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 November 14, 2023, 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 the “Company,” “we,” “us” and “our” refer to RespireRx Pharmaceuticals Inc. a Delaware corporation (“RespireRx”), and, unless the context indicates otherwise, its consolidated subsidiaries, ResolutionRx Ltd (“ResolutionRx”) and Pier Pharmaceuticals, Inc. (“Pier”).
INTRODUCTORY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q of RespireRx Pharmaceuticals Inc., referred to herein as our “Q3 2023 Quarterly Report” (“RespireRx” and together with RespireRx’s wholly-owned subsidiaries, ResolutionRx Ltd (“ResolutionRx”) and 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 Q3 2023 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, 2022 as filed with the SEC on April 17, 2023 (the “2022 Form 10-K”) and as may be included in this Q3 2023 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 Q3 2023 Quarterly Report. We cannot assure you that the forward-looking statements in this Q3 2023 Quarterly Report or in our 2022 Form 10-K will prove to be accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements. You should read this Q3 2023 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 Q3 2023 Quarterly Report and our 2022 Form 10-K, 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 Q3 2023 Quarterly Report and 2022 Form 10-K. 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 SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2023 | December 31, 2022 | |||||||
| (unaudited) | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Deferred financing costs | ||||||||
| Prepaid research and development | ||||||||
| 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 and affiliates, including accrued interest (Notes 4 and 7) | ||||||||
| 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, all long-term at September 30, 2023 and net of current portion included in accounts payable at December 31, 2022 (Note 5) | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 8) | ||||||||
| Stockholders’ deficiency: (Note 6) | ||||||||
| Series B convertible preferred stock, $ par value; $ | ||||||||
| Series I 8% Redeemable Preferred Stock, par value $, stated value $ | ||||||||
| Series J 8% Voting, Participating, Redeemable Preferred Stock, par value $, stated value $ | ||||||||
| Common stock, $ par value; shares authorized: ; shares issued and outstanding: outstanding at September 30, 2023 and at December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficiency | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficiency | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
| 4 |
RESPIRERX PHARMACEUTICALS INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three-Months Ended | Nine-Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative, including related parties | $ | $ | $ | $ | ||||||||||||
| Research and development, including related parties | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on extinguishment or settlement or modification of debt and other liabilities | ( | ) | ( | ) | ||||||||||||
| Interest expense, including related parties | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign currency transaction gain | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Deemed dividend associated with paid-in-kind dividends on preferred stock for the three-months and nine-months periods ending September 30, 2023 and most favored nation provisions of convertible notes for the three-months and nine-months periods ending September 30, 2022 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share attributable to common stockholders - 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 SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(Unaudited)
Three-months and Nine-months Ended September 30, 2023
| Series B | Series I | Series J | ||||||||||||||||||||||||||||||||||||||||||
| Convertible | 8% | 8% | Additional | Total | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Par Value | Capital | Deficit | Deficiency | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Common Stock issued upon cashless warrant exercises | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of Series I Preferred Stock | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Accrued dividends on Series I Preferred Stock | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Issuance of Series J Preferred Stock | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Accrued dividends on Series J Preferred Stock | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon convertible notes conversions | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon cashless exercise of warrants | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Warrant issuances with respect to Demand Promissory Notes | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Issuance of Series I Preferred Stock | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Accrued dividends on Series I Preferred Stock | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Issuance of Series J Preferred Stock | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Accrued dividends on Series J Preferred Stock | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon convertible notes conversions | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance September 30, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
Three-months and Nine-months Ended September 30, 2022
| Series B | Series I | Series J | ||||||||||||||||||||||||||||||||||||||||||
| Convertible | 8% | 8% | Additional | Total | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Par Value | Capital | Deficit | Deficiency | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Warrant value for issuance of convertible note | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon convertible notes conversions | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon convertible note conversion | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of convertible notes | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
| 6 |
RESPIRERX PHARMACEUTICALS INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine-months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| 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 - | ||||||||
| Equity-based conversion fees | ||||||||
| Loss on modification of convertible notes | ||||||||
| Foreign currency transaction (gain) loss | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Increase (decrease) in cash from | ||||||||
| Deferred financing costs | ||||||||
| Prepaid expenses and prepaid research and development | ||||||||
| Fees paid with shares of Common Stock | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Accrued compensation and related expenses | ( | ) | ||||||
| Officer and affiliate liabilities, including accrued interest | ||||||||
| Accrued interest payable and notes payable | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from convertible note borrowings | ||||||||
| Proceeds from sale of preferred stock | ||||||||
| Proceeds from demand promissory notes | ||||||||
| Borrowings on short-term notes payable, net of repayments | ( | ) | ||||||
| Proceeds from or repayment of officer advance | ||||||||
| Net cash provided by financing activities | ||||||||
| Cash and cash equivalents: | ||||||||
| Net (decrease)/increase | ( | ) | ||||||
| Balance at beginning of period | ||||||||
| Balance at end of period | $ | $ | ||||||
(Continued)
| 7 |
RESPIRERX PHARMACEUTICALS INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
| Nine-months Ended September30, | ||||||||
| 2023 | 2022 | |||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for - | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Non-cash financing activities: | ||||||||
| Reclassification of short-term liabilities to long-term liabilities | $ | $ | ||||||
| Reclassification of long-term liabilities to short-term liabilities | $ | $ | ||||||
| Insurance policies | $ | $ | ||||||
| Conversion of accounts payable to officer to notes payable to officer | $ | $ | ||||||
| Commitment shares/warrants issued with debt financing | $ | $ | ||||||
| Shares issued with conversion of debt | $ | $ | ||||||
| Accrued compensation, accounts payable and other liabilities exchanged or settled for equity | $ | $ | ||||||
| Issuance of warrants as deemed dividends associated with most-favored nation provisions of convertible notes | $ | $ | ||||||
| Issuance of preferred stock as deemed dividends associated with paid-in-kind dividends on Series I and Series J preferred stock | $ | $ | ||||||
| Debt discounts established for convertible debt | $ | $ | ||||||
| Cashless warrant exercises | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
| 8 |
RESPIRERX PHARMACEUTICALS INC.
AND SUBSIDIARIES
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. Currently RespireRx and its subsidiaries are focusing and emphasizing their historical efforts on data mining, re-discovery and re-purposing of known drugs and drug candidates to reduce risks and costs associated with drug development. 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’s wholly-owned subsidiary ResolutionRx Ltd (“ResolutionRx”). Pier is currently inactive. On January 11, 2023, RespireRx formed as a wholly-owned subsidiary, ResolutionRx, an unlisted public company in Australia, into which RespireRx, as of August 3, 2023, has contributed its cannabinoid platform described below.
Basis of Presentation
The condensed consolidated financial statements are of RespireRx and its wholly-owned subsidiaries, Pier and ResolutionRx (collectively referred to herein, along with its business unit, EndeavourRx, as the “Company,” the “RespireRx Group”, “we” or “our,” unless the context indicates otherwise).
The condensed consolidated financial statements and related notes are unaudited and 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 in our Form 10-K for the fiscal year ended December 31, 2022 as filed with the SEC on April 17, 2023 (“2022 Form 10-K”).
| 9 |
2. Business
Mission
The mission of the RespireRx Group, is to develop innovative and revolutionary treatments to combat disorders caused by disruption of neuronal signaling at reduced risk and cost. In pursuit of this goal, we have (i) used data mining to identify and acquire new GABAkines, a family of compounds that have displayed a high degree of efficacy in a wide range of animal studies and are undergoing preclinical safety studies; (ii) re-discovered the safety of our low impact AMPAkines, a class of compounds that have been under- or unrecognized, and have advanced their clinical development and (iii) have re-purposed dronabinol, an already approved drug, and developed it forward into late stage clinical status for use as a new proprietary treatment. We have focused on 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. As we move forward, we may also consider developing treatment options for other conditions based on results of preclinical and clinical studies to date. To achieve these goals, the Company has determined that some or all of these opportunities should be licensed, sub-licensed, joint ventured or even sold and has initiated efforts to do so.
Strategy
It is generally agreed that drug research and development (“R&D”) programs can cost hundreds of millions of dollars, take years if not decades to complete and carry considerable risk to successfully complete. While large, well-funded companies can undertake such ventures, smaller companies must seek out other creative and disruptive approaches to compete in the drug discovery and development process. We believe we have identified three basic methods that, when utilized, allow us to reduce risk, minimize costs and create considerable value.
Data-mining - a process whereby value can be found by data-mining published literature using artificial intelligence (“AI”) and our extensive knowledge and experience to identify validated neuronal targets and acquire known drugs and drug candidates. This approach can dramatically reduce much of the costs, time and risks involved.
Re-Discovery - a process whereby value can be found by (a) identifying and acquiring drug(s) with appropriate mechanism(s) of action on a newly discovered identified target; (b) acquiring drug(s) that have strong preclinical data demonstrating efficacy and safety and preferably be ready to begin IND enabling studies in preparation for clinical trials; and/or (c) clinical studies demonstrating safety (Phase 1) and, optimally, efficacy (Phase 2).
Re-Purposing - a process whereby value can be found by (a) determining that an identified neuronal substrate is involved in an undiscovered, little know or orphan therapeutic area; (b) demonstrate that acquired drugs targeting that neuronal substrate demonstrate efficacy in predictive animal tests; and (c) acquire drugs that have successfully demonstrated safety in Phase 1 clinical studies and target engagement of the desired neuronal substrate.
Implementation
In order to facilitate our business activities and product development and to set up our programs for partnering or sale, the Company has implemented an internal restructuring plan based upon our two research platforms: drugs that act directly upon endocannabinoid receptors and drugs that act as neuromodulators at AMPA glutamate and GABAA receptors, the major excitatory and inhibitory neurotransmitters in the brain, respectively. ResolutionRx is the subsidiary focused on dronabinol for obstructive sleep apnea and EndeavourRx is 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 as well as contracting firms to conduct specific R&D projects.
| (i) | ResolutionRx, our repurposing platform is developing dronabinol initially for the treatment of OSA and later for other indications. Dronabinol is already approved by the U.S. FDA and other national regulatory agencies for other indications, allowing for a more rapid route to approval. | |
| (ii) | EndeavourRx, our neuromodulators rediscovery 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 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”). |
ResolutionRx, was organized January 11, 2023 as a wholly-owned subsidiary of RespireRx. We are also evaluating whether to organize our EndeavourRx business unit, in part or in whole, into one or more subsidiaries that would conduct R&D of 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.
The RespireRx Group, comprised of RespireRx, ResolutionRx and EndeavourRx (and Pier, which is inactive), believes that there are advantages to separating these platforms formally into newly formed subsidiaries, including but not limited to optimizing their asset values by making them attractive to separate financing and strategic partnering channels.
| 10 |
The Company’s business development efforts (licensing, sub-licensing, joint venture and other commercial structures), if successful, would 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 OTC Pink Market listing and our low market capitalization as a result of our low stock price as well as the weakness of our balance sheet.
For this reason, the Company has affected an internal restructuring plan described above that we believe will further the aims of RespireRx, ResolutionRx and EndeavourRx, and may make it possible, through separate finance channels, to unlock the unrealized asset values of each and set up its programs for partnering or sale.
We believe that some or all of our assets should be licensed, sub-licensed, joint ventured or even sold and have initiated efforts to do so. 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.
On
May 18, 2023, ResolutionRx entered into a Letter of Intent with Cantheon Capital (“Cantheon” and “Cantheon LOI”)
that describes an intended investment of US$3,
On May 11, 2023, RespireRx entered into a Letter Agreement (“Letter Agreement”) with Viridian Capital Advisors (“VCA”) pursuant to which, VCA would perform the following services (“Valuation Services”): (i) review the Company’s intellectual property assets and licensing agreements as they relate to Company’s cannabinoid program, net of any associated liabilities, (ii) review the Company’s financial models and forecasts as they relate to the Company’s cannabinoid program and (iii) prepare the data, analytics and Company valuation analysis (“Valuation Analysis”) specifically with respect to the Company’s cannabinoid program. The Letter Agreement became effective on May 22, 2023. The Company entered this Letter Agreement as part of the process that began with the establishment of ResolutionRx, into which the net assets of the Company’s cannabinoid program have been contributed via license and sublicense in exchange for Ordinary Shares of ResolutionRx, all as of August 3, 2023. RespireRx received the final Valuation Analysis on August 7, 2023.
On February 27, 2023, ResolutionRx entered into a Services Agreement with iNGENu CRO Pty Ltd - See Note 8. Commitments and Contingencies-Significant Agreements and Contracts – Services Agreement with iNGENu CRO Pty Ltd. The initial deposit was paid and services have commenced.
On August 3, 2023, RespireRx entered into a License Agreement with ResolutionRx - See Note 8. Commitments and Contingencies - Significant Agreements and Contracts - License Agreement with ResolutionRx Ltd.
On August 3, 2023, RespireRx entered into a Sublicense Agreement with ResolutionRx - See Note 8. Commitments and Contingencies - Significant Agreements and Contracts - Sublicense Agreement with ResolutionRx Ltd.
On August 3, 2023, RespireRx entered into a Stock Transfer Agreement with ResolutionRx - See Note 8. Commitments and Contingencies - Significant Agreements and Contracts - Stock Transfer Agreement with ResolutionRx Ltd.
On August 3, 2023, RespireRx entered into a Master Intercompany Services Agreement with ResolutionRx – See Note 8. Commitments and Contingencies – Significant Agreements and Contracts – Master Intercompany Services Agreement with ResolutionRx.
On October 9, 2023, ResolutionRx entered into a Master Services Agreement (“MSA”) with Ab Initio Pharma Pty Ltd, (“Ab Initio”) an Australian company under which Ab Initio will manufacture, formulate, test and supply ResolutionRx with therapeutic drugs based on lipid nanoparticle technology licensed from RespireRx - See Note 8. Commitments and Contingencies - Significant Agreements and Contracts –Master Services Agreement with Ab Initio Pharma Pty Ltd.
| 11 |
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 and net losses attributable to common stockholders 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.
| 12 |
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. Such activities have commenced with iNGENu with ResolutionRx and certain R&D activities are taking place at collaborating academic institutions. 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 and liabilities. 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 and, in that regard, has formed an Australian subsidiary, ResolutionRx. In addition to the formation of ResolutionRx, such changes could include additional significant reorganizations, which may include the formation of one or more additional 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.
As
an example of its efforts to address outstanding accounts payable, on September 26, 2023, the Company entered into a Second Amendment
to Consulting Agreement and a Settlement and Exchange Agreement with DNA Healthlink Inc. pursuant which $
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 R&D 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. In addition to the formation of ResolutionRx, such changes could include additional significant reorganizations, which may include the formation of one or more additional 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 (unaudited) are prepared in accordance with GAAP and include the financial statements of RespireRx and its wholly-owned subsidiaries, Pier and ResolutionRx. Intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of condensed 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.
| 13 |
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 for companies like the Company. 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.
Capitalized Financing Costs
The Company presents debt issuance costs related to debt obligations in its condensed consolidated balance sheet as a direct deduction from the carrying amount of that debt obligation, consistent with the presentation for debt discounts.
| 14 |
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, 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.
Debt and Other Liability Exchanges
In cases where debt or other liabilities are exchanged for equity, the Company compares the carrying value of debt, inclusive of accrued interest, if applicable, being exchanged, to the fair value of the equity issued and records any loss or gain as a result of such exchange. See Note 4. Notes Payable.
Extinguishment of Debt and Settlement of Liabilities
The Company accounts for the extinguishment of debt and settlement of liabilities by comparing the carrying value of the debt or liability to the value of consideration paid or assets given up and recognizing a loss or gain in the condensed consolidated statement of operations in the amount of the difference in the period in which such transaction occurs.
Prepaid Insurance
Prepaid insurance represents the premium that was due in March 2023 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, stock options and phantom stock (collectively, “Stock-Based Awards”) 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 or condensed consolidated financial statements over the vesting period of the awards.
Stock grants, which are sometimes subject to time-based vesting, are measured at the grant date fair value of the common stock and charged to operations ratably over the vesting period.
Stock options granted to members of the Company’s outside consultants and other vendors are valued on the grant date. As the stock options vest, the Company recognizes this expense over the period in which the services are provided.
The value of stock options granted as stock-based payments is determined utilizing the Black-Scholes option-pricing model, and is affected by several variables, the most significant of which are the life of the equity award, the exercise price of the stock option as compared to the fair market value of the common stock on the grant date, and the estimated volatility of the common stock over the term of the equity award. Estimated volatility is based on the historical volatility of the Company’s common stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The fair market value of common stock is determined by reference to the quoted market price of the Company’s common stock.
Stock 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.
Phantom stock awards, which are sometimes subject to time-based vesting, are measured at the award date fair value, if measurable. As the phantom stock awards vest, the Company recognizes the expense, if measurable, upon vesting. To the extent that the value of phantom stock awards is not measurable on the award date, measurement only being possible on the satisfaction of certain contingent events that may not be predictable and measurable at the time of the award, the Company recognizes the expense as a change in an estimate as of the date on which the contingent event becomes predictable and measurable.
| 15 |
The Company recognizes the value of stock-based payments in general and administrative costs and in research and development costs, as appropriate, in the Company’s consolidated or condensed consolidated statements of operations, as appropriate. The Company issues new shares of Common Stock to satisfy stock option and warrant exercises.
There were stock or stock option grants during the three-months or nine-months ended September 30, 2023 and 2022.
There were stock options exercised during the three-months or nine-months ended September 30, 2023 and 2022.
There
were
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, management does not anticipate performing a complete analysis of the limitation on the annual use of the net operating loss and tax credit carryforwards until the time that it anticipates it will be able to utilize these tax attributes.
As of September 30, 2023, the Company did not have any unrecognized tax benefits related to various federal and state income tax matters and does not anticipate any material amount of unrecognized tax benefits within the next 12 months.
The Company is subject to U.S. federal income taxes and income taxes of various state tax jurisdictions. As the Company’s net operating losses have yet to be utilized, all previous tax years remain open to examination by Federal authorities and other jurisdictions in which the Company currently operates or has operated in the past.
The Company accounts for uncertainties in income tax law under a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns as prescribed by GAAP. The tax effects of a position are recognized only if it is “more-likely-than-not” to be sustained by the taxing authority as of the reporting date. If the tax position is not considered “more-likely-than-not” to be sustained, then no benefits of the position are recognized. As of September 30, 2023 and December 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 accounts for ResolutionRx are maintained in Australian dollars and are converted to U.S. dollars at the exchange rate on the balance sheet. In both cases, the foreign currency exchange gain or loss resulting from translation is recognized in the related condensed consolidated statements of operations.
| 16 |
Research and Development
Research and development costs include compensation paid to management directing the Company’s R&D activities, including but not limited to compensation paid to our Chief Scientific Officer who is also our Executive Chairman, Interim President and Interim Chief Executive Officer, and who has similar roles at ResolutionRx, and fees paid to consultants and outside service providers and organizations (including research institutes at universities), and other expenses relating to the acquisition, design, research, 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 (loss) per common 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 stock dividends declared, accrued, 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.
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| Series B convertible preferred stock | ||||||||
| Convertible notes payable | ||||||||
| Common stock warrants | ||||||||
| Common stock options | ||||||||
| Total | ||||||||
Reclassifications
Certain comparative figures in 2022 have been reclassified to conform to the current quarter’s presentation. These reclassifications were immaterial, both individually and in the aggregate.
4. Notes Payable
Convertible Notes Payable
The table below summarizes all convertible notes outstanding as of September 30, 2023. Those with similar characteristics outstanding as of September 30, 2023 are grouped separately. The following abbreviations are used in the column headings: DIC is Debt Issuance Cost, OID is Original Issue Discount, Wts are warrants, CNC is Capitalized Note Cost and BCF is Beneficial Conversion Feature. Also included are repayments by conversion, exchange or otherwise during or prior to the three-month and nine-month periods ended September 30, 2023:
| 17 |
The table below summarizes the convertible notes outstanding during the nine- months ended and as of September 30, 2023. There were several partial repayments made by conversion during the nine-months ended September 30, 2023:
| Inception Date | Maturity date | Original Principal Amount | Interest rate | Original aggregate DIC, OID, Wts, CNC and BCF | Cumulative amortization of DIC, OID, Wts, CNC and BCF | Accrued coupon interest | Repayment by conversion, increase in principal amount, net where appropriate | Consolidated balance sheet carrying amount at September 30, 2023 inclusive of accrued interest | ||||||||||||||||||||||
| November 5, 2014 | $ | % | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| November 5, 2014 | % | |||||||||||||||||||||||||||||
| November 5, 2014 | % | |||||||||||||||||||||||||||||
| Sub-total | ||||||||||||||||||||||||||||||
| December 31, 2018 | % | |||||||||||||||||||||||||||||
| January 2, 2019 | % | |||||||||||||||||||||||||||||
| Sub-total | ||||||||||||||||||||||||||||||
| May 17, 2019 | % | ( | ) | ( | ) | |||||||||||||||||||||||||
| 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 | % | ( | ) | ( | ) | |||||||||||||||||||||||||
| April 14, 2022 | % | ( | ) | |||||||||||||||||||||||||||
| August 22, 2022 | % | ( | ) | |||||||||||||||||||||||||||
| August 22, 2022 | % | ( | ) | |||||||||||||||||||||||||||
| August 22, 2022 | % | ( | ) | ( | ) | |||||||||||||||||||||||||
| Sub-total | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| 1 | ||
| 2 | ||
| 3 |
| 18 |
Note Payable to SY Corporation Co., Ltd.
On
June 25, 2012, the Company borrowed
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 September 30, 2023 and December 31, 2022:
| September 30, 2023 | December 31, 2022 | |||||||
| 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 Affiliates
For
the three-months ended September 30, 2023 and 2022, $
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.
On
May 22, 2023, RespireRx issued a demand promissory note in the principal amount of $
On
May 22, 2023, RespireRx issued a demand promissory note in the principal amount of $
Notes Payable to Former Officer
For
the three-months ended September 30, 2023 and 2022, $
| 19 |
Other Short-Term Notes Payable
Other
short-term notes payable at September 30, 2023 and December 31, 2022 consisted primarily of premium financing agreements with respect
to the Company’s directors and officers liability insurance policies. At September 30, 2023, a premium financing agreement was
payable in the initial amount of $
5. Settlement and Payment Agreements
On September 26, 2023, RespireRx entered into a Settlement and Exchange Agreement (“DNA Healthlink Agreement”) with DNA Healthlink, Inc. (“DNA Healthlink”), a vendor that provides the Company with the services of RespireRx’s Senior Vice President of Research and Development, Richard Purcell. Also on September 26, 2023, the Company and DNA Healthlink entered into the Second Amendment to Consulting Agreement (“Consulting Amendment”).
Pursuant
to the terms of the Settlement Agreement, the parties agreed that the Company owed DNA Healthlink $
Pursuant
to the terms of the Amendment, the RespireRx and DNA Healthlink agreed to amend the First Amendment to the Consulting Agreement
dated October 15, 2014. The Consulting Amendment calls for RespireRx to prepay on a cash retainer basis, in installments of $
The scope of the work is to be mutually agreed in advance in writing on a regular and as needed basis.
In addition, the Consulting Amendment defined the term to be one-year and shall be automatically renewed for one-year renewal periods unless notice of cancellation is provided by either party within 30 days of September 26, 2024 or within 30 days of the end of any renewal period.
| 20 |
Effective
December 15, 2022, the Company and the Board of Trustees of the University of Illinois (“UIL”) entered into the Second Amendment
to RespireRx -University of Illinois Exclusive License Agreement. The parties entered into the Second Amendment in order to eliminate
accrued financial obligations to UIL and reduce future obligations. Annual $
Effective
August 1, 2022, the Company and the Company’s former legal counsel, entered into a payment settlement agreement and release pursuant
to which the Company and its former legal counsel agreed that the Company owed $
Effective
January 31, 2022, the Company’s former President and Chief Executive Officer and Member of the Board of Directors, Timothy Jones,
resigned his officer positions as well as from the Board of Directors pursuant to an Employment Agreement Termination and Separation
Agreement (“SA”) dated February 8, 2022. Pursuant to the terms of the SA, the Company has agreed to pay Mr. Jones up to a
maximum of $
On
April 29, 2021, RespireRx agreed to a payment and settlement agreement with the University of California Innovation and Entrepreneurship
(“UIC”) 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 December 31, 2022 and June 30, 2023. The total amount
due was $
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 $
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 condensed consolidated financial statements (unaudited) as of September 30, 2023 and consolidated financial statements as of December 31, 2022 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.
| 21 |
6. Stockholders’ Deficiency
Preferred Stock
RespireRx has authorized a total of shares of preferred stock, par value $ per share. As of September 30, 2023 and December 31, 2022, shares were designated as Series B Convertible Preferred Stock (non-voting, “Series B Preferred Stock”).
Series
B Preferred Stock outstanding as of September 30, 2023 and December 31, 2022 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 $
As of September 30, 2023, there were shares of Series H Preferred Stock designated and available for issuance.
On
April 3, 2023, RespireRx authorized shares of Series I
On April 12,
2023, RespireRx authorized
shares of Series J
Although other series of preferred stock have been designated, no other shares of preferred stock are outstanding. As of September 30, 2023, shares of preferred stock were undesignated and may be issued with such rights and powers as the Board of Directors may designate. As of December 31, 2022, shares of preferred stock were undesignated.
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 September 30, 2023. The issued and outstanding shares of Common Stock as
of September 30, 2023 included shares of Common Stock issued upon conversion of convertible notes and shares of
Common Stock issued upon cashless exercise of warrants during the nine-month period ended September 30, 2023. 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 September 30, 2023. No options were exercised during the nine-month period ended September 30, 2023. Options exercisable into
shares of Common Stock expired during the nine-month period ended September 30, 2023. During the three-month and nine-month periods ended
September 30, 2023, warrants exercisable into
| 22 |
Common Stock Warrants
A summary of warrant activity for the nine-months ended September 30, 2023 is presented below.
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in Years) | ||||||||||
| Warrants outstanding at December 31, 2022 | $ | |||||||||||
| Exercised | ( | ) | - | |||||||||
| Issued | ||||||||||||
| Expired | ( | ) | - | |||||||||
| Warrants outstanding and exercisable at September 30, 2023 | $ | |||||||||||
The exercise prices of common stock warrants outstanding and exercisable are as follows at September 30, 2023:
| Exercise Price | Warrants Outstanding and Exercisable (Shares) | Expiration Date | ||||||
| $ | - | |||||||
| $ | ||||||||
| $ | ||||||||
| $ | ||||||||
Based
on a value of $
A summary of warrant activity for the nine-months ended September 30, 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 or repriced as a result of most favored nation provisions | ||||||||||||
| Expired | ( | ) | ( | ) | - | |||||||
| Warrants outstanding and exercisable at September 30, 2022 | $ | |||||||||||
| 23 |
The exercise prices of common stock warrants outstanding and exercisable are as follows at September 30, 2022:
| Exercise Price | Warrants Outstanding and Exercisable (Shares) | Expiration Date | ||||||
| $ | - | |||||||
| $ | - | |||||||
| $ | ||||||||
| $ | ||||||||
| $ | ||||||||
| $ | ||||||||
| $ | - | - | ||||||
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 September 30, 2023, there areshares available in the 2014 Plan.
The 2014 Plan has provisions for the issuance of stock appreciation rights and phantom stock. On June 7, 2023, phantom stock awards (“Phantom Stock Awards”) totaling shares of phantom stock (“Phantom Stock”) were made to certain officer and directors and vendors, consultants and advisors. Shares of phantom stock are not convertible into Common Stock and therefore, no reserves were established for such awards. See Note 8. Commitments and Contingencies - Phantom Stock for a description of the phantom stock awarded on June 7, 2023.
On June 30, 2015, the Board of Directors adopted the 2015 Stock and Stock Option Plan (as amended, the “2015 Plan”). As of September 30, 2023, 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, 2022 | $ | |||||||||||
| Expired | ( | ) | - | |||||||||
| Options outstanding and exercisable at September 30, 2023 | $ | |||||||||||
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| Exercise Price | Options Outstanding and Exercisable (Shares) | Expiration Date | ||||||
| $ | ||||||||
| $ | ||||||||
| $ | ||||||||
| $ | - | - | ||||||
There was no deferred compensation expense as there were no outstanding and unvested stock options at September 30, 2023.
Based on a fair value of $ per share on September 30, 2023, there were no exercisable in-the-money common stock options as of September 30, 2023.
The exercise prices of common stock options outstanding and exercisable were as follows at September 30, 2022:
| Exercise Price | Options Outstanding and Exercisable (Shares) | Expiration Date | ||||||
| $ | ||||||||
| $ | ||||||||
| $ | ||||||||
| $ | -$ | - | ||||||
There was no deferred compensation expense for the outstanding and unvested stock options at September 30, 2022.
Based on a fair value of $ per share on September 30, 2022, there were no exercisable in-the-money common stock options as of September 30, 2022.
Reserved and Unreserved Shares of Common Stock
As
of September 30, 2023, there are shares of Common Stock, par value $ authorized, of which are issued and
outstanding. As of September 30, 2023, 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 September 30, 2023, there are issuable upon conversion of convertible notes.
As of September 30, 2023, there are
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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 withdrew its membership with FINRA and its registration with the SEC in July 2021. Although Aurora
has not provided services to RespireRx during the nine-months ended September 30, 2023 or the fiscal year ended December 31, 2022, Aurora
had previously provided services to RespireRx and there remains $
A description of advances and notes payable to officers is provided at Note 4. Notes Payable.
8. Commitments and Contingencies
Series I Preferred Stock
See Note 6. Stockholders’ Deficiency – Preferred Stock.
Series J Preferred Stock
See Note 6. Stockholders’ Deficiency – Preferred Stock.
Phantom Stock
Shares of Phantom Stock are not convertible, exercisable or exchangeable into RespireRx’s Common Stock.
Upon the occurrence of a payment Event (“Payment Event”), RespireRx will incur a liability to each Participant that is to be remitted as a cash payment (“Payment”), subject to certain limitations as described below, equal to: (x) the number of vested shares of Phantom Stock held by such Participant, multiplied by (y) the fair market value which on any given day is the value of one share of Common Stock.
The Payment, subject to any limitations, shall be made within thirty (30) days after receipt of funds by RespireRx as a result of the Payment Event, and all of such Participant’s shares of Phantom stock that vested as a result of the Payment Date Event shall terminate and be cancelled upon the payment, and the Participant shall have no further rights in respect of that portion of Participant’s shares of Phantom Stock other than rights to receive any unpaid portion of the Payment that was limited by any limitations described below. Any Payment due to a Participant is subject to the execution and non-revocation of general release of claims, in a form provided by RespireRx, and continuous compliance with any restrictive covenant agreement, confidentiality agreement or other agreement entered into between the Participant and RespireRx or its subsidiaries and affiliates.
A
Payment Event is a monetization event with an unrelated, unaffiliated third party, such as a sale of all or substantially all of an asset,
the entering into a joint venture, license or sublicense or a similar transaction structure, that is not an equity or similar or debt
investment in RespireRx or a subsidiary unless such equity or similar investment results in an unrelated, unaffiliated third party or
group of parties acting together, resulting in such party or parties owning more than a
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Other than adjustments for stock splits, reverse stock splits, stock dividends and similar recapitalizations, the Phantom Stock Award Agreements do not provide for distributions or anti-dilution protections.
Nothing contained in the Phantom Stock Award Agreements or RespireRx’s 2014 Equity Plan shall prevent RespireRx from adopting or continuing in effect other compensation arrangements.
Jeff Margolis, and Arnold Lippa, each an officer and a director of RespireRx received awards of and shares of Phantom Stock, respectively. Our independent director, Joseph R. Siegelbaum was awarded shares of Phantom Stock. The remaining of shares of Phantom Stock awarded were awarded to five vendors, consultants, advisors or their designees, one of which is an affiliate. A total of shares of Phantom Stock were awarded on June 7, 2023. Jeff Margolis and Arnold Lippa immediately transferred all of their shares of Phantom Stock to family trusts in accordance with the terms of the 2014 Plan.
The value of the Phantom Stock Awards cannot be determined at this time and can only be estimated or determined upon the occurrence of a Payment Event. Therefore, no amount has been recorded as a commitment or contingency. When or if a Payment Event occurs, an amount will be estimable or determinable and such amount will be recorded as a change in an estimate.
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 (unaudited) as of September 30, 2023, consolidated financial statements as of December 31, 2022 and condensed consolidated financial statements (unaudited) as of September 30, 2022 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, RespireRx’s Senior Vice President of Research and Development since October 15, 2014, has provided his services to RespireRx on an at will and month-to-month basis. On September 26, 2023 RespireRx and DNA Heathlink into the Second Amendment to Consulting Agreement (“Second Consulting Amendment”) and a Payment and Settlement Agreement (“DNA Healthlink Payment and Settlement Agreement”).
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Pursuant
to the terms of the DNA Healthlink Payment and Settlement Agreement, the parties agreed that RespireRx owed DNA Healthlink $
Pursuant
to the terms of the Second Consulting Amendment, the Company and DNA Healthlink agreed to amend the First Amendment to the Consulting
Agreement dated October 15, 2014 by calling for the Company to prepay on a cash retainer basis, in installments of $
The scope of the work is to be mutually agreed in advance in writing on a regular and as needed basis.
In addition, the Second Consulting Amendment established a term which was defined to be one-year and shall be automatically renewed for one-year renewal periods unless notice of cancellation is provided by either party within 30 days of September 26, 2024 or within 30 days of the end of any renewal period.
During the nine-month period ended September 30, 2023 and the year ended December 31, 2022, Mr. Purcell did not provide any services to RespireRx. With the Second Consulting Amendment and the DNA Healthlink Payment and Settlement Agreement, the Company anticipates that Mr. Purcell will provide services to the Company during the fiscal year ending December 31, 2023.
RespireRx
entered into a consulting contract with David Dickason effective September 15, 2020 pursuant to which Mr. Dickason was appointed to and
serves as RespireRx’s Senior Vice President of Pre-Clinical Product Development on an at-will basis at the rate of $
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. See Note 5. Payment and Settlement Agreements.
Effective January 31, 2022, Dr. Lippa was appointed as RespireRx’s Interim President and Interim Chief Executive Officer (“CEO”). 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 (“CSO”). Effective January 11, 2023, Dr. Lippa was appointed as ResolutionRx’s Co-CEO and CSO and is a director of ResolutionRx.
Jeff E. Margolis currently serves as RespireRx’s Senior Vice President, Chief Financial Officer, Treasurer and Secretary. Mr. Margolis also serves on RespireRx’s Board of Directors. Effective January 11, 2023, Mr. Margolis was appointed as ResolutionRx’s Co-CEO and Senior Financial Officer and is a director of ResolutionRx.
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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, 2024 | ||||||||||||
| Twelve 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 RespireRx’s ability to make such payments.
ResolutionRx Services Agreement with iNGENu CRO Pty Ltd
On
February 27, 2023, ResolutionRx entered into a services agreement (“Australian CRO Agreement) with iNGENu CRO Pty Ltd (iNGENu),
a contract research organization (“CRO”), pursuant to which iNGENu is to act as a full service CRO in support of ResolutionRx’s
R&D program, including but not limited (a) preparing and (b) submitting regulatory documents and designing and conducting clinical
trials. Under the Agreement, ResolutionRx was required to make a US$
ResolutionRx Master Services Agreement with Ab Initio
On October 9, 2023, ResolutionRx Ltd (“ResolutionRx”) a wholly owned Australian, public, unlisted subsidiary of RespireRx Pharmaceuticals Inc. (“RespireRx” or the “Company”) entered into a Master Services Agreement (“MSA”) with Ab Initio Pharma Pty Ltd, (“Ab Initio”) an Australian company for Ab Initio to manufacture, formulate, test and supply ResolutionRx with therapeutic drugs based on lipid nanoparticle technology licensed from RespireRx to ResolutionRx.
The initial services relate to ResolutionRx’s repurposing of dronabinol and its development program for obstructive sleep apnea pursuant to which Ab Initio will, among other things, manufacture and test our new dronabinol lipid nanoparticle formulation for pharmacokinetic, pharmacodynamic, and pivotal clinical trials as well as ultimately for commercialization.
The initial term of the MSA is two years and automatically renews for one-year periods unless ResolutionRx provides written notice to Ab Initio of its intent not to renew at least ninety days prior to the end of the initial term or any renewal term.
The services to be provided are set forth in a work order attached as a schedule to the MSA.
The MSA also provides for mutual indemnifications, describes the relationship of the parties and that ResolutionRx retains ownership of all intellectual property and provides for confidentiality.
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License Agreement with ResolutionRx Ltd
On August 3, 2023, RespireRx (“Licensor”) and ResolutionRx (“Licensee”), its wholly-owned, unlisted, public Australian subsidiary entered into a License Agreement (“License Agreement”) pursuant to which, RespireRx has licensed to ResolutionRx, the Intellectual Property (“Licensed IP” as defined in the License Agreement) which includes the Patent Rights (“Patent Rights” as defined in the License Agreement). The License (“License”) is an exclusive, worldwide and royalty-free license during the Term to use and exploit the Licensed IP in connection with ResolutionRx’s business and operations, including commercial and non-commercial purposes, with the exception that RespireRx shall have the exclusive right to use the technology described in the Licensed IP for non-cannabinoid products. ResolutionRx shall use its best efforts to commercialize the Licensed IP.
The Licensed IP is basically, the intellectual property and patent rights, identified in Schedule A of the License Agreement and is associated with the new dronabinol formulation initially to be developed for the treatment of obstructive sleep apnea.
The consideration for the License and the related Sublicense (see Sublicense Agreement between RespireRx Pharmaceuticals Inc. and ResolutionRx Ltd and Share Transfer Agreement below) is the issuance of Ordinary Shares of ResolutionRx to RespireRx plus the payment of US$ to RespireRx.
Licensee shall not sublicense any of its rights and/or obligations under the License Agreement without the prior written consent of Licensor, except to contract manufacturers, distributors and other third parties engaged by Licensee pursuant to the normal course of Licensee’s business (the “Sublicensees”) on terms consistent with and not in conflict with this License Agreement, and in no event less protective of Licensor’s rights than those set forth in the License Agreement. Such agreements with Sublicensees shall terminate upon termination of this License Agreement.
The Licensor shall be responsible for patent prosecution and maintenance and Licensee shall promptly either pay directly or reimburse Licensor’s costs in each jurisdiction. ResolutionRx as Licensee, at its option may control prosecution and maintenance of the Patent Rights.
The License Agreement also addresses how the parties are to deal with interferences, if any.
All unpublished information is to be treated confidentially.
ResolutionRx acknowledges in the License Agreement, that RespireRx is the owner of all right, title and interest in and to the Licensed IP, including all modifications, enhancements, improvements and other derivative works (“Modifications”). All Modifications are Licensed IP immediately upon their creation.
Licensee shall promptly notify Licensor of any actual or potential infringement, counterfeiting, or other unauthorized use of the Licensed IP by any other person or entity of which Licensee becomes aware. Licensor shall have the right, but not obligation, in its sole discretion, to enforce its rights in the Licensed IP, including to bring action with respect to any infringement of the Licensed IP.
With respect to the Licensed Patents, the term of the License Agreement shall commence as of the Effective Date, as defined in the License Agreement, and shall be effective until the last of the Licensed Patents, as defined in the License Agreement, expires (the “Patent Term”). With respect to the Licensed IP but excluding the Licensed Patents, the initial term of this License Agreement shall commence as of the Effective Date and shall be effective for a period of two (2) years (the “Initial Term”) and shall automatically be renewed for successive annual terms (each a “Renewal Term”) unless Licensee gives written notice to the Licensor of its intent not to renew at least sixty (60) days prior to the end of the Initial Term or then current Renewal Term, as applicable.
Licensee and Licensor have indemnified one another.
The License Agreement is governed by and construed in accordance with Delaware Law, without regard to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction).
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Sublicense Agreement with ResolutionRx Ltd
On August 3, 2023, RespireRx as sublicensor (“Sublicensor”) and ResolutionRx as sublicensee (“Sublicensee”), entered into a Sublicense Agreement (“Sublicense Agreement”) whereby Sublicensor, sublicensed the rights to its Exclusive License Agreement with The Board of Trustees of the University of Illinois, a body corporate and politic of the State of Illinois (“University”), effective June 27, 2014 (the “Original License”) and amended via that certain letter amendment, effective August 2, 2017 (the “Letter Amendment”) and that certain Second Amendment to RespireRx-University of Illinois Exclusive License Agreement, effective December 15, 2022 (the “Second Amendment,” and collectively with the Original License and Letter Amendment, the “Exclusive License” which is the same as the 2014 License Agreement described elsewhere in our condensed consolidated financial statements (unaudited) as of September 30, 2023), pursuant to which the University granted to RespireRx certain rights and licenses.
The Exclusive License permits Sublicensor to grant written sublicenses of its rights under the Exclusive License.
The consideration for the Sublicense and the related License (see License Agreement between RespireRx Pharmaceuticals Inc. and ResolutionRx Ltd above and Share Transfer Agreement below) is the issuance of Ordinary Shares of ResolutionRx to RespireRx plus the payment of US$ to RespireRx.
The Sublicense is essentially a direct pass-through of all of the rights and obligations associated with the Exclusive License from RespireRx as Sublicensor to ResolutionRx as Sublicensee.
The Sublicense expires upon the termination of the Exclusive License.
Stock Transfer Agreement with ResolutionRx Ltd
On August 3, 2023, ResolutionRx as transferor (“Transferor”) and RespireRx as transferee (“Transferee”) entered into a Stock Transfer Agreement (“Stock Transfer Agreement”) whereby the Transferor and Transferee agreed that Transferor which has the authority under its Constitution to issue the Ordinary Shares that are set out in the Stock Transfer Agreement, transfers absolutely, all title over the Ordinary Shares to the Transferee in consideration of the License Agreement and the Sublicense Agreement.
Master Intercompany Services Agreement with ResolutionRx Ltd
On August 3, 2023, RespireRx as the provider of services (“Provider”) and ResolutionRx as the recipient of services (“Recipient”) entered into a Master Intercompany Services Agreement (“MISA”). As of the date of the MISA, ResolutionRx was a wholly-owned Australian unlisted public subsidiary of RespireRx.
Provider performs certain support activities in the form of both general and administrative and research and development support in the execution of the business operations of Recipient.
The initial term of the MISA is from August 3, 2023 for two years. The MISA automatically renews for successive one-year periods unless Recipient gives written notice to Provider of its intent not to renew at least ninety days prior the end of the initial term or any renewal term.
Provider will provide the services as set forth on Schedule A of the MISA on an ongoing basis as well as such further services as Recipient and Provider may specifically agree upon from time to time (the “Services”). As noted on Schedule A, and for clarity, Recipient specifically agrees to remit to Provider for the Services or components (“Components”) of the Services until such time as the Components are no longer required and when such Components are provided by a party in Australia other than Provider, or such Components are no longer subcontracted for by Provider and Provider agrees to no longer provide such Components or Services.
The MISA also describes the selection of personnel and subcontracting.
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Provider will invoice Recipient for the Services to be performed on a quarterly basis (based on the fiscal year of Recipient) with such invoices to be issued, in advance, for Services to be rendered in the quarter following the date of each such invoice.
Recipient will pay Provider a fee (“Fee”) as set forth on Schedule B of the MISA, which may be amended by the Parties from time to time. Only those costs and expenses wholly and exclusively or otherwise properly attributed to the provision and coordination of provision of the Services will be included in the calculation of the Fee. Fees are payable in US dollars unless otherwise agreed by the parties.
Annually, based on the fiscal year of Recipient, Provider must deliver to Recipient its budget for the costs and expenses it reasonably believes will be incurred in the provision of the Services (“Budget”) which amounts may be increased by written agreement of Recipient and Provider.
The Recipient and the Provider have each indemnified one another. The MISA also establishes confidentiality provisions.
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, RespireRx 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 RespireRx, 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 RespireRx’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, RespireRx 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 RespireRx’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 RespireRx yield an aggregate rate beyond a stated threshold. RespireRx will pay to UWMRF certain percentages of revenues generated from sublicenses of the licenses provided under the UWMRF Patent License Agreement by RespireRx to third parties.
Certain payments under the UWMRF Patent License Agreement have not been paid by RespireRx. RespireRx is in regular discussions with UWMRF regarding when RespireRx may be able to commence making payments. RespireRx has not received a notification of default either during or before the nine-month period ended September 30, 2023 or in any subsequent periods. All amounts due under the UWMRF Patent License Agreement are reflected in the Company’s condensed consolidated financial statements as of September 30, 2023 and December 31, 2022 in accounts payable and accrued expenses.
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University of Wisconsin-Milwaukee Outreach Services Agreement
On
July 12, 2021, RespireRx 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 RespireRx agreed to pay UWM an annual sum of $
University of Illinois 2014 Exclusive License Agreement
On
June 27, 2014, RespireRx 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 RespireRx of a $
The 2014 License Agreement granted RespireRx (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.
Among
other things, the 2nd Amendment redefined the term “Product” primarily to include in the definition, any product
or process that would be enforceable under the licensed patent rights after the patent rights have expired. In addition, new definitions
were added for “Deferred Compensation Annual Net Sales Payments” and “Deferred Compensation Minimum Payment(s),”
both of which only become due and payable after the expiration of the patent rights and shall not be due and payable while any of the
patent rights have not yet expired. These deferred compensation arrangements were in consideration for deferment of certain financial
obligations. The deferred payments are due for eight years from the first commercial sale of a regulatory approved product but after
the patent rights have expired. The 2nd Amendment also modified the term to the period of time from the effective date until
the later of the date: (a) of the last to lapse, expire or terminate of the patent rights or (b) when the licensee (RespireRx) provides
notice that the use of technical information as defined in the 2014 License Agreement as amended has ceased or (c) of the expiration
of the last form of market exclusivity or (d) of the last date in which the Licensee (RespireRx) owes payments to the University. The
2nd Amendment amended and clarified Schedule 2 to the 2014 License Agreement, as amended by among other things, by (i) including
a
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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
| (i) | $ | |
| (ii) | $ | |
| (iii) | $ | |
| (iv) | $ | |
| (v) | $ |
There are reporting requirements by the Licensee to the University.
Royalty stacking provisions remained unchanged in the 2nd Amendment.
The concept of reduced royalties upon expiration of the patent rights, but while technical information was being used, was eliminated with the 2nd Amendment.
During
the nine-months ended September, 2023 and 2022, the Company recorded charges to operations of $
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 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 RespireRx with access or a right of reference letter entitling RespireRx to make continuing reference to the DMFs during the term of the agreement in connection with any regulatory filings made with the FDA by RespireRx, (iii) participate on a development committee, and (iv) make available its regulatory consultants, collaborate with any regulatory consulting firms engaged by RespireRx 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, RespireRx has agreed to purchase exclusively from Noramco during the commercialization phase all API for its Products as defined in the Development and Supply Agreement at a pre-determined price subject to certain producer price adjustments and agreed to Noramco’s participation in the economic success of the commercialized Product or Products up to the earlier of the achievement of a maximum dollar amount or the expiration of a period of time.
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There was no activity during the nine-month periods ended September 30, 2023 or 2022 with respect to the Purisys Agreement. The Company is engaging in discussions with Purisys with the intent of amending the Purisys Agreement or cancelling the Purisys Agreement and establishing a new agreement. The anticipated new formulations and the formation of ResolutionRx in Australia are the primary reasons for participating in such discussions.
Summary of Principal Cash Obligations and Commitments
The
following table sets forth the Company’s principal cash obligations and commitments for the next five fiscal years as of September
30, 2023, aggregating $
| Payments Due By Year | ||||||||||||||||||||||||
| Total | 2023 | 2024 | 2025 | 2026 | 2027 | |||||||||||||||||||
| License agreements | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Employment agreements (1) | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| (1) |
9. Subsequent Events
Post September 30, 2023 Convertible Note Conversions
During
the period from October 1, 2023 through November 9, 2023, three convertible note holders of notes with substantially similar attributes
converted $
On November 7, 2023, RespireRx received a $
Patent fees and maintenance fees of $35,185 due to UWMRF at August 1, 2023 were unpaid
Payment
due of $
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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 2022 Form 10-K.
Overview
Mission
The mission of the RespireRx Group, is to develop innovative and revolutionary treatments to combat disorders caused by disruption of neuronal signaling at reduced risk and cost. In pursuit of this goal, we have (i) used data mining to identify and acquire new GABAkines, a family of compounds that have displayed a high degree of efficacy in a wide range of animal studies and are undergoing preclinical safety studies; (ii) re-discovered the safety of our low impact AMPAkines, a class of compounds that have been under- or unrecognized, and have advanced their clinical development and (iii) have re-purposed dronabinol, an already approved drug, and developed it forward into late stage clinical status for use as a new proprietary treatment. We have focused on 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. As we move forward, we may also consider developing treatment options for other conditions based on results of preclinical and clinical studies to date. To achieve these goals, the Company has determined that some or all of these opportunities should be licensed, sub-licensed, joint ventured or even sold and has initiated efforts to do so.
Strategy
It is generally agreed that drug research and development (“R&D”) programs can cost hundreds of millions of dollars, take years if not decades to complete and carry considerable risk to successfully complete. While large, well-funded companies can undertake such ventures, smaller companies must seek out other creative and disruptive approaches to compete in the drug discovery and development process. It is generally agreed that drug R&D programs can cost hundreds of millions of dollars, take years if not decades to complete and carry considerable risk to successfully complete. We believe we have identified three basic methods that, when utilized, will allow us to reduce risk, minimize costs and create considerable value.
Data-mining - a process whereby value can be found by data-mining published literature using artificial intelligence (“AI”) and our extensive knowledge and experience to identify validated neuronal targets and known drugs and drug candidates. This approach can dramatically reduce much of the costs, time and risks involved.
Re-Discovery - a process whereby value can be found by (a) identifying and acquiring drug(s) with appropriate mechanism(s) of action on a newly discovered identified target; (b) acquiring drug(s) that have strong preclinical data demonstrating efficacy and safety and preferably be ready to begin IND enabling studies in preparation for clinical trials; and/or (c) clinical studies demonstrating safety (Phase 1) and, optimally, efficacy (Phase 2).
Re-Purposing - a process whereby value can be found by (a) determining that an identified neuronal substrate is involved in an undiscovered, little know or orphan therapeutic area; (b) demonstrate that acquired drugs targeting that neuronal substrate demonstrate efficacy in predictive animal tests; and (c) acquire drugs that have successfully demonstrated safety in Phase 1 clinical studies and target engagement of the desired neuronal substrate.
Implementation
In order to facilitate our business activities and product development and to set up our programs for partnering or sale, the Company has implemented an internal restructuring plan based upon our two research platforms: drugs that act directly upon endocannabinoid receptors and drugs that act as neuromodulators at AMPA glutamate and GABAA receptors, the major excitatory and inhibitory neurotransmitters in the brain, respectively. ResolutionRx is the subsidiary focused on dronabinol for obstructive sleep apnea and EndeavourRx is 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 as well as contracting firms to conduct specific R&D projects.
| (i) | ResolutionRx, our repurposing platform is developing dronabinol initially for the treatment of OSA and later for other indications. Dronabinol is already approved by the U.S. FDA and other national regulatory agencies for other indications, allowing for a more rapid route to approval. | |
| (ii) | EndeavourRx, our neuromodulators rediscovery 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 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”). |
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ResolutionRx, was organized on January 11, 2023 as a wholly-owned subsidiary of RespireRx. We are also evaluating whether to organize our EndeavourRx business unit, in part or in whole, into one or more subsidiaries that would conduct R&D of 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.
The RespireRx Group, comprised of RespireRx, ResolutionRx and EndeavourRx (and Pier, which is inactive) believes that there are advantages to separating these platforms formally into newly formed subsidiaries, including but not limited to optimizing their asset values by making them attractive to separate financing and strategic partnering channels.
The Company’s business development efforts (licensing, sub-licensing, joint venture and other commercial structures), if successful, would 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 OTC Pink Market listing and our low market capitalization as a result of our low stock price as well as the weakness of our balance sheet.
For this reason, the Company has affected an internal restructuring plan described above that we believe will further the aims of RespireRx, ResolutionRx and EndeavourRx, and may make it possible, through separate finance channels, to unlock the unrealized asset values of each and set up its programs for partnering or sale.
We believe that some or all of our assets should be licensed, sub-licensed, joint ventured or even sold and have initiated efforts to do so. 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.
ResolutionRx is eligible to participate in the Australian R&D Tax Incentive (“R&DTI”), which is a tax rebate by the Australian government for qualified R&D expenditures. In the case of ResolutionRx, the R&DTI is expected to be 43.5% of qualified R&D. On January 27, 2023, ResolutionRx entered into a Letter of Intent and a term sheet with Radium Capital pursuant to which Radium Capital will finance in accordance with a debt facility, 80% of ResolutionRx’s 43.5% tax rebate on an ongoing application basis similar to a line of credit.
On May 18, 2023, ResolutionRx entered into a Letter of Intent with Cantheon Capital (“Cantheon” and “Cantheon LOI”) that describes an intended investment of US$3,125,000 by Cantheon in Australian Series A Preference Shares to be issued by ResolutionRx to support clinical trial research and development over the R&D period equal to 25% of the clinical trial costs of the cannabinoid program that are the subject of the Australian CRO Agreement with iNGENu. While the Letter of Intent is binding, subject to the commencement of human clinical trials, funding has not yet taken place.
On May 11, 2023, RespireRx entered into a Letter Agreement (“Letter Agreement”) with Viridian Capital Advisors (“VCA”) pursuant to which, VCA would perform the following services (“Valuation Services”): (i) review the Company’s intellectual property assets and licensing agreements as they relate to Company’s cannabinoid program, net of any associated liabilities, (ii) review the Company’s financial models and forecasts as they relate to the Company’s cannabinoid program and (iii) prepare the data, analytics and Company valuation analysis (“Valuation Analysis”) specifically with respect to the Company’s cannabinoid program. The Letter Agreement became effective on May 22, 2023. The Company entered this Letter Agreement as part of the process that began with the establishment of ResolutionRx, into which the net assets of the Company’s cannabinoid program have been contributed via license and sublicense in exchange for 25,000,000 Ordinary Shares of ResolutionRx, all as of August 3, 2023. RespireRx received the final Valuation Analysis on August 7, 2023.
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Recent Developments
On August 3, 2023, RespireRx entered into a License Agreement with ResolutionRx See Note 8. Commitments and Contingencies-Significant Agreements and Contracts - License Agreement with ResolutionRx Ltd.
On August 3, 2023, RespireRx entered into a Sublicense Agreement with ResolutionRx - See Note 8. Commitments and Contingencies - Significant Agreements and Contracts - Sublicense Agreement with ResolutionRx Ltd.
On August 3, 2023, RespireRx entered into a Stock Transfer Agreement with ResolutionRx - See Note 8. Commitments and Contingencies - Significant Agreements and Contracts - Stock Transfer Agreement with ResolutionRx Ltd.
On August 3, 2023, RespireRx entered into a Master Intercompany Services Agreement with ResolutionRx – See Note 8. Commitments and Contingencies – Significant Agreements and Contracts – Master Intercompany Services Agreement with ResolutionRx.
On October 9, 2023, ResolutionRx entered into a Master Services Agreement (“MSA”) with Ab Initio Pharma Pty Ltd, (“Ab Initio”) an Australian company under which Ab Initio will manufacture, formulate, test and supply ResolutionRx with therapeutic drugs based on lipid nanoparticle technology licensed from RespireRx - See Note 8. Commitments and Contingencies - Significant Agreements and Contracts –Master Services Agreement with Ab Initio Pharma Pty Ltd.
Post September 30, 2023 Convertible Note Conversions
See Note 9. Subsequent Events – Convertible Note Conversions to our condensed consolidated financial statements (unaudited) at September 30, 2023.
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Going Concern
See Note 2. Business – Going Concern to our condensed consolidated financial statements (unaudited) at September 30, 2023.
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.
Concentration of Risk
See Note 3. Significant Accounting Policies – Concentration of Credit Risk to the Company’s condensed consolidated financial statements (unaudited) at September 30, 2023.
Critical Accounting Policies and Estimates
The Company prepared its condensed consolidated financial statements (unaudited) 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 (unaudited) and include:
| - | Research and Development Costs | |
| - | License Agreements | |
| - | Patent Costs | |
| - | Convertible Notes | |
| - | Preferred Stock | |
| - | Phantom Stock |
See Critical Accounting Policies and Estimates in our 2022 Form 10-K for a description. See Note 8. Commitments and Contingencies - Phantom Stock to our condensed consolidated financial statements at September 30, 2023 for a description of the accounting policies and estimates associated with Phantom Stock.
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Results of Operations
The Company’s condensed consolidated statements of operations as discussed herein are presented below.
| Three-Months Ended | Nine-Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative, including related parties | $ | 245,129 | $ | 250,916 | $ | 902,866 | $ | 958,086 | ||||||||
| Research and development, including related parties | 87,380 | 138,050 | 284,020 | 400,307 | ||||||||||||
| Total operating expenses | 332,509 | 388,966 | 1,186,886 | 1,358,393 | ||||||||||||
| Loss from operations | (332,509 | ) | (388,966 | ) | (1,186,886 | ) | (1,358,393 | ) | ||||||||
| Loss on extinguishment or settlement or modification of debt and other liabilities | - | (71,161 | ) | - | (71,161 | ) | ||||||||||
| Interest expense, including related parties | (73,408 | ) | (94,643 | ) | (365,729 | ) | (533,812 | ) | ||||||||
| Foreign currency transaction gain | 10,415 | 82,192 | 46,020 | 150,337 | ||||||||||||
| Net loss | $ | (395,502 | ) | $ | (472,578 | ) | $ | (1,506,595 | ) | $ | (1,813,029 | ) | ||||
| Deemed dividend associated with paid-in-kind dividends on preferred stock for the three-months and nine-months periods ending September 30, 2023 and most favored nation provisions of convertible notes for the three-months and nine-months periods ending September 30, 2022 | $ | (13,667 | ) | $ | (1,168,594 | ) | $ | (24,427 | ) | $ | (1,520,332 | ) | ||||
| Net loss attributable to common stockholders | $ | (409,169 | ) | $ | (1,641,172 | ) | $ | (1,531,022 | ) | $ | (3,333,361 | ) | ||||
| Net loss per common share attributable to common stockholders - basic and diluted | $ | (0.002 | ) | $ | (0.014 | ) | $ | (0.008 | ) | $ | (0.031 | ) | ||||
| Weighted average common shares outstanding - basic and diluted | 267,732,995 | 119,264,928 | 191,241,348 | 107,816,034 | ||||||||||||
Three-months Ended September 30, 2023 and 2022
Revenues. The Company had no revenues during the three-months ended September 30, 2023 and 2022.
General and Administrative. For the three-months ended September 30, 2023 general and administrative expenses were $245,129, a decrease of $5,787, as compared to $250,916 for the three-months ended September 30, 2022. The decrease in general and administrative expenses for the three-months ended September 30, 2023, as compared to the three-months ended September 30, 2022, is primarily due to a number of small increases and decreases that offset one another. Professional fees inclusive of Board of Directors fees, accounting and non-patent related legal fees increased $16,612 whereas insurance, investor relations fees, transfer agent fees and travel and entertainment expenses decreased an aggregate of $14,189. There was a decrease in patent related legal and other fees of $9,624. The balance of the difference is a result of a number of smaller increases and decreases in various expense categories of $1,414, none of which were individually greater than $1,000. There was no share-based compensation recordable in the financial statements during the three-months ended September 30, 2023 or 2022.
Research and Development. For the three-months ended September 30, 2023, research and development expenses were $87,380, a decrease of $50,670, as compared to $138,050 for the three-months ended September 30, 2022. The decrease in license fees of $25,000 related to research and development associated with the 2nd Amendment to the 2014 Patent Agreement and a decrease of $25,670 as a result of a decrease in utilization of our R&D consultants.
Loss on Extinguishment or Settlement or Modification of Debt and Other Liabilities. For the three-months ended September 30, 2023 and 2022 the loss on extinguishment or settlement or modification of debt and other liabilities was $0 and $71,161, respectively. The $71,161 was a result of incentives offered to certain noteholders to modify the terms of their convertible notes.
Interest Expense. During the three-months ended September 30, 2023, interest expense was $73,408 as compared to $94,643 for the three-months ended September 30, 2022. The decrease of $21,235 is primarily the result of a decrease of amortization of note discounts charged to interest expense, a decrease in principal amount upon which coupon interest expense is calculated due to convertible note conversions, offset by an increase in the coupon interest rate associated with certain convertible notes.
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Foreign Currency Transaction Gain. Foreign currency transaction gain was $10,415 for the three-months ended September 30, 2023, as compared to a foreign currency transaction gain of $82,192 for the three-months ended September 30, 2022. The foreign currency transaction gain relates to the $399,774 loan from SY Corporation, made in June 2012, which is denominated in the South Korean Won and during the three-months ended September 30, 2023, but not 2022, the foreign currency translation effect associated with the translation of the ResolutionRx financial statements that are denominated in Australian dollars.
Net Loss and Net Loss Attributable to Common Stockholders. For the three-months ended September 30, 2023, the Company incurred a net loss of $395,502 and a net loss attributable to Common Stockholders of $409,169 as compared to a net loss of $472,578 and a net loss attributable to Common Stockholders of $1,641,172 for the three-months ended September 30, 2022, respectively. The difference for the three-months ended September 30, 2023 in the net loss as compared to the net loss attributable to Common Stockholders of $13,667 is the dividends on the Series I Preferred Stock and Series J Preferred Stock and the difference of $1,168,594 during the three-months ended September 30, 2022 being deemed dividends associated with most-favored nation provisions of convertible notes.
Nine-months Ended September 30, 2023 and 2022
Revenues. The Company had no revenues during the nine-months ended September 30, 2023 and 2022.
General and Administrative. For the nine-months ended September 30, 2023, general and administrative expenses were $902,866, a decrease of $55,220, as compared to $958,086 for the nine-months ended September 30, 2022. The decrease in general and administrative expenses is a result of a number of factors. There were increases in Board of Directors fees of $30,000 as a result of the addition of an independent director, an increase in accounting fees of $29,121, $59,323 in general corporate legal fees (inclusive of both the United States and Australian counsel fees) and an increase of $45,000 which was the cost of an independent valuation analysis of one of our assets. These were offset by a decrease of deferred financing costs of $177,883 that were written off in the prior nine-month period, and decreases of $14,940, $7,064, $3,000 and $14,710 in insurance, investor relations, conference fees and service charges, respectively. There were also smaller increases and decreases in other general and administrative expense categories.
There was no share-based compensation recordable in the financial statements during the nine-months ended September 30, 2023 or 2022. However, several phantom stock awards were made on June 7, 2023. An award for 70,000,000 shares of phantom stock was made to Dr. Arnold Lippa, our Interim President, Interim Chief Executive Officer and Chief Scientific Officer which were immediately transferred into a family trust. In addition, an award for 120,000,000 shares of phantom stock was made to Jeff Eliot Margolis, our Senior Vice President, Chief Financial Officer, Treasurer and Secretary which was immediately transferred to three family trusts. An award for 20,000,000 shares of phantom stock was made to Joseph Siegelbaum, an independent director. The remaining 96,000,000 of shares of Phantom Stock awarded were awarded to five vendors, consultants, advisors or their designees. A total of 306,000,000 shares of Phantom Stock were awarded.
The value of the Phantom Stock Awards cannot be determined at this time and can only be estimated or determined upon the occurrence of a Payment Event. Therefore, no amount has been recorded as a commitment or contingency. When or if a Payment Event occurs, an amount will be estimable or determinable and such amount will be recorded as a change in an estimate.
Research and Development. For the nine-months ended September 30, 2023, research and development expenses were $284,020, a decrease of $116,287, as compared to $400,307 for the nine-months ended September 30, 2022. The decrease in research and development expenses for the nine-months ended September 30, 2023, as compared to the nine-months ended September 30, 2022, is primarily due to a $75,000 reduction in license fees associated with the 2nd Amendment to the 2014 Patent Agreement and a decrease of $25,000 related to completion of the services under the research services agreement with the University of Wisconsin. There was also a $14,280 reduction is consulting fees due to lower utilization of our R&D consultants and a $2,007 reduction in R&D related insurance costs.
Loss on Extinguishment or Settlement or Modification of Debt and Other Liabilities. For the nine-months ended September 30, 2023 and 2022 the loss on extinguishment or settlement or modification of debt and other liabilities was $0 and $71,161, respectively. The $71,161 was a result of incentives offered to certain noteholders to modify the terms of their convertible notes.
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Interest Expense. During the nine-months ended September 30, 2023, interest expense was $365,729 as compared to $533,812 for the nine-months ended September 30, 2022. The decrease of $168,083 is primarily the result of a decrease of amortization of note discounts charged to interest expense and a decrease in principal amount upon which coupon interest expense is calculated due to convertible note conversions, offset by a one-time increase in interest expense due to the immediate amortization to interest expense of $125,000 of warrant value associated with newly issued demand promissory notes and increases in the coupon interest rate associated with certain convertible notes.
Foreign Currency Transaction (Loss) Gain. Foreign currency transaction gain was $46,020 for the nine-months ended September 30, 2023, as compared to a foreign currency transaction gain of $150,337 for the nine-months ended September 30, 2022. The foreign currency transaction gains relate to the $399,774 loan from SY Corporation, made in June 2012, which is denominated in the South Korean Won and during the nine-months ended September 30, 2023, but not 2022, the foreign currency translation effect associated with the translation of the ResolutionRx financial statements that are denominated in Australian dollars.
Net Loss and Net Loss Attributable to Common Stockholders. For the nine-months ended September 30, 2023, the Company incurred a net loss of $1,506,595 and a net loss attributable to common stockholders was $1,531,022, the difference being attributable to dividends on Series I Preferred Stock and Series J Preferred Stock, compared to a net loss and net loss attributable to common stockholders of $1,813,029 and $3,333,361 for the nine-months ended September 30, 2022, respectively, the difference of $1,520,332 being deemed dividends associated with most-favored nation provisions of convertible notes.
Liquidity and Capital Resources – September 30, 2023
The Company’s condensed consolidated financial statements (unaudited) 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 a net loss from operations of $332,509 and a net loss of $395,502 and a net loss attributable to common stockholders of $409,169 for the three-months ended September 30, 2023 and a net loss from operations of $1,186,886 and a net loss of $1,506,595 and a net loss attributable to common stockholders of $1,531,022 for the nine-months ended September 30, 2023. There was a net loss from operations of $1,579,355, a net loss of $2,102,720 and net loss attributable to common stockholders after deemed dividends of $3,972,993 for the fiscal year ended December 31, 2022. The Company had negative operating cash flows of $258,726 for the nine-months ended September 30, 2023 and $143,905 for the fiscal year ended December 31, 2022, had a stockholders’ deficiency of $12,296,454 at September 30, 2023, 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, 2022, expressed substantial doubt about the Company’s ability to continue as a going concern.
At September 30, 2023, the Company had a working capital deficit of $11,952,454, as compared to a working capital deficit of $11,706,320 at December 31, 2022 reflecting an increase in the working capital deficit of $246,134 for the nine-months ended September 30, 2023. The increase in the working capital deficit is primarily due to an increase accounts payable and accrued expenses of $903,398 (after reclassification of certain amounts as of December 31, 2022 for consistency with current year presentation in our condensed consolidated financial statements at September 30, 2023), an increase in notes payable to officers and affiliates of $112,008, an increase notes payable to a former officer of $16,8844 and an increase in short-term notes payable of $10,464. This was offset by a decrease in accrued compensation of $643,672, a decrease in convertible notes payable of $43,227. There was a decrease in the note payable to SY Corporation of $23,838 primarily due to foreign exchange gains. There was also a net increase in current assets other than cash of $85,883 primarily as a result of in an increase in cash of $6,274, an increase in prepaid R&D of $48,568, an increase in deferred financing costs of $6,457 and an increase in prepaid insurance of $24,584.
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At September 30, 2023, the Company had cash of $6,362, as compared to $88 at December 31, 2022,
The limited cash of $265,000 raised in demand promissory note and Series I Preferred Stock financings during the nine-months ended September 30, 2023 was utilized for working capital. The financings completed during fiscal year ended December 31, 2022 were utilized to pay general and administrative and research and development expenses or the related accounts payable, including, but not limited to, 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. A significant amount of cash was advanced to our subsidiary, ResolutionRx, to pay a research deposit to our contract research organization, to our Australian financial advisor and to our professional service providers in Australia.
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. 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 have included and could include, in the future, significant reorganizations, which has included the formation of one subsidiary and may include in the future, the formation of one or more additional subsidiaries into which one of the programs is in the process of being contributed and additional 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 nine-months ended September 30, 2023, operating activities utilized cash of $258,726, as compared to utilizing cash of $155,061 for the nine-months ended September 30, 2022, to support the Company’s ongoing general and administrative expenses as well as its research and development activities.
Financing Activities. For the nine-months ended September 30, 2023, financing activities consisted of $250,000 from the issuance of demand promissory notes to an affiliate of an executive officer and another affiliate and $145,000 from the sale of Series I Preferred Stock.
Principal Commitments
Employment Agreements
See Note 8. Commitments and Contingencies – Significant Agreements and Contracts – Employment Agreements to our condensed consolidated financial statements (unaudited) at September 30, 2023.
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 (unaudited) at September 30, 2023.
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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 (unaudited) at September 30, 2023.
License Agreement with ResolutionRx Ltd.
See Note 8. Commitments and Contingencies-Significant Agreements and Contracts - License Agreement with ResolutionRx Ltd.
Sublicense Agreement with ResolutionRx Ltd.
See Note 8. Commitments and Contingencies - Significant Agreements and Contracts - Sublicense Agreement with ResolutionRx Ltd.
Stock Transfer Agreement with ResolutionRx Ltd.
See Note 8. Commitments and Contingencies - Significant Agreements and Contracts - Stock Transfer Agreement with ResolutionRx Ltd.
Master Intercompany Services Agreement with ResolutionRx.
See Note 8. Commitments and Contingencies – Significant Agreements and Contracts – Master Intercompany Services Agreement with ResolutionRx.
Master Services Agreement with Ab Initio Pharma Pty Ltd.
On October 9, 2023, ResolutionRx entered into a Master Services Agreement (“MSA”) with Ab Initio Pharma Pty Ltd, (“Ab Initio”) an Australian company under which Ab Initio will manufacture, formulate, test and supply ResolutionRx with therapeutic drugs based on lipid nanoparticle technology licensed from RespireRx - See Note 8. Commitments and Contingencies - Significant Agreements and Contracts – Master Services Agreement with Ab Initio Pharma Pty Ltd.
A table setting forth the Company’s principal cash obligations and commitments for the next five fiscal years as of September 30, 2023, aggregating $751,385 is set forth in Note 8. Commitments and Contingencies – Summary of Principal Cash Obligations and Commitments to our condensed consolidated financial statements (unaudited) at September 30, 2023.
Off-Balance Sheet Arrangements
See Note 8. Commitments and Contingencies - Phantom Stock to our condensed consolidated financial statements (unaudited) at September 30, 2023.
At September 30, 2023, the Company did not have any other transactions, obligations or relationships that could be considered off-balance sheet arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
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.
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The Company carried out an evaluation, under the supervision and with the participation of its management, consisting of its principal executive officer and principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based upon that evaluation, the Company’s principal executive officer and principal financial officer concluded that, as of the end of the period covered in this Report, the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to the Company’s management, consisting of the Company’s principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
Management has been focusing on developing replacement controls and procedures that are adequate to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to the Company’s management to allow timely decisions regarding required disclosure. The Company is current in its SEC periodic reporting obligations, but as of the date of the filing of this Report, the Company had not yet 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 statements included in this Report fairly present, in all material respects, the Company’s financial condition, results of operations and cash flows for the periods presented.
Changes in Internal Control 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 by 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 (unaudited) at September 30, 2023 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 2022 Form 10-K. The Risk Factors set forth in the 2022 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 2022 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 Common Stock during the nine-months ended September 30, 2023 that were not disclosed by the Company on a Current Report on Form 8-K. There were conversions of convertible note and exercises of warrants as disclosed in Note 6. Stockholders’ Deficiency – Common Stock of our condensed consolidated financial statements at September 30, 2023. There was the issuance of Series I Preferred Stock as disclosed in Note 6. Stockholders’ Deficiency – Series I Preferred Stock of our condensed consolidated financial statements at September 30, 2023. There was the issuance of Series J Preferred Stock as disclosed in Note 6. Stockholders’ Deficiency – Series J Preferred Stock of our condensed consolidated financial statements at September 30, 2023. There was the issuance of shares of Phantom Stock as disclosed in Note 6. Stockholders’ Deficiency – Phantom and in Note 8. Commitments and Contingencies - Phantom Stock of our condensed consolidated financial statements at September 30, 2023.
Additional information with respect to the transactions described above is provided in the Notes to the condensed consolidated financial Statements for the three-months and six-months ended September 30, 2023.
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 September 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 nine-months ended September 30, 2023, there were no further communications between the Company and SY Corporation.
The note payable to SY Corporation consists of the following at September 30, 2023 and December 31, 2022:
| September 30, 2023 | December 31, 2022 | |||||||
| Principal amount of note payable | $ | 399,774 | $ | 399,774 | ||||
| Accrued interest payable | 543,343 | 507,330 | ||||||
| Foreign currency transaction adjustment | (133,492 | ) | (73,641 | ) | ||||
| $ | 809,625 | $ | 833,463 | |||||
Interest expense with respect to this promissory note was $12,092 for the three-months ended September 30, 2023 and 2022, respectively and $36,013 and $35,881 for the nine-months ended September 30, 2023 and 2022, respectively.
Default on Convertible Notes Payable
As of September 30, 2023, principal and accrued interest on the Original Convertible Note that is subject to a default notice totaled $69,806, of which $44,806 was accrued interest.
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ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The following documents are filed as part of this report:
| * 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: November 17, 2023 | By: | /s/ Arnold S. Lippa |
| Arnold S. Lippa | ||
| Interim President, Interim Chief Executive Officer and Chief Scientific Officer | ||
| Date: November 17, 2023 | By: | /s/ Jeff Eliot Margolis |
| Jeff Eliot Margolis | ||
| Senior Vice President, Chief Financial Officer, Treasurer and Secretary | ||
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