of $23,133, as compared to utilizing cash of $286,861 for the three-months ended March 31, 2021, to support the Company’s ongoing general and administrative expenses as well as its research and development activities.
Financing Activities. For the three-months ended March 31, 2022, financing activities consisted of $21,987 of advances from an executive officer.
Principal Commitments
Employment Agreements
See Note 8. Commitments and Contingencies – Significant Agreements and Contracts – Employment Agreements to our condensed consolidated financial statements at March 31, 2022.
University of Illinois 2014 Exclusive License Agreement
See Note 8. Commitments and Contingencies – Significant Agreements and Contracts – University of Illinois 2014 Exclusive License Agreement to our condensed consolidated financial statements at March 31, 2022.
UWM Research Foundation Patent License Agreement
See Note 8. Commitments and Contingencies – Significant Agreements and Contracts, UWM Research Foundation Patent License Agreement to our condensed consolidated financial statements at March 31, 2022.
A table setting forth the Company’s principal cash obligations and commitments for the next five fiscal years as of March 31, 2022, aggregating $990,877 is set forth in Note 8. Commitments and Contingencies – Summary of Principal Cash Obligations and Commitments to our condensed consolidated financial statements at March 31, 2022.
Off-Balance Sheet Arrangements
At March 31, 2022, the Company did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in the reports that the Company files with the Securities and Exchange Commission (the “SEC”) under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosures.
The Company carried out an evaluation, under the supervision and with the participation of its management, consisting of its principal executive officer and principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based upon that evaluation, the Company’s principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to the Company’s management, consisting of the Company’s principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
Management has been focusing on developing replacement controls and procedures that are adequate to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to the Company’s management to allow timely decisions regarding required disclosure. Although the senior executive team has been developing more formalized and regular communication and collaboration processes, thereby improving the control environment, these controls and procedures are not yet sufficient to remediate the Company’s control weaknesses. The Company is current in its SEC periodic reporting obligations, but as of the date of the filing of this Quarterly Report on Form 10-Q, the Company had not yet established adequate internal controls over financial reporting.
The Company’s management, consisting of its principal executive officer and principal financial officer, does not expect that its disclosure controls and procedures or its internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. In addition, as conditions change over time, so too may the effectiveness of internal controls. However, management believes that the financial information included in this Quarterly Report on Form 10-Q fairly present, in all material respects, the Company’s financial condition, results of operations and cash flows for the periods presented.
(b) Changes in Internal Controls over Financial Reporting
The Company’s management, consisting of its principal executive officer and principal financial officer, has determined that no change in the Company’s internal control over financial reporting (as that term is defined in Rules 13(a)-15(f) and 15(d)-15(f) of the Securities Exchange Act of 1934) occurred during or subsequent to the end of the period covered in this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are periodically subject to various pending and threatened legal actions and claims. See Note 8. Commitments and Contingencies – Pending or Threatened Legal Actions and Claims to our condensed consolidated financial statements at March 31, 2022 for details regarding these matters.
ITEM 1A. RISK FACTORS
As of the date of this filing, there have been no material changes to the Risk Factors included in the Company’s 2021 Form 10-K. The Risk Factors set forth in the 2021 Form 10-K should be read carefully in connection with evaluating the Company’s business and in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q. Any of the risks described in the 2021 Form 10-K could materially adversely affect the Company’s business, financial condition or future results and the actual outcome of matters as to which forward-looking statements are made. These are not the only risks that the Company faces. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no unregistered sales of equity securities during the three-months ended March 31, 2022 that were not disclosed by the Company on a Current Report on Form 8-K. There were conversions of convertible notes inclusive of accrued interest as disclosed in Note 4. Notes Payable – Convertible Notes Payable of our condensed consolidated financial statements at March 31 2022 and Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – March 31, 2022.
Additional information with respect to the transactions described above is provided in the Notes to the Condensed Consolidated Financial Statements for the three-months ended March 31, 2022.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Note Payable to SY Corporation Co., Ltd.
On June 25, 2012, the Company borrowed 465,000,000 Won (the currency of South Korea, equivalent to approximately $400,000 United States Dollars) from and executed a secured note payable to SY Corporation, The note accrues simple interest at the rate of 12% per annum and had a maturity date of June 25, 2013. The Company has not made any payments on the promissory note. At June 30, 2013 and subsequently, the promissory note was outstanding and in technical default, although SY Corporation has not issued a notice of default or a demand for repayment. The Company 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, 2022, there were no further communications between the Company and SY Corporation.
The note payable to SY Corporation consists of the following at March 31, 2022 and December 31, 2021:
| March 31, 2022 | December 31, 2021 | |||||||
| Principal amount of note payable | $ | 399,774 | $ | 399,774 | ||||
| Accrued interest payable | 471,186 | 459,358 | ||||||
| Foreign currency transaction adjustment | (38,464 | ) | (22,028 | ) | ||||
| $ | 832,496 | $ | 837,104 | |||||
Interest expense with respect to this promissory note was $11,829 for the three-months ended March 31, 2022 and 2021, respectively.
Default on Convertible Notes Payable
As of March 31, 2022, 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 $58,311, of which $34,357 was accrued interest.
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ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
INDEX TO EXHIBITS
The following documents are filed as part of this report:
| Exhibit Number | Description of Document | |
| 10.1 | ||
| 10.2 | ||
| 31.1* | Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2* | Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1** | Officer’s Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2** | Officer’s Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS*** | Inline XBRL Instance Document | |
| 101.SCH*** | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL*** | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB*** | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE*** | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF*** | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| * Filed herewith. | |
| ** Furnished herewith. | |
| *** In accordance with Regulation S-T, the XBRL related information on Exhibit No. 101 to this Quarterly Report on Form 10-Q shall be deemed “furnished” herewith not “filed.” |
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SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| RESPIRERX PHARMACEUTICALS INC. | ||
| (Registrant) | ||
| Date: May 23, 2022 | By: | /s/ Arnold S. Lippa |
| Arnold S. Lippa | ||
| Interim President, Interim Chief Executive Officer and Chief Scientific Officer | ||
| Date: May 23, 2022 | By: | /s/ Jeff Eliot Margolis |
| Jeff Eliot Margolis | ||
| Senior Vice President, Chief Financial Officer, Treasurer and Secretary | ||
| 36 |
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Arnold S. Lippa, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of RespireRx Pharmaceuticals Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 23, 2022 | By: | /s/ Arnold S. Lippa |
| Arnold S. Lippa | ||
| Interim President, Interim Chief Executive Officer and Chief Scientific Officer |
EXHIBIT 31.2
CERTIFICATION
OF CHIEF FINANCIAL OFFICER
UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeff Eliot Margolis, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of RespireRx Pharmaceuticals Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 23, 2022 | By: | /s/ Jeff Eliot Margolis |
| Jeff Eliot Margolis | ||
| Senior Vice President Chief Financial Officer, Treasurer and Secretary |
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Arnold S. Lippa, the Chief Executive Officer of RespireRx Pharmaceuticals Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
| (i) | The Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and | |
| (ii) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
| Date: May 23, 2022 | By: | /s/ Arnold S. Lippa |
| Arnold S. Lippa | ||
| Interim President, Interim Chief Executive Officer and Chief Scientific Officer |
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeff Eliot Margolis, the Senior Vice President, Chief Financial Officer, Treasurer and Secretary of RespireRx Pharmaceuticals Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
| (i) | The Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and | |
| (ii) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
| Date: May 23, 2022 | By: | /s/ Jeff Eliot Margolis |
| Jeff Eliot Margolis | ||
| Senior Vice President Chief Financial Officer, Treasurer and Secretary |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
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| Operating expenses: | ||
| General and administrative | $ 495,793 | $ 645,376 |
| Research and development | 121,159 | 154,764 |
| Total operating costs and expenses | 616,952 | 800,140 |
| Loss from operations | (616,952) | (800,140) |
| Interest expense, including related parties | (259,647) | (79,470) |
| Foreign currency transaction gain | 16,436 | 29,361 |
| Net loss attributable to common stockholders | $ (860,163) | $ (850,249) |
| Net loss per common share - basic and diluted | $ (0.01) | $ (0.01) |
| Weighted average common shares outstanding - basic and diluted | 97,894,276 | 78,148,365 |
Organization and Basis of Presentation |
3 Months Ended |
|---|---|
Mar. 31, 2022 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Organization and Basis of Presentation | 1. Organization and Basis of Presentation
Organization
RespireRx Pharmaceuticals Inc. (“RespireRx”) was formed in 1987 under the name Cortex Pharmaceuticals, Inc. to engage in the discovery, development and commercialization of innovative pharmaceuticals for the treatment of neurological and psychiatric disorders. On December 16, 2015, RespireRx filed a Certificate of Amendment to its Second Restated Certificate of Incorporation (as amended, the “Certificate of Incorporation”) with the Secretary of State of the State of Delaware to amend its Second Restated Certificate of Incorporation to change its name from Cortex Pharmaceuticals, Inc. to RespireRx Pharmaceuticals Inc. In August 2012, RespireRx acquired Pier Pharmaceuticals, Inc. (“Pier”), which is now a wholly owned subsidiary. Pier was a clinical stage biopharmaceutical company developing a pharmacologic treatment for obstructive sleep apnea (“OSA”) and had been engaged in research and clinical development activities which activities are now in RespireRx.
Basis of Presentation
The condensed consolidated financial statements are of RespireRx and its wholly-owned subsidiary, Pier (collectively referred to herein as the “Company,” “we” or “our,” unless the context indicates otherwise). The condensed consolidated financial statements of the Company at March 31, 2022 and for the three-months ended March 31, 2022 and 2021, are unaudited. In the opinion of management, all adjustments (including normal recurring adjustments) have been made that are necessary to present fairly the condensed consolidated financial position of the Company, the condensed results of operations, condensed changes in stockholders’ deficiency and condensed changes in cash flows as of and for the periods ended March 31, 2022 and 2021. 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, 2021 has been derived from the Company’s audited consolidated financial statements at such date.
The condensed consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles (“GAAP”) have been omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and other information included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 as filed with the SEC on April 15, 2022 (“2021 Form 10-K”).
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Business |
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Mar. 31, 2022 | ||||||||||
| Accounting Policies [Abstract] | ||||||||||
| Business | 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 affecting millions of people, but for which there are limited or poor treatment options, including OSA, attention deficit hyperactivity disorder (“ADHD”), epilepsy, acute and chronic pain, including inflammatory and neuropathic pain, recovery from spinal cord injury (“SCI”) and certain orphan disorders. We are also considering developing treatment options for other conditions based on results of preclinical and clinical studies to date.
In order to facilitate our business activities and product development, the Company has implemented an internal restructuring plan based upon our two research platforms: pharmaceutical cannabinoids and neuromodulators. The business unit focused on pharmaceutical cannabinoids is referred to as ResolutionRx and the business unit focused on neuromodulators is referred to as EndeavourRx. It is anticipated that the Company will use, at least initially, its management personnel to provide management, operational and oversight services to these two business units.
Management intends to organize our ResolutionRx and EndeavourRx business units into two subsidiaries: (i) a ResolutionRx subsidiary, into which we would contribute our pharmaceutical cannabinoid platform and its related tangible and intangible assets and certain of its liabilities and (ii) an EndeavourRx subsidiary, into which we would contribute our neuromodulator platform, including either or both of the AMPAkine and GABAkine programs and their related tangible and intangible assets and certain of their liabilities.
Management believes that there are advantages to separating these platforms formally into newly formed subsidiaries, including but not limited to optimizing their asset values through separate financing channels and making them more attractive for capital raising as well as for strategic transactions.
The Company is also engaged in business development efforts (licensing, sub-licensing, joint venture and other commercial structures) with a view to securing strategic partnerships that represent strategic and operational infrastructure additions, as well as cash and in-kind funding opportunities. These efforts have focused on, but have not been limited to, transacting with brand and generic pharmaceutical and biopharmaceutical companies as well as companies with potentially useful clinical development, formulation or manufacturing capabilities, significant subject matter expertise and financial resources. No assurance can be given that any transaction will come to fruition and that, if it does, the terms will be favorable to the Company.
Financing our Platforms
Our major challenge has been to raise substantial equity or equity-linked financing to support research and development plans for our cannabinoid and neuromodulator platforms, while minimizing the dilutive effect to pre-existing stockholders. At present, we believe that we are hindered primarily by our public corporate structure, our OTCQB listing, and low market capitalization as a result of our low stock price.
For this reason, the Company has effected an internal restructuring plan through which our two drug platforms have been reorganized into separate business units and may in the future, be organized into subsidiaries of RespireRx. We believe that by creating one or more subsidiaries to further the aims of ResolutionRx and EndeavourRx, it may be possible, through separate finance channels, to unlock the unrealized asset values of each.
The Company filed a Form 1-A which included an offering circular that was qualified by The Securities and Exchange Commission on December 13, 2021 and subsequently amended. The offering is of the Company’s common stock and is up to $7.5 million at $per share and allows for multiple closings until October 31, 2023 unless earlier terminated by the Company. As of March 31, 2022, no closings had taken place, the Company’s stock price had been below the offering price and unless our stock price increases in the future, it would be unlikely that this particular offering will provide significant, if any, new funds.
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 $860,163 for the three-months ended March 31, 2022 and a net loss attributable to commons shareholders of $3,144,840, and after accounting for deemed dividends, a total net loss of $3,522,882 for the fiscal year ended December 31, 2021, as well as negative operating cash flows of $23,133 for the three-months ended March 31, 2022 and $956,172 for the fiscal year ended December 31, 2021. The Company also had a stockholders’ deficiency of $10,867,921 at March 31, 2022 and expects to continue to incur net losses and negative operating cash flows for at least the next few years. Additionally, all of the Company’s convertible notes have maturity dates within one year and must be paid, converted or otherwise have maturity dates extended in order to avoid a default on such convertible notes. In addition, the Company’s obligation to the University of Illinois of $100,000 that was due on December 31, 2021, was extended to and is due on May 31, 2022. The Company is currently in discussions with the University of Illinois to further extend the due date. In the past, the Company has been successful in getting maturity dates extended or having convertible note holders repaid via conversion. In addition, the Company has been successful in having license payment due dates extended and then meeting the payment obligations on such extended dates or further extended dates. There can be no assurance that the Company will remain successful in those efforts. 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, 2021, 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.
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Summary of Significant Accounting Policies |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies | 3. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying condensed consolidated financial statements are prepared in accordance with GAAP and include the financial statements of RespireRx and its wholly-owned subsidiary, Pier. Intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include, among other things, accounting for potential liabilities, and the assumptions used in valuing stock-based compensation issued for services. Actual amounts may differ from those estimates.
Reverse Stock Split on January 5, 2021
On January 5, 2021, the Company effected a ten to one reverse-stock split of its common stock. Every ten shares of the “old” common stock was exchanged for one “new” share of common stock rounded down to the nearest whole share with any fractional shares of common stock paid to the stockholder in cash. Option and warrant issuances prior to January 5, 2021 have also been proportionately adjusted by dividing the number of shares into which such options and warrants may exercise by ten and multiplying the exercise price by ten.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company limits its exposure to credit risk by investing its cash with high quality financial institutions. The Company’s cash balances may periodically exceed federally insured limits. The Company has not experienced a loss in such accounts to date.
Value of Financial Instruments
The authoritative guidance with respect to value of financial instruments established a value hierarchy that prioritizes the inputs to valuation techniques used to measure value into three levels and requires that assets and liabilities carried at value be classified and disclosed in one of three categories, as presented below. Disclosure as to transfers into and out of Levels 1 and 2, and activity in Level 3 value measurements, is also required.
Level 1. Observable inputs such as quoted prices in active markets for an identical asset or liability that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active-exchange traded securities and exchange-based derivatives.
Level 2. Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange based derivatives, mutual funds, and fair-value hedges.
Level 3. Unobservable inputs in which there is little or no market data for the asset or liability which requires the reporting entity to develop its own assumptions. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded, non-exchange-based derivatives and commingled investment funds, and are measured using present value pricing models.
The Company determines the level in the value hierarchy within which each value measurement falls in its entirety, based on the lowest level input that is significant to the value measurement in its entirety. In determining the appropriate levels, the Company performs an analysis of the assets and liabilities at each reporting period end.
The carrying amounts of financial instruments (consisting of cash, cash equivalents, and accounts payable and accrued expenses) are considered by the Company to be representative of the respective values of these instruments due to the short-term nature of those instruments. With respect to the note payable to SY Corporation Co., Ltd. (“SY Corporation”) and the convertible notes payable, management does not believe that the credit markets have materially changed for these types of borrowings since the original borrowing date. The Company considers the carrying amounts of the notes payable to officers, inclusive of accrued interest, to be representative of the respective values of such instruments due to the short-term nature of those instruments and their terms.
Deferred Financing Costs
Costs incurred in connection with ongoing debt and equity financings, including legal fees, are deferred until the related financing is either completed or abandoned or are unlikely to be completed.
Costs related to abandoned debt or equity financings are charged to operations in the period of abandonment. Costs related to completed equity financings are netted against the proceeds.
Debt Issuance Costs
The Company presents debt issuance costs related to debt obligations in its consolidated balance sheet as a direct deduction from the carrying amount of that debt obligation, consistent with the presentation for debt discounts.
Convertible Notes Payable
Convertible notes are evaluated to determine if they should be recorded at amortized cost. To the extent that there are associated warrants, commitment shares of Common Stock or a beneficial conversion feature, the convertible notes and equity or equity-linked securities are evaluated to determine if there are embedded derivatives to be identified, bifurcated and valued in connection with and at the time of such financing.
Extinguishment of Debt and Settlement of Liabilities
The Company accounts for the extinguishment of debt and settlement of liabilities by comparing the carrying value of the debt or liability to the value of consideration paid or assets given up and recognizing a loss or gain in the condensed consolidated statement of operations in the amount of the difference in the period in which such transaction occurs. See Note 4. Notes Payable.
Prepaid Insurance
Prepaid insurance represents the premium due in March 2022 for directors and officers insurance. The amounts of prepaid insurance amortizable in the ensuing twelve-month period are recorded as prepaid insurance in the Company’s consolidated balance sheet at each reporting date and amortized to the Company’s consolidated statement of operations for each reporting period.
The Company periodically issues common stock and stock options to officers, directors, Scientific Advisory Board members, consultants and vendors for services rendered. Such issuances vest and expire according to terms established at the issuance date of each grant.
The Company accounts for stock-based payments to officers, directors, outside consultants and vendors by measuring the cost of services received in exchange for equity awards based on the grant date fair value of the awards, with the cost recognized as compensation expense on the straight-line basis in the Company’s consolidated financial statements over the vesting period of the awards.
Stock grants and stock options, which are sometimes subject to time-based vesting, are measured at the grant date fair value and charged to operations ratably over the vesting period.
The value of stock options granted as stock-based payments is determined utilizing the Black-Scholes option-pricing model, and is affected by several variables, the most significant of which are the life of the equity award, the exercise price of the stock option as compared to the fair market value of the common stock on the grant date, and the estimated volatility of the common stock over the term of the equity award. Estimated volatility is based on the historical volatility of the Company’s common stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The fair market value of common stock is determined by reference to the quoted market price of the Company’s common stock.
Stock and stock option grants and warrants issued to non-employees as compensation for services to be provided to the Company or in settlement of debt are accounted for based upon the fair value of the services provided or the estimated fair value of the stock option or warrant, whichever can be more clearly determined. Management uses the Black-Scholes option-pricing model to determine the fair value of the stock options and warrants issued by the Company. The Company recognizes this expense over the period in which the services are provided.
There were stock or stock option grants during the three-months ended March 31, 2022.
The Company recognizes the amortized value of stock-based payments in general and administrative costs and in research and development costs, as appropriate, in the Company’s condensed consolidated statements of operations. The Company issues new shares of common stock to satisfy stock option and warrant exercises. There were stock options exercised during the three-months ended March 31, 2022 and 2021, respectively.
There were warrants issued as compensation or for services during the three-months ended March 31, 2022 and 2021. Warrants, if issued for services, are typically issued to placement agents or brokers for fund raising services, or to lenders, and are not issued from any of the Company’s stock and option plans, from which options issued to non-employees for services are typically issued.
Income Taxes
The Company accounts for income taxes under an asset and liability approach for financial accounting and reporting for income taxes. Accordingly, the Company recognizes deferred tax assets and liabilities for the expected impact of differences between the financial statements and the tax basis of assets and liabilities.
The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. In the event the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of its recorded amount, an adjustment to the deferred tax assets would be credited to operations in the period such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of its deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to operations in the period such determination was made.
Pursuant to Internal Revenue Code Sections 382 and 383, use of the Company’s net operating loss and credit carryforwards may be limited if a cumulative change in ownership of more than 50% occurs within any three-year period since the last ownership change. The Company may have had a change in control under these Sections. However, the Company does not anticipate performing a complete analysis of the limitation on the annual use of the net operating loss and tax credit carryforwards until the time that it anticipates it will be able to utilize these tax attributes.
As of March 31, 2022, 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, 2022, the Company had not recorded any liability for uncertain tax positions. In subsequent periods, any interest and penalties related to uncertain tax positions will be recognized as a component of income tax expense.
Foreign Currency Transactions
The note payable to SY Corporation, which is denominated in a foreign currency (the South Korean Won), is translated into the Company’s functional currency (the United States Dollar) at the exchange rate on the balance sheet date. The foreign currency exchange gain or loss resulting from translation is recognized in the related condensed consolidated statements of operations.
Research and Development
Research and development costs include compensation paid to management directing the Company’s research and development activities, including but not limited to compensation paid to our Chief Scientific Officer who is also our Executive Chairman, our Interim President and our Interim Chief Executive 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 term, as specified in the underlying license agreement, and are recorded as liabilities in the Company’s condensed consolidated balance sheet, with a corresponding charge to research and development costs in the Company’s condensed consolidated statement of operations. Obligations incurred with respect to milestone payments provided for in license agreements are recognized when it is probable that such milestone will be reached and are recorded as liabilities in the Company’s condensed consolidated balance sheet, with a corresponding charge to research and development expenses in the Company’s condensed consolidated statement of operations.
Patent Costs
Due to the significant uncertainty associated with the successful development of one or more commercially viable products based on the Company’s research efforts and any related patent applications, all patent costs, including patent-related legal and filing fees, are expensed as incurred and recorded as general and administrative expenses.
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.
Reclassifications
Certain comparative figures in 2021 have been reclassified to conform to the current quarter’s presentation. These reclassifications were immaterial, both individually and in the aggregate.
Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). The subtitle is Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This Accounting Standard Update (“ASU”) addresses complex financial instruments that have characteristics of both debt and equity. The application of this ASU would reduce the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models would result in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The Company has historically issued complex financial instruments and has considered whether embedded conversion features have existed within those contracts or whether derivatives would appropriately be bifurcated. To date, no such bifurcation has been necessary. However, it is possible that this ASU may have a substantial impact on the Company’s financial statements. Management is evaluating the potential impact. This ASU becomes effective for fiscal years beginning after December 15, 2023.
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Payable | 4. Notes Payable
Convertible Notes Payable
The Company periodically issues convertible notes with similar characteristics. As described in the table below, during the three-months ended March 31, 2022, there were nine such notes outstanding. Notes all have a fixed conversion price of $0.02 per share of Common Stock, subject to adjustment in certain circumstances. An adjustment to $0.01 per share of Common Stock was made on April 14, 2022 pursuant to the “most favored nation clauses” of such notes upon the issuance of a similar convertible note, but with a $0.01 per share of Common Stock conversion price. See Note 9. Subsequent Events. All, but one of the notes had an annual interest rate of 10% which was guaranteed in full. The note that did not have a 10% annual interest rate had an 8% rate. The convertible notes had an original issue discount (“OID”), certain notes had debt issuance costs (“DIC”) that were capitalized by the Company, a warrant (“WT”) or commitment shares (“CS”) and in seven cases a beneficial conversion feature (“BCF”). The OID, CN, WTs, CSs and BCF allocated values are amortized over the life of the notes to interest expense. All notes mature or matured nine to fifteen months from their issuance date. All notes were prepayable by the Company during the first six months, subject to prepayment premiums that range from 100% to 115% of the maturity amount plus accrued interest. If not earlier paid, the notes are convertible by the holder into the Company’s Common Stock.
The table below summarizes the convertible notes outstanding during the three months ended and as of March 31, 2022. There were no repayments by conversion during the three-months ended March 31, 2022, however there was one partial conversion in April 2022 (see also Note 9. Subsequent Events):
In addition to what appears in the table above, there is outstanding accrued interest of $2,747 from a prior floating rate convertible note that has not been paid in cash or by conversion as of March 31, 2022.
On April 14, 2022, the Company issued a convertible note and related warrants to an investor with a maturity amount of $25,000, bearing interest at 10% per annum, maturing on April 14, 2023, convertible at $per share of common stock. A warrant is exercisable into 2,777,800 shares of Common Stock for a term of five years. The issuance triggered most-favored-nation (“MFN”) clauses in certain convertible notes in the above table. See Note 9. Subsequent Events in the notes to our condensed consolidated financial statements as of March 31, 2022 for a more detailed description of this transaction and the effect of the MFN.
On December 31, 2018 and January 2, 2019, the Company issued convertible notes to a single investor totaling $35,000 of maturity amount with accrued interest of $12,785 as of March 31, 2022. The number of shares of common stock (or preferred stock) into which these notes may convert is not determinable. The warrants to purchase 19,000 shares of common stock issued in connection with the sale of these notes and other convertible notes issued December 2018 and March 2019 are exercisable at a fixed price of $15.00 per share of common stock, provide no right to receive a cash payment, and included no reset rights or other protections based on subsequent equity transactions, equity-linked transactions or other events and expire on December 30, 2023.
Other convertible notes were also sold to investors in 2014 and 2015 (“Original Convertible Notes), which aggregated a total of $579,500, and had a fixed interest rate of 10% per annum. The Original Convertible Notes have no reset rights or other protections based on subsequent equity transactions, equity-linked transactions or other events. The warrants to purchase shares of common stock issued in connection with the sale of the convertible notes have either been exchanged as part of April and May 2016 note and warrant exchange agreements or expired on September 15, 2016.
The remaining outstanding Original Convertible Notes (including those for which default notices have been received) consist of the following at March 31, 2022 and December 31, 2021:
As of March 31, 2022, 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 $58,311, of which $34,357 was accrued interest. As of December 31, 2021, principal and accrued interest on Original Convertible Notes subject to default notices totaled $57,084 of which $32,085 was accrued interest.
As of March 31, 2022 all of the outstanding Original Convertible Notes, inclusive of accrued interest, were convertible into an aggregate of shares of the Company’s common stock at a conversion price of approximately $114 per share of 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 Won (the currency of South Korea, equivalent to approximately $400,000 United States Dollars as of that date) from and executed a secured note payable to SY Corporation Co., Ltd., (“SY Corporation”). The note accrues simple interest at the rate of 12% per annum and had a maturity date of June 25, 2013. The Company has not made any payments on the promissory note. At June 30, 2013 and subsequently, the promissory note was outstanding and in default, although SY Corporation has not issued a notice of default or a demand for repayment. Management believes that SY Corporation is in default of its obligations under its January 2012 license agreement, as amended, with the Company, but the Company has not yet issued a notice of default. The Company has in the past made several efforts towards a comprehensive resolution of the aforementioned matters involving SY Corporation. During the three-months ended March 31, 2022, there were no further communications between the Company and SY Corporation.
The promissory note is secured by collateral that represents a lien on certain patents owned by the Company, dating back to January, August and September 2007, including composition of matter patents for certain of the Company’s high impact ampakine compounds and the low impact ampakine compounds CX2007 and CX2076, and other related compounds that the Company is no longer developing and where patent rights date back to January, August and September 2007. The security interest does not extend to the Company’s patents for its ampakine compounds CX1739 and CX1942 or certain related method of use patents.
The note payable to SY Corporation consists of the following at March 31, 2022 and December 31, 2021:
Interest expense with respect to this promissory note was $11,829 for the three-months ended March 31, 2022 and 2021, respectively.
Notes Payable to Officers and Former Officers
For the three-months ended March 31, 2022 and 2021, $3,338 and $3,034 was charged to interest expense with respect to Dr. Arnold S. Lippa’s notes, respectively.
In addition, Dr. Lippa periodically makes advances to the Company which are re-payable upon demand, do not accrue interest and are included in the total of notes payable to Officers.
For the three-months ended March 31, 2022 and 2021, $5,060 and $4,600, respectively, was charged to interest expense with respect to former executive officer, Dr. James S. Manuso’s notes.
Other Short-Term Notes Payable
Other short-term notes payable at March 31, 2022 and December 31, 2021 consisted of premium financing agreements with respect to various insurance policies. At March 31, 2022, a premium financing agreement was payable in the initial amount of $85,457 (after payment of a deposit of $21,364), with interest at 11% per annum, in nine monthly installments of $9,971. In addition, there is $4,214 of short-term financing of office and clinical trials insurance premiums. At March 31, 2022 and December 31, 2021, the aggregate amount of the short-term notes payable was $111,035 and $15,185 respectively.
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Settlement and Payment Agreements |
3 Months Ended |
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Mar. 31, 2022 | |
| Debt Disclosure [Abstract] | |
| Settlement and Payment Agreements | 5. Settlement and Payment Agreements
On April 29, 2021, RespireRx agreed to a payment and settlement agreement with the University of California Innovation and Entrepreneurship to a payment schedule with respect to accounts payable in an amount that was not in dispute and is reflected in accounts payable and accrued expenses in the Company’s condensed consolidated financial statements as of March 31, 2022. The total amount due is $234,657. The agreed payment schedule is for the Company to pay $10,000 on each of July 1, 2021, September 1, 2021, November 1, 2021, January 1, 2022 and March 31, 2022. If RespireRx pays an aggregate of $175,000 on or before March 31, 2022, the amounts will be considered paid in full with no further amounts due. RespireRx has not made any payments after the September, 2021 payment. If an aggregate of $175,000 had not been paid by March 31, 2022, the remaining unpaid amount up to an aggregate of the original amount of $234,657 would be due and payable and is recorded in accounts payable at March 31, 2022.
On February 21, 2020, Sharp Clinical Services, Inc. (“Sharp”), a vendor of the Company, filed a complaint against the Company in the Superior Court of New Jersey Law Division, Bergen County related to a December 16, 2019 demand for payment of past due invoices inclusive of late fees totaling $103,890. On May 29, 2020, a default was entered against the Company, and on September 4, 2020, a final judgment was entered against the Company in the amount of $104,217. On March 3, 2021, we executed a settlement agreement with Sharp (the “Sharp Settlement Agreement”), and on March 9, 2021, Sharp requested of the Bergen (NJ) County Sheriff, the return of the Writ of Execution which resulted in a release of the lien in favor of Sharp. The Sharp Settlement Agreement calls for a payment schedule of ten $10,000 payments due on April 1, 2021 and every other month thereafter, and permitted early settlement at $75,000 if the Company had paid Sharp that lower total by August 1, 2021, but the Company did not pay Sharp that lower amount by that date. The Company has recorded a liability to Sharp of $53,568 as of March 31, 2022 after payments totaling $30,000 pursuant to the Sharp Settlement Agreement. The Company has not made the October 1, 2021, December 1, 2021 and February 1, 2022 payments that were due. On March 3, 2022, Company counsel received a default notice from counsel to Sharp with respect to the Sharp Settlement Agreement and that Sharp may exercise its remedies. Company counsel has communicated with counsel to Sharp. On March 28, 2022, one of the Company’s bank accounts was debited for the benefit of Sharp $415 inclusive of fees about which the Company is seeking additional information but which the Company believes indicates that either a new Writ of Execution was established or the original writ was re-established.
By letter dated February 5, 2016, the Company received a demand from a law firm representing Salamandra, LLC (“Salamandra”) alleging an amount due and owing for unpaid services rendered. On January 18, 2017, following an arbitration proceeding, an arbitrator awarded Salamandra the full amount sought in arbitration of $146,082. Additionally, the arbitrator granted Salamandra attorneys’ fees and costs of $47,937. All such amounts have been accrued as of March 31, 2022, including accrued interest at 4.5% annually from February 26, 2018, the date of the judgment, through March 31, 2022, totaling $33,742. The Company had previously entered into a settlement agreement with Salamandra that is no longer in effect. The Company has approached Salamandra seeking to negotiate a new settlement agreement. A lien with respect to the amounts owed is in effect.
On February 23, 2021 our bank received two New Jersey Superior Court Levies totaling $320,911 related to amounts owed to two vendors (Sharp and Salamandra as defined above) which amounts were not in dispute, debited our accounts and restricted access to those accounts. Our accounts were debited for $1,559 on February 23, 2021 which represented all of the cash in our accounts on that date.
On September 14, 2021, the Company and DNA Healthlink, Inc. (“DNA Healthlink”) entered into a settlement agreement (the “ DNA Healthlink Settlement Agreement”) regarding $410,000 in unpaid accounts payable owed by the Company to DNA Healthlink (the “DNA Healthlink Settlement Amount”) for services provided by DNA Healthlink to the Company pursuant to an agreement by and between the Company and DNA Healthlink dated October 15, 2014. Under the terms of the DNA Healthlink Settlement Agreement, the Company is obligated to pay to DNA Healthlink the full DNA Healthlink Settlement Amount as follows: twelve monthly payments of $8,000 each commencing on November 15, 2021, followed by twelve monthly payments of $10,000 each commencing on November 15, 2022, followed by twelve monthly payments of $15,000 each commencing on November 15, 2023, followed by one final payment of $14,000 on November 15, 2024. If, prior to March 14, 2023, the Company receives one or more upfront license fee payments or any other similar fee or fees from one or more strategic partners that aggregate at least fifteen million dollars ($15,000,000) (“Upfront Fees”), then the full DNA Healthlink Settlement Amount, less any amounts previously paid, will be accelerated and become due and payable in full within ninety (90) days of receipt of any Upfront Fees. As a result of the DNA Healthlink Settlement Agreement, the Company recorded a gain with respect to vendor settlements of $62,548 for the fiscal year ended December 31, 2021. The Company made payments of $8,000 in November 2021 and December 2021, but has not made payments in January through March 2022.
An annual obligation payable to the University of Illinois of $100,000 that was originally due on December 31, 2021 pursuant to the 2014 License Agreement was extended to May 31, 2022.
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, 2022 and December 31, 2021.
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, 2022 and December 31, 2021 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.
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Stockholders’ Deficiency |
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| Stockholders’ Deficiency | 6. Stockholders’ Deficiency
Preferred Stock
RespireRx has authorized a total of shares of preferred stock, par value $ per share. As of March 31, 2022 and December 31, 2021, shares were designated as Series B Convertible Preferred Stock (non-voting, “Series B Preferred Stock”).
Series B Preferred Stock outstanding as of March 31, 2022 and December 31, 2021 consisted of shares issued in a May 1991 private placement. The shares of Series B Preferred Stock are convertible into share of common stock. RespireRx may redeem the Series B Preferred Stock for $25,001 at any time upon 30 days prior notice.
Although other series of preferred stock have been designated, no other shares of preferred stock are outstanding. As of March 31, 2022 and December 31, 2021, shares of preferred stock were undesignated and may be issued with such rights and powers as the Board of Directors may designate.
Common Stock
RespireRx has authorized (2 billion) shares of Common Stock, par value $ (“Common Stock”). There are shares of the Company’s Common Stock outstanding as of March 31, 2022. After reserving for conversions of convertible debt and convertible preferred stock, as well as exercises of common stock purchase options (granted and available for grant within the 2014 and 2015 stock and stock option plans) and warrants and the issuance of Pier contingent shares and before accounting for incremental contract excess reserves, there were shares of the Company’s Common Stock available for future issuances as of March 31, 2022. After accounting for incremental excess reserves contractually required by the various convertible notes and certain warrants, there were , shares of common stock available for future issuances as of March 31, 2022. No warrants or options were exercised after March 31, 2022. Options to purchase shares of Common Stock expired during the three-month period ended March 31, 2022 and such shares were added back to the shares of common stock available for issuance from the 2015 Plan. See Note 9. Subsequent Events in the notes to our condensed consolidated financial statements as of March 31, 2022.
Common Stock Warrants
A summary of warrant activity for the three-months ended March 31, 2022 is presented below.
The exercise prices of common stock warrants outstanding and exercisable are as follows at March 31, 2022:
Based on a value of $0.01 per share on March 31, 2022, there were no exercisable in-the-money common stock warrants as of March 31, 2022.
A summary of warrant activity for the three-months ended March 31, 2021 is presented below.
The exercise prices of common stock warrants outstanding and exercisable are as follows at March 31, 2021:
Based on a value of $0.045 per share on March 31, 2021, there were 2,212,500 exercisable in-the-money common stock warrants as of March 31, 2021.
Stock Options
On March 18, 2014, the stockholders of RespireRx holding a majority of the votes to be cast on the issue approved the adoption of RespireRx’s 2014 Equity, Equity-Linked and Equity Derivative Incentive Plan (the “2014 Plan”), which had been previously adopted by the Board of Directors, subject to stockholder approval. The Plan permits the grant of options and restricted stock in addition to stock appreciation rights and phantom stock, to directors, officers, employees, consultants and other service providers of the Company. As of March 31, 2022, there are share available in the 2014 Plan.
On June 30, 2015, the Board of Directors adopted the 2015 Stock and Stock Option Plan (as amended, the “2015 Plan”). As of March 31, 2022, there are shares available in the 2015 Plan. The Company has not and does not intend to present the 2015 Plan to stockholders for approval.
Information with respect to the Black-Scholes variables used in connection with the evaluation of the fair value of stock-based compensation costs and fees is provided at Note 3.
There was no deferred compensation expense for the outstanding and unvested stock options at March 31, 2022.
Based on a fair value of $ per share on March 31, 2022, there were exercisable in-the-money common stock options as of March 31, 2022.
Reserved and Unreserved Shares of Common Stock
As of March 31, 2022, there are shares of Common Stock, par value $authorized, of which are issued and outstanding. As of March 31, 2022, there were outstanding options to purchase shares of Common Stock and and shares available for issuance under the 2014 Plan and 2015 Plan respectively. There are 649 Pier contingent shares of Common Stock that may be issued under certain circumstances. As of March 31, 2022, there are issuable upon conversion of convertible notes. As of March 31, 2022, there are 59,420,298 shares that may be issued upon exercise of outstanding warrants. As of March 31, 2022, the Series B Preferred Stock may convert into share of Common Stock. Therefore, the Company is reserving shares of Common Stock for future issuances with respect to conversions and exercises as well as for the Pier contingent shares and warrants exercisable into shares of Common Stock that may be issued to one note holder under certain circumstances that have not yet occurred. In addition, certain convertible notes and related warrants impose an additional contractual reserve requirement, above the number of shares into which such convertible notes and related warrants may convert or exercise respectively. Although the Company does not anticipate having to issue such shares, such incremental additional contractual reserves total an additional shares of Common Stock.
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Related Party Transactions |
3 Months Ended |
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Mar. 31, 2022 | |
| Related Party Transactions [Abstract] | |
| Related Party Transactions | 7. Related Party Transactions
Dr. Arnold S. Lippa and Jeff E. Margolis, officers and directors of RespireRx since March 22, 2013, have indirect ownership and managing membership interests in Aurora Capital LLC (“Aurora”) through interests held in its members, and Jeff. E. Margolis is also an officer of Aurora. Aurora, was a boutique investment banking firm specializing in the life sciences sector that ceased its securities related activities in April 2021 and withdraw its membership with FINRA and its registration with the SEC in July 2021. Although Aurora has not provided services to RespireRx during the three-months ended March 31, 2022 or the fiscal year ended December 31, 2021, Aurora had previously provided services to the Company and there remains $96,000 owed to Aurora by RespireRx which amount is included in accounts payable and accrued expenses as of March 31, 2022.
A description of advances and notes payable to officers is provided at Note 4. Notes Payable.
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Commitments and Contingencies |
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| Commitments and Contingencies | 8. Commitments and Contingencies
Pending or Threatened Legal Action and Claims
The Company is periodically the subject of various pending and threatened legal actions and claims. In the opinion of management of the Company, adequate provision has been made in the Company’s condensed consolidated financial statements as of March 31, 2022, December 31, 2021 and March 31, 2021 with respect to such matters. See Note 5. Settlement and Payment Agreements for additional items and details.
Significant Agreements and Contracts
Consulting Agreements
Richard Purcell, the Company’s Senior Vice President of Research and Development on at-will basis since October 15, 2014, provided his services to the Company on a month-to-month basis and since agreeing to a payment and settlement agreement, on a prepaid hourly basis at a rate of $250 per hour, through his consulting firm, DNA Healthlink, Inc., through which the Company has contracted for his services. See Note 5. Payment and Settlement Agreements for a description of the current payment terms. During the three-months ended March 31, 2022 Mr. Purcell did not provide any services to the Company.
The Company entered into a consulting contract with David Dickason effective September 15, 2020 pursuant to which Mr. Dickason was appointed to and serves as the Company’s Senior Vice President of Pre-Clinical Product Development on an at-will basis at the rate of $250 per hour. During the three-months ended March 31, 2022 Mr. Dickason did not provide any services to the Company.
Employment Agreements
Effective on May 6, 2020, Timothy Jones was appointed as RespireRx’s President and Chief Executive Officer and entered into an employment agreement as of that date. Effective January 31 2022, Mr. Jones resigned as RespireRx’s President and Chief Executive Officer as well as a member of RespireRx’s Board of Directors pursuant to an Employment Agreement Termination and Separation Agreement dated February 8, 2022.
Effective January 31, 2022, Dr. Lippa was appointed as RespireRx’s Interim President and Interim Chief Executive Officer. Dr. Lippa continues to serve as RespireRx’s Executive Chairman and as a member of the Board of Directors as well as the Company’s Chief Scientific Officer.
Jeff E. Margolis currently serves as the Company’s Senior Vice President, Chief Financial Officer, Treasurer and Secretary. Mr. Margolis also serves on the Company’s Board of Directors.
The table below summarized the current cash commitments to Dr. Lippa and Mr. Margolis through the next September 30th renewal date.
Under certain circumstances base salaries may be contractually increased or the executives may become eligible for additional benefits and base salaries may be increased at the discretion of the Board of Directors. All executives are eligible for stock and stock option and similar grants at the discretion of the Board or Directors.
The payment of certain amounts reflected in the table above have been voluntarily deferred indefinitely and payments against accrued compensation may be made based upon the Company’s ability to make such payments.
UWMRF Patent License Agreement
On August 1, 2020, RespireRx exercised its option pursuant to its option agreement dated March 2, 2020, between RespireRx and UWM Research Foundation, an affiliate of the University of Wisconsin-Milwaukee (“UWMRF”). Upon exercise, RespireRx and UWMRF executed the UWMRF Patent License Agreement effective August 1, 2020 pursuant to which RespireRx licensed the identified intellectual property.
Under the UWMRF Patent License Agreement, the Company has an exclusive license to commercialize GABAkine products based on UWMRF’s rights in certain patents and patent applications, and a non-exclusive license to commercialize products based on UWMRF’s rights in certain technology that is not the subject of the patents or patent applications. UWMRF maintains the right to use, and, upon the approval of the Company, to license, these patent and technology rights for any non-commercial purpose, including research and education. The UWMRF Patent License Agreement expires upon the later of the expiration of the Company’s payment obligations to UWMRF or the expiration of the last remaining licensed patent granted thereunder, subject to early termination upon the occurrence of certain events. The License Agreement also contains a standard indemnification provision in favor of UWMRF and confidentiality provisions obligating both parties.
Under the UWMRF Patent License Agreement, in consideration for the licenses granted, the Company will pay to UWMRF the following: (i) patent filing and prosecution costs incurred by UWMRF prior to the effective date, paid in yearly installments over three years from the Effective Date; (ii) annual maintenance fees, beginning on the second anniversary of the Effective Date, which annual maintenance fees terminate upon the Company’s payment of royalties pursuant to clause (iv) below; (iii) milestone payments, paid upon the occurrence of certain dosing events of patients during clinical trials and certain approvals by the FDA; and (iv) royalties on net sales of products developed with the licenses, subject to minimum annual payments and to royalty rate adjustments based on whether separate royalty payments by the Company yield an aggregate rate beyond a stated threshold. The Company has also granted UWMRF certain stock appreciation rights with respect to the Company’s neuromodulator programs, subject to certain limitations, and will pay to UWMRF certain percentages of revenues generated from sublicenses of the licenses provided under the UWMRF Patent License Agreement by the Company to third parties.
University of Wisconsin-Milwaukee Outreach Services Agreement
On July 12, 2021, the Company and the Board of Regents of the University of Wisconsin System on behalf of the University of Wisconsin-Milwaukee (“UWM”) entered into an Outreach Services Agreement pursuant to which UWM agreed to provide, among other molecules, multiple milligram to gram quantities of KRM-II-81 (GABAkine) and the Company agreed to pay UWM an annual sum of $75,000 payable in three installments of $25,000 each beginning October 12, 2021, which amount was timely paid, and on a quarterly basis thereafter. The payments that were due on January 12, 2022 and April 12, 2022 have not yet been paid. The Company and UWM are in discussions to establish an new payment schedule. The agreement terminates on June 30, 2022 unless extended upon consent of both parties.
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, 2021, was extended to May 31, 2022 and has not yet been paid.
One-time milestone payments may become due based upon the achievement of certain development milestones. $75,000 will be due within 5 days of any one of the following, (a) dosing of the first patient with a dronabinol product in a Phase 2 human clinical study anywhere in the world that is not sponsored by the University of Illinois, (b) dosing of the first patient in a Phase 2 human clinical study anywhere in the world with a low dose dronabinol (defined as less than or equal to 1 mg), or (c) dosing of the first patient in a Phase 1 human clinical study anywhere in the world with a proprietary reformulation of dronabinol. $350,000 will be due within five days after the dosing of the first patient is a Phase III human clinical trial anywhere in the world. $500,000 will be due within five days after the first NDA filing with FDA or a foreign equivalent. $1,000,000 will be due within twelve months of the first commercial sale. One-time royalty payments may also become due and payable. Annual royalty payments may also become due. In the year after the first application for market approval is submitted to the FDA or a foreign equivalent and until approval is obtained, the minimum annual royalty will increase to $150,000. In the year after the first market approval is obtained from the FDA or a foreign equivalent and until the first sale of a product, the minimum annual royalty will increase to $200,000. In the year after the first commercial sale of a product, the minimum annual royalty will increase to $250,000.
During the three-months ended March 31, 2022 and 2021, the Company recorded charges to operations of $25,000 representing the allocated portion of the annual minimum royalty, which is included in research and development expenses in the Company’s condensed consolidated statement of operations for the three-months ended March 31, 2022 and 2021, respectively. The Company did not pay the amount due on December 31, 2021 for which the Company was granted an extension until May 31, 2022.
Noramco Inc. - Dronabinol Development and Supply Agreement
On September 4, 2018, RespireRx entered into a dronabinol Development and Supply Agreement with Noramco Inc., one of the world’s major dronabinol manufacturers, which Noramco subsequently assigned to its subsidiary, Purisys LLC (the “Purisys Agreement”). Under the terms of the Purisys Agreement, Purisys has agreed to (i) provide all of the active pharmaceutical ingredient (“API”) estimated to be needed for the clinical development process for both the first- and second-generation products (each a “Product” and collectively, the “Products”), three validation batches for New Drug Application (“NDA”) filing(s) and adequate supply for the initial inventory stocking for the wholesale and retail channels, subject to certain limitations, (ii) maintain or file valid drug master files (“DMFs”) with the FDA or any other regulatory authority and provide the Company with access or a right of reference letter entitling the Company to make continuing reference to the DMFs during the term of the agreement in connection with any regulatory filings made with the FDA by the Company, (iii) participate on a development committee, and (iv) make available its regulatory consultants, collaborate with any regulatory consulting firms engaged by the Company and participate in all FDA or Drug Enforcement Agency (“DEA”) meetings as appropriate and as related to the API. We now refer to the second-generation product as our proprietary formulation or proprietary product and have de-emphasized the first-generation product.
In consideration for these supplies and services, the Company has agreed to purchase exclusively from Purisys during the commercialization phase all API for its Products (as defined in the Development and Supply Agreement) at a pre-determined price subject to certain producer price index adjustments and agreed to Purisys’ participation in the economic success of the commercialized Product or Products up to the earlier of the achievement of a maximum dollar amount or the expiration of a period of time.
There was no activity during the three-months ended March 31, 2022 or 2021 with respect to the Purisys Agreement.
Summary of Principal Cash Obligations and Commitments
The following table sets forth the Company’s principal cash obligations and commitments for the next five fiscal years as of March 31, 2021, aggregating $990,877. License agreement amounts included in the 2022 column represent amounts contractually due from April 1, 2022 through December 31, 2022 (nine months) and in each of the subsequent years, represents the full year. Employment agreement amounts included in the 2022 column represent amounts contractually due at from April 1, 2022 through September 30, 2022 (six months) when such contracts expire unless extended pursuant to the terms of the contracts.
(1) The payment of certain of such amounts has been deferred indefinitely, as described above in “Employment Agreements”.
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Subsequent Events |
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| Subsequent Events [Abstract] | |
| Subsequent Events | 9. Subsequent Events
Convertible Note and Related Transactions
On April 14, 2022, the Company and Barton Asset Management (“Barton”) entered into a Securities Purchase Agreement (the “Barton SPA”) pursuant to which Barton is to provide a sum of $25,000 (the “Barton Consideration”) to the Company in return for a convertible promissory note (the “Barton Note”) with a face amount of $27,778 (which difference in value as compared to the Barton Consideration is due to an original issue discount of $2,778), and a common stock purchase warrant (the “Barton Warrant”) exercisable for five years at an exercise price of $0.01 per share on a cash or cashless basis, to purchase up to 2,777,800 shares of the Company’s common stock, par value $. In addition, and to induce Barton to enter into the Barton SPA, the Company and Barton entered into a Piggy-Back Registration Rights Agreement (the “Barton Registration Rights Agreement”) under which the Company has agreed to provide certain piggy-back registration rights under the Securities Act of 1933, as amended with respect to the common stock issuable pursuant to the Barton SPA.
The Note obligates the Company to pay by April 14, 2023 (the “Barton Maturity Date”) a principal amount of $27,778 together with interest at a rate equal to 10% per annum. The first twelve months of interest, equal to $2,778, is guaranteed and earned in full as of the effective date. Any amount of principal or interest that is not paid by the Barton Maturity Date would bear interest at the rate of 24% from the Barton Maturity Date to the date it is paid.
Barton has the right, in its discretion, at any time, to convert any outstanding and unpaid amount of the Barton Note into shares of common stock, provided that the conversion would not result in Barton beneficially owning more than 4.99% of the Company’s then outstanding common stock. Barton may convert at a per share conversion price equal to $0.01, subject to equitable adjustments for stock splits, stock dividends, combinations, recapitalizations, extraordinary distributions and similar events. Upon any conversion, all rights with respect to the portion of the Barton Note being so converted will terminate, except for the right to receive common stock or other securities, cash or other assets as provided for in the Barton Note.
The Company may, in the absence of an event of default, and with prior written notice to Barton, prepay the outstanding principal amount under the Barton Note during the initial 180 day period after the effective date by making a payment to Barton of an amount in cash equal to 115% of the outstanding principal, interest, default interest and other amounts owed. Under certain circumstances, including the occurrence of an event of default, a sale, merger or other business combination where the Company is not the survivor, or the conveyance or disposition of all or substantially all of the assets of the Company, the Company may be required to prepay in cash an amount equal to 125% of the outstanding principal, interest, default interest and other amounts owed. The Company’s wholly owned subsidiary, Pier Pharmaceuticals, Inc., provided an unlimited guarantee of the Company’s obligations under the Barton Note.
The Barton Note requires that the Company reserve the greater of (i) shares of Common Stock or (ii) one and a half times the number of shares into which the Barton Note may convert. The Barton Warrant requires that the Company reserve three times the number of shares into which the Barton Warrant is at any time exercisable.
The Barton SPA includes, among other things: (1) the grant of an option to Barton to incorporate into the Barton Note any terms applicable to a subsequent issuance of a convertible note or security by the Company that are more beneficial to an investor than the terms of the Barton SPA and Barton Note are to Barton; and (2) certain registration rights by reference to the Barton Registration Rights Agreement, and the right to have any shares of common stock issued in connection with the conversion of the Barton Note or exercise of the Barton Warrant included in any Regulation A offering statement that the Company files with the Securities and Exchange Commission.
The terms of the Barton SPA, Barton Note and related documents will trigger most favored nation adjustments to certain of the Company’s outstanding notes, including, but not necessarily limited to an adjustment of the conversion prices to $0.01, generally from $ per share of Common Stock and adjustment of the warrant exercise prices to $0.01, generally from $ per share of Common Stock for warrants issued in connection with those same convertible notes.
Most-Favored Nation Clauses of Certain Convertible Notes
Upon completion of the Barton Note and related agreements described above, the most-favored nations clauses (“MFN”) of other convertible notes and related warrants and agreements became effective. As a result, conversion prices were adjusted from $ to $ per share of common stock. In addition, the number of shares into which the warrants could be exercised doubled and the exercise price was reduced from $0.02 to $0.01 per share of common stock. The resultant potential issuance of additional shares associated with reduction of the conversion price as well as the increase in the number of shares of common stock issuable upon exercise of the additional warrants increases the number of shares the Company must contractually and incrementally reserve. The effect of the MFN is that an additional shares of common stock could be issued upon conversion of the convertible notes, an additional shares of common stock could be issued upon exercise of warrants and 179,691,579 additional shares were required to be contractually reserved.
Convertible Note Conversion
On April 18, 2022, a convertible note holder converted as a partial conversion, $33,300 of principal, $15,000 of accrued interest and $500 of conversion fees for a total of $48,800 at a conversion price of $0.01 (adjusted from $0.01 to $0.01 as a result of the MFN described above) into 4,880,000 shares of Common Stock. There remains $116,700 of principal amount with respect to such convertible note.
Advance from Officer
On April 14, 2022, the Company’s Interim President, Interim Chief Executive Officer and Chief Scientific Officer advanced $62,800 to the Company which funds were used to pay certain accounts payable. This advance is identical in nature to several advances made in prior periods by the same officer for similar purposes. |
Summary of Significant Accounting Policies (Policies) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Principles of Consolidation | Principles of Consolidation
The accompanying condensed consolidated financial statements are prepared in accordance with GAAP and include the financial statements of RespireRx and its wholly-owned subsidiary, Pier. Intercompany balances and transactions have been eliminated in consolidation.
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| Use of Estimates | 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.
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| Reverse Stock Split on January 5, 2021 | Reverse Stock Split on January 5, 2021
On January 5, 2021, the Company effected a ten to one reverse-stock split of its common stock. Every ten shares of the “old” common stock was exchanged for one “new” share of common stock rounded down to the nearest whole share with any fractional shares of common stock paid to the stockholder in cash. Option and warrant issuances prior to January 5, 2021 have also been proportionately adjusted by dividing the number of shares into which such options and warrants may exercise by ten and multiplying the exercise price by ten.
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| Concentration of Credit Risk | 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.
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| Value of Financial Instruments | Value of Financial Instruments
The authoritative guidance with respect to value of financial instruments established a value hierarchy that prioritizes the inputs to valuation techniques used to measure value into three levels and requires that assets and liabilities carried at value be classified and disclosed in one of three categories, as presented below. Disclosure as to transfers into and out of Levels 1 and 2, and activity in Level 3 value measurements, is also required.
Level 1. Observable inputs such as quoted prices in active markets for an identical asset or liability that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active-exchange traded securities and exchange-based derivatives.
Level 2. Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange based derivatives, mutual funds, and fair-value hedges.
Level 3. Unobservable inputs in which there is little or no market data for the asset or liability which requires the reporting entity to develop its own assumptions. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded, non-exchange-based derivatives and commingled investment funds, and are measured using present value pricing models.
The Company determines the level in the value hierarchy within which each value measurement falls in its entirety, based on the lowest level input that is significant to the value measurement in its entirety. In determining the appropriate levels, the Company performs an analysis of the assets and liabilities at each reporting period end.
The carrying amounts of financial instruments (consisting of cash, cash equivalents, and accounts payable and accrued expenses) are considered by the Company to be representative of the respective values of these instruments due to the short-term nature of those instruments. With respect to the note payable to SY Corporation Co., Ltd. (“SY Corporation”) and the convertible notes payable, management does not believe that the credit markets have materially changed for these types of borrowings since the original borrowing date. The Company considers the carrying amounts of the notes payable to officers, inclusive of accrued interest, to be representative of the respective values of such instruments due to the short-term nature of those instruments and their terms.
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| Deferred Financing Costs | 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 or are unlikely to be completed.
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.
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| Debt Issuance Costs | Debt Issuance Costs
The Company presents debt issuance costs related to debt obligations in its consolidated balance sheet as a direct deduction from the carrying amount of that debt obligation, consistent with the presentation for debt discounts.
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| Convertible Notes Payable | Convertible Notes Payable
Convertible notes are evaluated to determine if they should be recorded at amortized cost. To the extent that there are associated warrants, commitment shares of Common Stock or a beneficial conversion feature, the convertible notes and equity or equity-linked securities are evaluated to determine if there are embedded derivatives to be identified, bifurcated and valued in connection with and at the time of such financing.
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| Extinguishment of Debt and Settlement of Liabilities | Extinguishment of Debt and Settlement of Liabilities
The Company accounts for the extinguishment of debt and settlement of liabilities by comparing the carrying value of the debt or liability to the value of consideration paid or assets given up and recognizing a loss or gain in the condensed consolidated statement of operations in the amount of the difference in the period in which such transaction occurs. See Note 4. Notes Payable.
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| Prepaid Insurance | Prepaid Insurance
Prepaid insurance represents the premium due in March 2022 for directors and officers insurance. The amounts of prepaid insurance amortizable in the ensuing twelve-month period are recorded as prepaid insurance in the Company’s consolidated balance sheet at each reporting date and amortized to the Company’s consolidated statement of operations for each reporting period.
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| Stock-Based Awards |
The Company periodically issues common stock and stock options to officers, directors, Scientific Advisory Board members, consultants and vendors for services rendered. Such issuances vest and expire according to terms established at the issuance date of each grant.
The Company accounts for stock-based payments to officers, directors, outside consultants and vendors by measuring the cost of services received in exchange for equity awards based on the grant date fair value of the awards, with the cost recognized as compensation expense on the straight-line basis in the Company’s consolidated financial statements over the vesting period of the awards.
Stock grants and stock options, which are sometimes subject to time-based vesting, are measured at the grant date fair value and charged to operations ratably over the vesting period.
The value of stock options granted as stock-based payments is determined utilizing the Black-Scholes option-pricing model, and is affected by several variables, the most significant of which are the life of the equity award, the exercise price of the stock option as compared to the fair market value of the common stock on the grant date, and the estimated volatility of the common stock over the term of the equity award. Estimated volatility is based on the historical volatility of the Company’s common stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The fair market value of common stock is determined by reference to the quoted market price of the Company’s common stock.
Stock and stock option grants and warrants issued to non-employees as compensation for services to be provided to the Company or in settlement of debt are accounted for based upon the fair value of the services provided or the estimated fair value of the stock option or warrant, whichever can be more clearly determined. Management uses the Black-Scholes option-pricing model to determine the fair value of the stock options and warrants issued by the Company. The Company recognizes this expense over the period in which the services are provided.
There were stock or stock option grants during the three-months ended March 31, 2022.
The Company recognizes the amortized value of stock-based payments in general and administrative costs and in research and development costs, as appropriate, in the Company’s condensed consolidated statements of operations. The Company issues new shares of common stock to satisfy stock option and warrant exercises. There were stock options exercised during the three-months ended March 31, 2022 and 2021, respectively.
There were warrants issued as compensation or for services during the three-months ended March 31, 2022 and 2021. Warrants, if issued for services, are typically issued to placement agents or brokers for fund raising services, or to lenders, and are not issued from any of the Company’s stock and option plans, from which options issued to non-employees for services are typically issued.
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| Income Taxes | 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, 2022, 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, 2022, 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.
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| Foreign Currency Transactions | Foreign Currency Transactions
The note payable to SY Corporation, which is denominated in a foreign currency (the South Korean Won), is translated into the Company’s functional currency (the United States Dollar) at the exchange rate on the balance sheet date. The foreign currency exchange gain or loss resulting from translation is recognized in the related condensed consolidated statements of operations.
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| Research and Development | Research and Development
Research and development costs include compensation paid to management directing the Company’s research and development activities, including but not limited to compensation paid to our Chief Scientific Officer who is also our Executive Chairman, our Interim President and our Interim Chief Executive 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.
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| License Agreements | License Agreements
Obligations incurred with respect to mandatory payments provided for in license agreements are recognized ratably over the appropriate term, as specified in the underlying license agreement, and are recorded as liabilities in the Company’s condensed consolidated balance sheet, with a corresponding charge to research and development costs in the Company’s condensed consolidated statement of operations. Obligations incurred with respect to milestone payments provided for in license agreements are recognized when it is probable that such milestone will be reached and are recorded as liabilities in the Company’s condensed consolidated balance sheet, with a corresponding charge to research and development expenses in the Company’s condensed consolidated statement of operations.
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| Patent Costs | 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.
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| 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.
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| Reclassifications | Reclassifications
Certain comparative figures in 2021 have been reclassified to conform to the current quarter’s presentation. These reclassifications were immaterial, both individually and in the aggregate.
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| Recent Accounting Pronouncements | Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). The subtitle is Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This Accounting Standard Update (“ASU”) addresses complex financial instruments that have characteristics of both debt and equity. The application of this ASU would reduce the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models would result in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The Company has historically issued complex financial instruments and has considered whether embedded conversion features have existed within those contracts or whether derivatives would appropriately be bifurcated. To date, no such bifurcation has been necessary. However, it is possible that this ASU may have a substantial impact on the Company’s financial statements. Management is evaluating the potential impact. This ASU becomes effective for fiscal years beginning after December 15, 2023.
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Summary of Significant Accounting Policies (Tables) |
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Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share |
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Notes Payable (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Convertible Notes Outstanding | The table below summarizes the convertible notes outstanding during the three months ended and as of March 31, 2022. There were no repayments by conversion during the three-months ended March 31, 2022, however there was one partial conversion in April 2022 (see also Note 9. Subsequent Events):
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| Schedule of Convertible Notes Payable | The remaining outstanding Original Convertible Notes (including those for which default notices have been received) consist of the following at March 31, 2022 and December 31, 2021:
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| SY Corporation [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Convertible Notes Payable | The note payable to SY Corporation consists of the following at March 31, 2022 and December 31, 2021:
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Stockholders’ Deficiency (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Warrants Activity | A summary of warrant activity for the three-months ended March 31, 2022 is presented below.
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| Schedule of Exercise Prices of Common Stock Warrants Outstanding and Exercisable | The exercise prices of common stock warrants outstanding and exercisable are as follows at March 31, 2022:
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| Summary of Stock Option Activity |
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| Schedule of Exercise Prices of Common Stock Options Outstanding and Exercisable |
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Commitments and Contingencies (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Current Cash Commitments in Employment Agreements | The table below summarized the current cash commitments to Dr. Lippa and Mr. Margolis through the next September 30th renewal date.
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| Summary of Principal Cash Obligations and Commitments |
(1) The payment of certain of such amounts has been deferred indefinitely, as described above in “Employment Agreements”. |
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Business (Details Narrative) - USD ($) |
3 Months Ended | 12 Months Ended | |||
|---|---|---|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
Dec. 31, 2021 |
May 31, 2022 |
Dec. 31, 2020 |
|
| Proceeds from Issuance Initial Public Offering | $ 7,500,000 | ||||
| Share Price | $ 0.02 | ||||
| Net losses | $ 860,163 | ||||
| Net loss attributable to commons shareholders | 860,163 | $ 850,249 | $ 3,144,840 | ||
| Net Income (Loss) Available to Common Stockholders, Basic | 3,522,882 | ||||
| Net Cash Provided by (Used in) Operating Activities | 23,133 | 286,861 | 956,172 | ||
| Stockholders' Equity Attributable to Parent | $ 10,867,921 | $ 8,454,618 | $ 10,007,758 | $ 8,063,320 | |
| Forecast [Member] | |||||
| Due to Related Parties | $ 100,000 | ||||
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share (Details) - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total | 124,899,200 | 13,301,469 |
| Series B Convertible Preferred Stock [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total | 1 | 1 |
| Convertible Notes Payable [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total | 49,287,033 | 6,674,704 |
| Common Stock Warrants [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total | 66,345,298 | 28,800,757 |
| Common Stock Options [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total | 9,266,868 | 7,112,907 |
Summary of Significant Accounting Policies (Details Narrative) - shares |
3 Months Ended | ||
|---|---|---|---|
Jan. 05, 2021 |
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Reverse stock split description | the Company effected a ten to one reverse-stock split of its common stock | ||
| Stock options granted | 0 | ||
| Stock options exercised | 0 | 0 | |
| Warrant [Member] | |||
| Warrants issued as compensation | 0 | 0 | |
Schedule of Convertible Notes Payable (Details) - USD ($) |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Short-Term Debt [Line Items] | ||
| Total note payable | $ 832,496 | $ 837,104 |
| SY Corporation [Member] | ||
| Short-Term Debt [Line Items] | ||
| Principal amount of note payable | 399,774 | 399,774 |
| Accrued interest payable | 471,186 | 459,358 |
| Foreign currency transaction adjustment | (38,464) | (22,028) |
| Total note payable | 832,496 | 837,104 |
| Original Convertible Notes Payable [Member] | ||
| Short-Term Debt [Line Items] | ||
| Principal amount of note payable | 75,000 | 75,000 |
| Accrued interest payable | 87,221 | 80,961 |
| Total note payable | $ 162,221 | $ 155,961 |
Schedule of Warrants Activity (Details) - $ / shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Equity [Abstract] | ||
| Number of Warrants, Outstanding, Beginning balance | 59,420,298 | 28,809,352 |
| Weighted Average Exercise Price, Outstanding, Beginning balance | $ 0.0718 | $ 0.1528 |
| Weighted Average Remaining Contractual Life (in Years) ,Outstanding, Beginning | 3 years 3 months 29 days | 2 years 7 months 20 days |
| Number of Warrants, Issued | ||
| Weighted Average Exercise Price, Issued | ||
| Number of Warrants, Expired | (8,595) | |
| Weighted Average Exercise Price, Expired | $ 79.3000 | |
| Number of Warrants, Outstanding, Exercisable Ending balance | 59,420,298 | 28,800,757 |
| Weighted Average Exercise Price, Exercisable, Ending balance | $ 0.0718 | $ 0.1292 |
| Weighted Average Remaining Contractual Life (in Years), Outstanding, Ending | 3 years 26 days | 2 years 4 months 20 days |
Summary of Stock Option Activity (Details) - $ / shares |
3 Months Ended | 12 Months Ended |
|---|---|---|
Mar. 31, 2022 |
Dec. 31, 2021 |
|
| Equity [Abstract] | ||
| Options Outstanding (Shares) | 9,306,368 | |
| Weighted Average Exercise Price, Options outstanding, beginning balance | $ 1.09 | |
| Weighted Average Remaining Contractual Term, ending | 3 years 8 months 19 days | 3 years 11 months 12 days |
| Number of shares, Options Expired | (39,500) | |
| Weighted Average Exercise Price, Options Expired | $ 39.00 | |
| Options Outstanding (Shares) | 9,266,868 | 9,306,368 |
| Weighted Average Exercise Price, Options outstanding, ending balance | $ 0.93 |
Related Party Transactions (Details Narrative) |
Mar. 31, 2022
USD ($)
|
|---|---|
| Aurora Capital LLC [Member] | |
| Related Party Transaction [Line Items] | |
| Accounts payable and accrued liabilities | $ 96,000 |
Summary of Current Cash Commitments in Employment Agreements (Details) - Forecast [Member] |
6 Months Ended |
|---|---|
|
Sep. 30, 2022
USD ($)
| |
| Base Salary | $ 300,000 |
| Benefits | 30,600 |
| Total | 330,600 |
| Dr Arnold S Lippa [Member] | |
| Base Salary | 150,000 |
| Benefits | 19,800 |
| Total | 169,800 |
| Mr Margolis [Member] | |
| Base Salary | 150,000 |
| Benefits | 10,800 |
| Total | $ 160,800 |
Summary of Principal Cash Obligations and Commitments (Details) - USD ($) |
Mar. 31, 2022 |
Mar. 31, 2021 |
|---|---|---|
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||
| Total | $ 990,877 | $ 990,877 |
| 2022 | 505,692 | |
| 2023 | 140,185 | |
| 2024 | 115,000 | |
| 2025 | 115,000 | |
| 2026 | 115.0000 | |
| Licensing Agreements [Member] | ||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||
| Total | 660,277 | |
| 2022 | 175,092 | |
| 2023 | 140,185 | |
| 2024 | 115,000 | |
| 2025 | 115,000 | |
| 2026 | 115,000 | |
| Employment Agreement [Member] | ||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||
| Total | 330,600 | |
| 2022 | 330,600 | |
| 2023 | ||
| 2024 | ||
| 2025 | ||
| 2026 |