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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number: 1-16467

 

RESPIRERX PHARMACEUTICALS INC.

(Exact name of registrant as specified in its charter)

 

Delaware   33-0303583
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification Number)

 

126 Valley Road, Suite C

Glen Rock, New Jersey 07452

(Address of principal executive offices)

 

(201) 444-4947

(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.

 

Yes ☒ No ☐

 

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).

 

Yes ☒ No ☐

 

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 ☐
   
Non-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 ☐ No

 

As of November 10, 2021, the Company had 94,907,943, shares of common stock, $0.001 par value, issued and outstanding.

 

 

 

 

 

 

RESPIRERX PHARMACEUTICALS INC.

AND SUBSIDIARY

 

TABLE OF CONTENTS

 

  Page Number
PART I - FINANCIAL INFORMATION  
   
Item 1. Condensed Consolidated Financial Statements 4
   
Condensed Consolidated Balance Sheets – September 30, 2021 (Unaudited) and December 31, 2020 4
   
Condensed Consolidated Statements of Operations (Unaudited) – Three-months and Nine-months Ended September 30, 2021 and 2020 5
   
Condensed Consolidated Statements of Stockholders’ Deficiency (Unaudited) - Three-months and Nine-months Ended September 30, 2021 and 2020 6
   
Condensed Consolidated Statements of Cash Flows (Unaudited) - Three-months and Nine-months Ended September 30, 2021 and 2020 7
   
Notes to Condensed Consolidated Financial Statements (Unaudited) 9
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26
   
Item 3. Quantitative and Qualitative Disclosures about Market Risk 32
   
Item 4. Controls and Procedures 32
   
PART II - OTHER INFORMATION  
   
Item 1. Legal Proceedings 33
   
Item 1A. Risk Factors 33
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 33
   
Item 3. Defaults Upon Senior Securities 33
   
Item 4. Mine Safety Disclosures 33
   
Item 5. Other Information 33
   
Item 6. Exhibits 34
   
SIGNATURES 35

 

2
 

 

In this Quarterly Report on Form 10-Q, the terms “RespireRx,” the “Company,” “we,” “us” and “our” refer to RespireRx Pharmaceuticals Inc. a Delaware corporation, and, unless the context indicates otherwise, its consolidated subsidiaries.

 

INTRODUCTORY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q of RespireRx Pharmaceuticals Inc. (“RespireRx” and together with RespireRx’s wholly owned subsidiary, Pier Pharmaceuticals, Inc. (“Pier”), the “Company, “we,” or “our,” unless the context indicates otherwise) contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Company intends that such forward-looking statements be subject to the safe harbor created thereby. These might include statements regarding the Company’s future plans, targets, estimates, assumptions, financial position, business strategy and other plans and objectives for future operations, and assumptions and predictions about research and development efforts, including, but not limited to, preclinical and clinical research design, execution, timing, costs and results, future product demand, supply, manufacturing, costs, marketing and pricing factors.

 

In some cases, forward-looking statements may be identified by words including “assumes,” “could,” “ongoing,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” “anticipates,” “believes,” “intends,” “estimates,” “expects,” “plans,” “contemplates,” “targets,” “continues,” “budgets,” “may,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words, and such statements may include, but are not limited to, statements regarding (i) future research plans, expenditures and results, (ii) potential collaborative arrangements, (iii) the potential utility of the Company’s products candidates, (iv) reorganization plans, and (v) the need for, and availability of, additional financing. Forward-looking statements are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this 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 “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the SEC on April 15, 2020 (the “2020 Form 10-K”) as well as any subsequent reports filed from time to time with the SEC.

 

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 report. We cannot assure you that the forward-looking statements in this report will prove to be accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements. You should read this 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 the 2020 Form 10-K and in this report, as well as others that we may consider immaterial or do not anticipate at this time. These forward-looking statements are based on assumptions regarding the Company’s business and technology, which involve judgments with respect to, among other things, future scientific, economic, regulatory and competitive conditions, collaborations with third parties, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the Company’s control. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. Our expectations reflected in our forward-looking statements can be affected by inaccurate assumptions that we might make or by known or unknown risks and uncertainties, including those described in the 2020 Form 10-K and in this report. These risks and uncertainties are not exclusive and further information concerning us and our business, including factors that potentially could materially affect our financial results or condition, may emerge from time to time.

 

For more information about the risks and uncertainties the Company faces, see “Item 1A. Risk Factors” in our 2020 Form 10-K, and subsequent reports and registration statements filed from time to time with the SEC. 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. We advise investors to consult any further disclosures we may make on related subjects in our annual reports on Form 10-K, as well as subsequent reports file from time to time with the SEC.

 

3
 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

RESPIRERX PHARMACEUTICALS INC.

AND SUBSIDIARY

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   September 30, 2021   December 31, 2020 
   (unaudited)     
ASSETS          
Current assets:          
Cash  $556   $825 
Deferred financing costs   167,976    52,609 
Prepaid expenses   61,449    31,653 
           
Total current assets   229,981    85,087 
           
Total assets  $229,981   $85,087 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY          
Current liabilities:          
Accounts payable and accrued expenses, including amounts owed to related parties  $5,058,227   $4,923,947 
Accrued compensation and related expenses   2,408,759    1,540,809 
Convertible notes payable, including accrued interest of $121,493 and $85,693 at September 30, 2021 and December 31, 2020, respectively, which includes accrued interest to related parties (Note 4)   559,790    414,860 
Note payable to SY Corporation, including accrued interest of $447,266 and $411,385 at September 30, 2021 and December 31, 2020, respectively (payment obligation currently in default – Note 4)   830,202    864,551 
Notes payable to officer, including accrued interest (Note 4)   229,390    213,067 
Notes payable to former officer, including accrued interest (Note 4)   200,519    186,565 
Other short-term notes payable   35,982    4,608 
           
Total current liabilities   9,322,869    8,148,407 
           
Long-term liabilities          
Long-term accounts payable associated with payment settlement agreements (Note 5)   332,000    - 
           
Total long-term liabilities   332,000    - 
           
Total liabilities   9,654,869    - 
Commitments and contingencies (Note 8)   -       
           
Stockholders’ deficiency: (Note 6)          
Series B convertible preferred stock, $0.001 par value; $0.6667 per share liquidation preference; aggregate liquidation preference $25,001; shares authorized, issued and outstanding: 37,500; common share issuable upon conversion at 0.000030 common shares per Series B share: 1   21,703    21,703 
Common stock, $0.001 par value; shares authorized: 2,000,000,000; shares issued and outstanding: 90,396,596 at September 30, 2021 and 71,271,095 at December 31, 2020, respectively (Note 2 and Note 6)   90,397    71,271 
Additional paid-in capital   163,644,453    162,654,002 
Accumulated deficit   (173,181,441)   (170,810,296)
           
Total stockholders’ deficiency   (9,424,888)   (8,063,320)
           
Total liabilities and stockholders’ deficiency  $229,981   $85,087 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

4
 

 

RESPIRERX PHARMACEUTICALS INC.

AND SUBSIDIARY

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

                 
   Three-Months Ended   Nine-Months Ended 
   September 30,   September 30, 
   2021   2020   2021   2020 
Operating expenses:                    
General and administrative, including related parties  $423,558   $1,140,204   $1,495,103   $1,969,223 
Research and development, including related parties   157,751    171,776    550,343    480,242 
Total operating expenses   581,309    1,311,980    2,045,446    2,449,465 
Loss from operations   (581,309)   (1,311,980)   (2,045,446)   (2,449,465)
Gain on warrant exchange   -    -    1,099    - 
Gain/(Loss) on extinguishment or settlement of debt and other liabilities    62,548    (65,906)   

62,548

    (389,902)
Interest expense, including related parties   (228,253)   (78,678)   (459,566)   (409,994)
Foreign currency transaction gain (loss)   38,332    (22,791)   70,220    7,151 
                     
Net loss  $(708,682)  $(1,479,355)  $(2,371,145)  $(3,242,210)
Deemed dividend associated with most favored nation provisions of convertible notes  $(378,042)  $-   $(378,042)  $- 
Net loss attributable to common stockholders  $(1,086,724)  $1,479,355   $(2,749,187)  $- 
                     
Net loss per common share - basic and diluted  $(0.01)  $(0.01)  $(0.03)  $(0.02)
                     
Weighted average common shares outstanding - basic and diluted   90,396,596    22,435,203    83,757,619    13,179,304 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

5
 

 

RESPIRERX PHARMACEUTICALS INC.

AND SUBSIDIARY

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

(Unaudited)

 

Nine-months and Three-months Ended September 30, 2021

 

                               
   Series B                     
   Convertible                     
   Preferred Stock   Common Stock   Additional       Total 
               Par   Paid-in   Accumulated   Stockholders’ 
   Shares   Amount   Shares   Value   Capital   Deficit   Deficiency 
                             
Balance, December 31, 2020   37,500   $21,703    71,271,095   $71,271   $162,654,002   $(170,810,296)  $    (8,063,320)
Sale of common stock   -    -    3,600,000    3,600    113,699    -    117,299 
Costs of stock issuance   -    -    -    -    (52,609)   -    (52,609)
Issuance of note commitment shares and beneficial conversion feature   -    -    2,000,000    2,000    95,500    -    97,500 
Issuance of common stock upon conversion of convertible notes   -    -    12,625,557    12,626    239,885    -    252,511 
Stock -based compensation   -    -    -    -    44,250    -    44,250 
Adjustment due to reverse stock split   -    -    (56)   -    -    -    - 
Net loss   -    -    -    -    -    (850,249)   (850,249)
Balance, March 31, 2021   37,500   $21,703    89,496,596   $89,497   $163,094,727   $(171,660,545)  $(8,454,618)
Issuance of common stock upon cashless warrant exercise   -    -    900,000    900    (900)   -    - 
Stock-based compensation    -    -    -    -    7,500    -    7,500 
Gain on warrant exchanges    -     -    -    -    (1,099)   -    (1,099)
Note discounts    -    -    -    -    443,550    -    443,550 
Net loss   -    -    -    -    -    (812,214)   (812,214)
Balance,June 30, 2021   37,500   $21,703    90,396,596   $90,397   $163,543,778   $(172,472,759)  $(8,816,881)
Issuance of note with beneficial conversion features, other note discounts and warrant   -     -    -     -    98,175     -    98,175 
Stock-based compensation   -     -    -     -    2,500     -    2,500 
Net loss   -    -    -    -    -    (708,682)   (708,682)
Balance, September 30, 2021   37,500   $21,703    90,396,596   $90,397   $163,644,453   $(173,181,441)  $(9,424,888)

 

Nine-months and Three-months Ended September 30, 2020

 

   Series B
Convertible
Preferred Stock
   Common Stock   Additional       Total 
               Par   Paid-in   Accumulated   Stockholders’ 
   Shares   Amount   Shares   Value   Capital   Deficit   Deficiency 
Balance, December 31, 2019   37,500   $21,703    417,507   $418   $159,042,145   $(166,509,085)  $     (7,444,819)
Issuances of common stock   -    -    2,951,878    2,952    937,166    -    940,118 
Net loss for the three months ended March 31, 2020   -    -    -    -    -    (946,718)   (946,718)
Balance at March 31, 2020   37,500   $21,703    3,369,385   $3,370   $159,979,311   $(167,455,803   $(7,451,419)
Issuances of common stock   -    -    18,861,353    18,861    311,947    -    330,808 
Note discounts   -    -    -     -    90,000    -    90,000 
Net loss   -    -    -    -    -    (816,137)   (816,137)
Balance, June 30, 2020   37,500   $21,703    22,230,738   $22,231   $160,381,258   $(168,271,940)  $(7,846,748)
Issuances of common stock (after issuance and full conversion of Series H Preferred Stock)   -    -    25,377,426    25,377    1,664,307    -    1,689,684 
Note payable conversions   -    -    1,355,080    1,355    9,379   -    10,734 
Option grants   -    -    -    -    337,500    -    337,500 
Warrant exercises   -    -    8,820,956    8,821    (8,821)   -    - 
Net loss   -    -    -    -    -    (1,479,355)   (1,479,355)
Balance, September 30, 2020   37,500   $21,703    57,784,200   $57,784   $162,383,623   $(169,751,295)  $(7,288,185)

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

6
 

 

RESPIRERX PHARMACEUTICALS INC.

AND SUBSIDIARY

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

         
   Nine-months Ended  
   September 30, 
   2021   2020 
           
Cash flows from operating activities:          
Net loss  $(2,371,145)  $(3,242,210)
Adjustments to reconcile net loss to net cash used in operating activities:          
Amortization of original issue discount   40,795    21,332 
Amortization of capitalized note costs and debt discounts   300,510    280,183 
Stock-based compensation included in -          
General and administrative expenses   28,000    315,000 
Research and development expenses   26,250    22,500 
Gain on warrant exchange   (1,099)   - 
Loss on extinguishment of debt   -    389,902 
Foreign currency transaction (gain) loss   (70,220)   (7,151)
Changes in operating assets and liabilities:          
(Increase) decrease in -          
Prepaid expenses   (29,796)   (27,385)
Deferred financing cost   (167,976)   - 
Increase (decrease) in -          
Accounts payable and accrued expenses   470,280    1,062,163 
Accrued compensation and related expenses   867,950    700,540 
Accrued interest payable   105,829    134,402 
Net cash used in operating activities   (800,622)   (350,724)
           
Cash flows from financing activities:          
Proceeds from convertible note borrowings   754,500    274,750 
Capitalized note costs and original issue discount   (109,950)   - 
Proceeds from common stock issuance   117,299    - 
Proceeds from issuance of note payable to officer   -    59,500 
Officer advance   7,130    - 
Repayment of short-term notes payable   (35,078)   - 
Borrowings on short-term notes payable, net of repayments   66,452    - 
Net cash provided by financing activities   800,353    334,250 
           
Cash and cash equivalents:          
Net increase/(decrease)   (269)   (16,474)
Balance at beginning of period   825    16,690 
Balance at end of period  $556   $216 

 

(Continued)

 

7
 

 

RESPIRERX PHARMACEUTICALS INC.

AND SUBSIDIARY

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

(Continued)

 

  

Nine-months Ended
June 30,

 
   2021   2020 
         
Supplemental disclosures of cash flow information:          
Cash paid for -          
Interest  $6,653   $1,498 
Income taxes  $-   $- 
           
Non-cash financing activities:          

Deferred offering costs applied against equity proceeds 

  $

52,609

   $- 
Conversion of accounts payable to long-term liabilities  $

332,000

   $- 
Commitment shares issued with debt financing  $

58,500

   $- 
Shares issued with conversion of debt  $

235,885

   $- 
Debt discounts established for convertible debt  $580,725   $90,000 
Issuance of common stock for accrued compensation and benefits  $-   $306,000 
Increase in principal amount of convertible note  $5,000   $- 
Issuance of warrants as deemed dividend associated with most-favored nation provisions of convertible notes  $378,042   $- 
Debt and accrued interest converted to common stock  $4,000   $950,241 
Cashless warrant exercises  $900   $15,638 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

8
 

 

RESPIRERX PHARMACEUTICALS INC.

AND SUBSIDIARY

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. Organization and Basis of Presentation

 

Organization

 

RespireRx Pharmaceuticals Inc. (“RespireRx”) was formed in 1987 under the name Cortex Pharmaceuticals, Inc. to engage in the discovery, development and commercialization of innovative pharmaceuticals for the treatment of neurological and psychiatric disorders. On December 16, 2015, RespireRx filed a Certificate of Amendment to its Second Restated Certificate of Incorporation (as amended, the “Certificate of Incorporation”) with the Secretary of State of the State of Delaware to amend its Second Restated Certificate of Incorporation to change its name from Cortex Pharmaceuticals, Inc. to RespireRx Pharmaceuticals Inc. In August 2012, RespireRx acquired Pier Pharmaceuticals, Inc. (“Pier”), which is now a wholly owned subsidiary. Pier was a clinical stage biopharmaceutical company developing a pharmacologic treatment for obstructive sleep apnea (“OSA”) and had been engaged in research and clinical development activities which activities are now in RespireRx.

 

Basis of Presentation

 

The condensed consolidated financial statements are of RespireRx and its wholly-owned subsidiary, Pier (collectively referred to herein as the “Company,” “we” or “our,” unless the context indicates otherwise). The condensed consolidated financial statements of the Company at September 30, 2021 and for the three-months and nine-months ended September 30, 2021 and 2020, are unaudited. In the opinion of management, all adjustments (including normal recurring adjustments) have been made that are necessary to present fairly the condensed consolidated financial position of the Company, the condensed results of operations, condensed changes in stockholders’ deficiency and condensed changes in cash flows as of and for the periods ended September 30, 2021and 2020. Condensed consolidated operating results for the interim periods presented are not necessarily indicative of the results to be expected for a full fiscal year. The consolidated balance sheet at December 31, 2020 has been derived from the Company’s audited consolidated financial statements at such date. For comparative purposes, certain 2021 and 2020 amounts, including, but not limited to, share and per share amounts, par value and additional paid-in capital have been adjusted to a post-reverse stock split basis which occurred on January 5, 2021.

 

The condensed consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles (“GAAP”) have been omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and other information included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 as filed with the SEC on April 15, 2021 (“2020 Form 10-K”).

 

2. Business

 

The mission of the Company is to develop innovative and revolutionary treatments to combat disorders caused by disruption of neuronal signaling. We are developing treatment options that address conditions that affect millions of people, but for which there are limited or poor treatment options, including obstructive sleep apnea (“OSA”), attention deficit hyperactivity disorder (“ADHD”), epilepsy, chronic pain, including inflammatory and neuropathic pain, recovery from spinal cord injury (“SCI”), as well as other areas of interest based on results of preclinical and clinical studies to date.

 

RespireRx is developing a pipeline of new drug products based on our broad patent portfolios across two distinct drug platforms:

 

  (i) our pharmaceutical cannabinoids platform (which we refer to as ResolutionRx) is developing compounds that target the body’s endocannabinoid system, and in particular, the re-purposing of dronabinol, an endocannabinoid CB1 and CB2 receptor agonist, for the treatment of OSA. Dronabinol is already approved by the FDA for other indications.
     
  (ii) our neuromodulators platform (which we refer to as EndeavourRx) is made up of two programs: (a) our AMPAkines program, which is developing proprietary compounds that are positive allosteric modulators (“PAMs”) of AMPA-type glutamate receptors to promote neuronal function and (b) our GABAkines program, which is developing proprietary compounds that are PAMs of GABAA receptors, and which was established pursuant to our entry into a patent license agreement (the “UWMRF Patent License Agreement”) with the University of Wisconsin-Milwaukee Research Foundation, Inc., an affiliate of the University of Wisconsin-Milwaukee (“UWMRF”).

 

Financing our Platforms

 

Our major challenge has been to raise substantial equity or equity-linked financing to support research and development plans for our pharmaceutical cannabinoid and neuromodulator platforms, while minimizing the dilutive effect to pre-existing stockholders. At present, we believe that we are hindered primarily by our public corporate structure, our common stock not being listed on a national exchange, and low market capitalization as a result of our low stock price. Our shares are quoted on the OTCQB, the OTC Market’s venture market.

 

For this reason, the Company has implemented an internal restructuring plan through which our two drug platforms have been reorganized into separate business units and may in the future be organized into subsidiaries of RespireRx. We believe that by creating one or more subsidiaries to further the aims of ResolutionRx and EndeavourRx, it may be possible, through separate finance channels, to optimize the asset values of each. We are also planning to commence, assuming the SEC qualifies the offering, a securities offering pursuant to Regulation A under the Securities Act. See Note 9. Subsequent Events – Filing of Form 1-A for further information.

 

9
 

 

Going Concern

 

The Company’s condensed consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred net losses of $708,682 and $2,371,145 for the three-months and nine-months ended September 30, 2021, respectively, and $4,301,211 for the fiscal year ended December 31, 2020, as well as negative operating cash flows of $800,622 for the nine-months ended September 30, 2021 and $513,001 for the fiscal year ended December 31, 2020. The Company also had a stockholders’ deficiency of $9,424,888 at September 30, 2021 and expects to continue to incur net losses and negative operating cash flows for the foreseeable future. As a result, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern, and the Company’s independent registered public accounting firm, in its report on the Company’s consolidated financial statements for the year ended December 31, 2020, expressed substantial doubt about the Company’s ability to continue as a going concern.

 

The Company is currently, and has for some time, been in significant financial distress. It has extremely limited cash resources and current assets and has no ongoing source of sustainable revenue. Management is continuing to address various aspects of the Company’s operations and obligations, including, without limitation, debt obligations, financing requirements, intellectual property, licensing agreements, legal and patent matters and regulatory compliance, and has taken steps to continue to raise new debt and equity capital to fund the Company’s business activities from both related and unrelated parties.

 

The Company is continuing its efforts to raise additional capital in order to be able to pay its liabilities and fund its business activities on a going forward basis, including the pursuit of the Company’s planned research and development activities. The Company regularly evaluates various measures to satisfy the Company’s liquidity needs, including development and other agreements with collaborative partners and, when necessary, seeking to exchange or restructure the Company’s outstanding securities. The Company is evaluating certain changes to its operations and structure to facilitate raising capital from sources that may be interested in financing only discrete aspects of the Company’s development programs. Such changes could include a significant reorganization, which may include the formation of one or more subsidiaries into which one or more programs may be contributed. As a result of the Company’s current financial situation, the Company has limited access to external sources of debt and equity financing. Accordingly, there can be no assurance that the Company will be able to secure additional financing in the amounts necessary to fully fund its operating and debt service requirements. If the Company is unable to access sufficient cash resources, the Company may be forced to discontinue its operations entirely and liquidate.

 

3. Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The accompanying condensed consolidated financial statements are prepared in accordance with GAAP and include the financial statements of RespireRx and its wholly-owned subsidiary, Pier. Intercompany balances and transactions have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include, among other things, accounting for potential liabilities, and the assumptions used in valuing stock-based compensation issued for services. Actual amounts may differ from those estimates.

 

Reverse Stock Split on January 5, 2021

 

On January 5, 2021, the Company effected a ten to one reverse-stock split of its common stock. Every ten shares of the “old” common stock was exchanged for one “new” share of common stock rounded down to the nearest whole share with any fractional shares of common stock paid to the stockholder in cash. Option and warrant issuances prior to January 5, 2021 have also been proportionately adjusted by dividing the number of shares into which such options and warrants may exercise by ten and multiplying the exercise price by ten. The effect of the reverse-stock split has been reflected retroactively in the Company’s consolidated financial statements as of December 31, 2020 and any interim periods in 2020. Certain amount with respect to 2019 that appear in these condensed consolidated financial statements have also been reflected on a post reverse-stock split basis.

 

10
 

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company limits its exposure to credit risk by investing its cash with high quality financial institutions. The Company’s cash balances may periodically exceed federally insured limits. The Company has not experienced a loss in such accounts to date.

 

Value of Financial Instruments

 

The authoritative guidance with respect to value of financial instruments established a value hierarchy that prioritizes the inputs to valuation techniques used to measure value into three levels and requires that assets and liabilities carried at value be classified and disclosed in one of three categories, as presented below. Disclosure as to transfers into and out of Levels 1 and 2, and activity in Level 3 value measurements, is also required.

 

Level 1. Observable inputs such as quoted prices in active markets for an identical asset or liability that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active-exchange traded securities and exchange-based derivatives.

 

Level 2. Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange based derivatives, mutual funds, and fair-value hedges.

 

Level 3. Unobservable inputs in which there is little or no market data for the asset or liability which requires the reporting entity to develop its own assumptions. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded, non-exchange-based derivatives and commingled investment funds, and are measured using present value pricing models.

 

The Company determines the level in the value hierarchy within which each value measurement falls in its entirety, based on the lowest level input that is significant to the value measurement in its entirety. In determining the appropriate levels, the Company performs an analysis of the assets and liabilities at each reporting period end.

 

The carrying amounts of financial instruments (consisting of cash, cash equivalents, and accounts payable and accrued expenses) are considered by the Company to be representative of the respective values of these instruments due to the short-term nature of those instruments. With respect to the note payable to SY Corporation Co., Ltd. (“SY Corporation”) and the convertible notes payable, management does not believe that the credit markets have materially changed for these types of borrowings since the original borrowing date. The Company considers the carrying amounts of the notes payable to officers, inclusive of accrued interest, to be representative of the respective values of such instruments due to the short-term nature of those instruments and their terms.

 

Deferred Financing Costs

 

Costs incurred in connection with ongoing debt and equity financings, including legal and accounting fees, are deferred until the related financing is either completed or abandoned.

 

Costs related to abandoned debt or equity financings are charged to operations in the period of abandonment. Costs related to completed equity financings are netted against the proceeds.

 

Debt Issuance Costs

 

The Company presents debt issuance costs related to debt obligations in its consolidated balance sheet as a direct deduction from the carrying amount of that debt obligation, consistent with the presentation for debt discounts.

 

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Convertible Notes Payable

 

Convertible notes are evaluated to determine if they should be recorded at amortized cost. To the extent that there are associated warrants, commitment shares of common stock or a beneficial conversion feature, the convertible notes and equity or equity-linked securities are evaluated to determine if there are embedded derivatives to be identified, bifurcated and valued in connection with and at the time of such financing.

 

Extinguishment of Debt and Settlement of Liabilities

 

The Company accounts for the extinguishment of debt and settlement of liabilities by comparing the carrying value of the debt or liability to the value of consideration paid or assets given up and recognizing a loss or gain in the condensed consolidated statement of operations in the amount of the difference in the period in which such transaction occurs. See Note 4 for additional information.

 

Prepaid Insurance

 

Prepaid insurance represents the premiums paid in March 2021 for directors and officers insurance and other insurance in April 2021. The amounts of prepaid insurance amortizable in the ensuing twelve-month period are recorded as prepaid insurance in the Company’s consolidated balance sheet at each reporting date and then amortized to the Company’s consolidated statement of operations for each reporting period.

 

Stock-Based Awards

 

The Company periodically issues common stock and stock options to officers, directors, Scientific Advisory Board members, consultants and vendors for services rendered. Such issuances vest and expire according to terms established at the issuance date of each grant.

 

The Company accounts for stock-based payments to officers, directors, outside consultants and vendors by measuring the cost of services provided  in exchange for equity awards based on the grant date fair value of the awards, with the cost recognized as compensation expense on the straight-line basis in the Company’s consolidated financial statements over the vesting period of the awards.

 

Stock grants and stock options, which are sometimes subject to time-based vesting, are measured at the grant date fair value and charged to operations ratably over the vesting period.

 

The value of stock options granted as stock-based payments is determined utilizing the Black-Scholes option-pricing model, and is affected by several variables, the most significant of which are the life of the equity award, the exercise price of the stock option as compared to the fair market value of the common stock on the grant date, and the estimated volatility of the common stock over the term of the equity award. Estimated volatility is based on the historical volatility of the Company’s common stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The fair market value of common stock is determined by reference to the quoted market price of the Company’s common stock.

 

Stock and stock option grants and warrants issued to non-employees as compensation for services to be provided to the Company is accounted for based upon the fair value of the services provided or the estimated fair value of the stock option or warrant, whichever can be more clearly determined. Management uses the Black-Scholes option-pricing model to determine the fair value of the stock options and warrants issued by the Company. The Company recognizes this expense over the period in which the services are provided.

 

Stock and stock option grants and warrants issued to non-employees for services already rendered represent settlement of debt or liabilities and are accounted for by valuing both the amount of the amount of debt or liabilities settled and the value of the stock, stock option or warrant grants and recording a gain or loss as appropriate.

 

Stock and stock option grants and warrants issued to officers, directors, employees and affiliates in settlement of accrued compensation or other amounts payable are recorded at the amount of the liability settled. Therefore, there are no gains or losses recorded with respect to such settlements.

 

12
 

 

There were no stock or stock option grants during the nine-months ended September 30, 2021.

 

The Company recognizes the amortized value of stock-based payments in general and administrative costs and in research and development costs, as appropriate, in the Company’s condensed consolidated statements of operations. The Company issues new shares of common stock to satisfy stock option and warrant exercises. There were no stock options exercised during the nine-months ended September 30, 2021 and 2020, respectively.

 

There were warrants to purchase 380,568 shares of common stock issued as compensation or for services during the nine-months ended September 30, 2021 and none during the nine-months ended September 30, 2020. Warrants, if issued for services, are typically issued to placement agents or brokers for fund raising services. In addition warrants to purchase 31,766,883 shares of common stock were issued to lenders during the nine-months ended September 30, 2021 with respect to or in association with the issuance of convertible notes to such lenders. Warrant are not issued from any of the Company’s stock and option plans, from which options issued to non-employees for services are typically issued.

 

Income Taxes

 

The Company accounts for income taxes under an asset and liability approach for financial accounting and reporting for income taxes. Accordingly, the Company recognizes deferred tax assets and liabilities for the expected impact of differences between the financial statements and the tax basis of assets and liabilities.

 

The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. In the event the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of its recorded amount, an adjustment to the deferred tax assets would be credited to operations in the period such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of its deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to operations in the period such determination was made.

 

Pursuant to Internal Revenue Code Sections 382 and 383, use of the Company’s net operating loss and credit carryforwards may be limited if a cumulative change in ownership of more than 50% occurs within any three-year period since the last ownership change. The Company may have had a change in control under these Sections. However, the Company does not anticipate performing a complete analysis of the limitation on the annual use of the net operating loss and tax credit carryforwards until the time that it anticipates it will be able to utilize these tax attributes.

 

As of September 30, 2021, the Company did not have any unrecognized tax benefits related to various federal and state income tax matters and does not anticipate any material amount of unrecognized tax benefits within the next 12 months.

 

The Company is subject to U.S. federal income taxes and income taxes of various state tax jurisdictions. As the Company’s net operating losses have yet to be utilized, all previous tax years remain open to examination by Federal authorities and other jurisdictions in which the Company currently operates or has operated in the past.

 

The Company accounts for uncertainties in income tax law under a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns as prescribed by GAAP. The tax effects of a position are recognized only if it is “more-likely-than-not” to be sustained by the taxing authority as of the reporting date. If the tax position is not considered “more-likely-than-not” to be sustained, then no benefits of the position are recognized. As of September 30, 2021, the Company had not recorded any liability for uncertain tax positions. In subsequent periods, any interest and penalties related to uncertain tax positions will be recognized as a component of income tax expense.

 

Foreign Currency Transactions

 

The note payable to SY Corporation, which is denominated in a foreign currency (the South Korean Won), is translated into the Company’s functional currency (the United States Dollar) at the exchange rate on the balance sheet date. The foreign currency exchange gain or loss resulting from translation is recognized in the related condensed consolidated statements of operations.

 

13
 

 

Research and Development

 

Research and development costs include compensation paid to management directing the Company’s research and development activities, including but not limited to compensation paid to our Chief Scientific Officer who is also our Executive Chairman, and fees paid to consultants and outside service providers and organizations (including research institutes at universities), and other expenses relating to the acquisition, design, development and clinical testing of the Company’s treatments and product candidates.

 

License Agreements

 

Obligations incurred with respect to mandatory payments provided for in license agreements are recognized ratably over the appropriate term, as specified in the underlying license agreement, and are recorded as liabilities in the Company’s condensed consolidated balance sheet, with a corresponding charge to research and development costs in the Company’s condensed consolidated statement of operations. Obligations incurred with respect to milestone payments provided for in license agreements are recognized when it is probable that such milestone will be reached and are recorded as liabilities in the Company’s condensed consolidated balance sheet, with a corresponding charge to research and development expenses in the Company’s condensed consolidated statement of operations.

 

Patent Costs

 

Due to the significant uncertainty associated with the successful development of one or more commercially viable products based on the Company’s research efforts and any related patent applications, all patent costs, including patent-related legal and filing fees, are expensed as incurred and recorded as general and administrative expenses.

 

Earnings per Share

 

The Company’s computation of earnings per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as the income (loss) attributable to common stockholders divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., warrants and options) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.

 

Net loss attributable to common stockholders consists of net loss, as adjusted for actual and deemed preferred stock dividends declared, amortized or accumulated.

 

Loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the respective periods. Basic and diluted loss per common share is the same for all periods presented because all warrants and stock options outstanding are anti-dilutive.

 

At September 30, 2021 and 2020 the Company excluded the outstanding shares of common stock in the table below, into which the securities described below may convert, thereby entitling the holders thereof to acquire shares of common stock, from the Company’s calculation of earnings per share, as the effect would have been anti-dilutive.

 

         
   September 30, 
   2021   2020 
Series B convertible preferred stock   1    1 
Convertible notes payable   40,542,856    4,723,986 
Common stock warrants   59,505,140    28,809,358 
Common stock options   7,111,924    7,166,094 
Total   107,159,921    40,699,439 

 

Reclassifications

 

Certain comparative figures in 2020 have been reclassified to conform to the current quarter’s presentation. These reclassifications were immaterial, both individually and in the aggregate.

 

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Recent Accounting Pronouncements  

 

In August 2020, the FASB issued Accounting Standards Update No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). The subtitle is Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This Accounting Standard Update (“ASU”) addresses complex financial instruments that have characteristics of both debt and equity. The application of this ASU would reduce the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models would result in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The Company has historically issued complex financial instruments and has considered whether embedded conversion features have existed within those contracts or whether derivatives would appropriately be bifurcated. To date, no such bifurcation has been necessary. However, it is possible that this ASU may have a substantial impact on the Company’s financial statements. Management is evaluating the potential impact. This ASU becomes effective for fiscal years beginning after December 15, 2023.

 

In January 2020, the FASB issued ASU 2020-01, Clarifying the Interactions between Topic 321, Topic 323, Equity Method and Joint Ventures, and Topic 815, Derivatives and Hedging which represents an amendment clarifying the interaction between accounting standards related to equity securities, equity method investments and certain derivatives. The guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within those years. Management has evaluated the guidance and determined that the implementation of such guidance does not have a material impact on our condensed consolidated financial statements.

 

4. Notes Payable

 

Convertible Notes Payable

 

On April 1, 2021, May 3, 2021, May 10, 2021, June 30, 2021 and August 31, 2021, the Company closed on financings, pursuant to which, five convertible notes were issued to four separate investors, due in each case, one year from the effective date (which for the each closing was March 31, 2021, April 30, 2021, May 10, 2021, June 29, 2021 and August 31, 2021, respectively), with maturity amounts of $112,500, $150,000, $150,000, $115,000 and $115,000, respectively. In addition, the noteholders received as consideration, warrants to purchase 2,400,000, 3,200,000, 3,200,000, 2,453,333 and 5,750,000 shares of common stock, respectively, each exercisable for a period of five years at an exercise price of $0.02 per share. The August 31, 2021 issuance triggered the most-favored nation provisions of four notes already outstanding, resulting in the issuance of 15,121,667 additional warrants on September 7, 2021. As a result of the note issuances, the Company received net proceeds of $96,750, $123,400, $123,400, $100,000 and $103,500 respectively, for an aggregate of $547,050. The difference between the maturity amounts and the net proceeds were due to original issue discounts, in four cases, investor legal fees and in two cases, broker fees. The five notes are convertible at a fixed price of $0.02 per share and bear interest at 10% per year which interest is guaranteed regardless of prepayment. The Company has the right to prepay the notes during the first six months subject to prepayment premiums that range from 0% to 15% (100% to 115% of the maturity amount plus accrued interest and any default interest and similar costs).

 

The Company periodically issues convertible notes with similar characteristics. As described in the table below, as of September 30, 2021, there were nine such notes outstanding (including the convertible notes described in the paragraph above), two of which were satisfied in full by conversion of both principal and interest and one of which was satisfied in part, principal only, during that period. These notes all have or had a fixed conversion price of $0.02 per share of common stock, subject to adjustment in certain circumstances. All notes but one had an annual interest rate of 10% which was guaranteed in full. One note had an annual interest rate of 8%. The convertible notes had an original issue discount (“OID”), debt issuance costs (“DIC”) that were capitalized by the Company, a warrant (“WT”) or commitment shares (“CS”) and in three cases a beneficial conversion feature (“BCF”). The OID, CN, WTs, CSs and BCF allocated values are amortized over the life of the notes to interest expense. All notes mature or matured nine to fifteen months from their issuance date. All notes were prepayable by the Company during the first six months, subject to prepayment premiums that range from 100% to 115% of the maturity amount plus accrued interest. If not earlier paid, the notes were convertible by the holder into the Company’s common stock. Two of the notes were paid before maturity.

 

15
 

 

The table below summarizes the convertible notes with similar characteristics outstanding as of September 30, 2021 and the repayments by conversion during the nine-months ended September 30, 2021:

 

 

Inception Date  Maturity date  Original Principal Amount   Interest rate   Original aggregate DIC, OID, Wts, CS and BCF   Cumulative amortization of DIC, OID, Wts, CS and BCF   Accrued coupon interest   Repayment
by
conversion
   Balance sheet
 carrying amount
at September 30,
2021 inclusive
of accrued interest
 
                                
July 2, 2020  April 2, 2021  $137,500    10.00%  $(44,423)  $44,423   $6,875   $(144,375)  $- 
July 28, 2020  July 28, 2021  45,000    8.00%  (5,000)     2,743   (25,000)  17,743 
July 30, 2020  October 30, 2021  75,000    10.00%  (27,778)  27,778   4,136   (79,136)  - 
February 17, 2021  November 17, 2021  112,000    10.00%  (112,000)  91,608   9,161   -   100,769 
April 1, 2021  March 31, 2022  112,500    10.00%  (112,500)  56,404   5,640   -   62,044 
May 3, 2021  April 30, 2022  150,000    10.00%  (150,000)  62,877   6,288   -   69,165 
May 10, 2021  May 10, 2022  150,000    10.00%  (150,000)  58,767   5,877   -   64,644 
June 30, 2021  June 29, 2022  115,000    10.00%  (115,000)  29,301   2,930   -   32,231 
August 31, 2021  August 31, 2022  115,000    10.00%  (109,675)  9,015   945   -   15,285 
                                       
Total     $1,012,000        $(826,376)  $380,173   $44,595   $(248,511)  $361,881 

 

In addition to what appears in the table above, there is outstanding accrued interest of $2,747 from a prior floating rate convertible note that has not been paid in cash or by conversion as of September 30, 2021.

 

On July 27, 2021, the maturity date of the note scheduled to mature on July 28, 2021, was extended to December 1, 2021 and the original and remaining principal amount of the note was increased by $5,000 from $40,000 to $45,000 and from $15,000 to $20,000 respectively, with interest on the incremental increase in principal amount accruing from the note inception date. Since the Company did not receive any cash proceeds from the increase in the principal amount of the note, the increase was recorded as a debt discount to be amortized to interest expense through the maturity date.

 

In addition to the convertible notes with similar characteristics described above, on December 31, 2018 and January 2, 2019, the Company issued convertible notes to a single investor totaling $35,000 of maturity amount with accrued interest of $10,399 as of September 30, 2021. The number of shares of common stock (or preferred stock) into which these notes may convert is not determinable. The warrants to purchase 19,000 shares of common stock issued in connection with the sale of these notes and other convertible notes issued December 2018 and March 2019 are exercisable at a fixed price of $15.00 per share of common stock, provide no right to receive a cash payment, and included no reset rights or other protections based on subsequent equity transactions, equity-linked transactions or other events and expire on December 30, 2023.

 

Other convertible notes were also sold to investors in 2014 and 2015 (“Original Convertible Notes”), which aggregated a total of $579,500, and had a fixed interest rate of 10% per annum. The Original Convertible Notes have no reset rights or other protections based on subsequent equity transactions, equity-linked transactions or other events. The warrants to purchase shares of common stock issued in connection with the sale of the Original Convertible Notes have either been exchanged as part of note and warrant exchange agreements executed in April and May of 2016 or expired on September 15, 2016.

 

16
 

 

The remaining outstanding Original Convertible Notes (including those for which default notices have been received) consist of the following at September 30, 2021 and December 31, 2020:

 

 

   September 30, 2021   December 31, 2020 
Principal amount of notes payable  $75,000   $75,000 
Accrued interest payable   74,763    64,357 
Total note payable  $149,256   $139,357 

 

As of September 30, 2021, principal and accrued interest on the Original Convertible Note that is subject to a default notice accrues annual interest at 12% instead of 10%, totaled $52,337, of which $27,337 was accrued interest. As of December 31, 2020, principal and accrued interest on Original Convertible Notes subject to default notices totaled $48,700 of which $23,700 was accrued interest.

 

As of September 30, 2021 all of the outstanding Original Convertible Notes, inclusive of accrued interest, were convertible into an aggregate of 1,317 shares of the Company’s common stock. Such Original Convertible Notes will continue to accrue interest until exchanged, paid or otherwise discharged. There can be no assurance that any of the additional holders of the remaining Original Convertible Notes will exchange their Original Convertible Notes.

 

Note Payable to SY Corporation Co., Ltd.

 

On June 25, 2012, the Company borrowed 465,000,000 Won (the currency of South Korea, equivalent to approximately $400,000 United States Dollars as of that date) from and executed a secured note payable to SY Corporation Co., Ltd., (“SY Corporation”). The note accrues simple interest at the rate of 12% per annum and had a maturity date of June 25, 2013. The Company has not made any payments on the promissory note. At June 30, 2013 and subsequently, the promissory note was outstanding and in default, although SY Corporation has not issued a notice of default or a demand for repayment. Management believes that SY Corporation is in default of its obligations under its January 2012 license agreement, as amended, with the Company, but the Company has not yet issued a notice of default. The Company has in the past made several efforts towards a comprehensive resolution of the aforementioned matters involving SY Corporation. During the nine-months ended September 30, 2021, there were no further communications between the Company and SY Corporation.

 

The promissory note is secured by collateral that represents a lien on certain patents owned by the Company, dating back to January, August and September 2007, including composition of matter patents for certain of the Company’s high impact ampakine compounds and the low impact ampakine compounds CX2007 and CX2076, and other related compounds that the Company is no longer developing and where patent rights date back to January, August and September 2007. The security interest does not extend to the Company’s patents for its low impact ampakine compounds, such as CX717, CX1739 and CX1942 or certain related method of use patents.

 

The note payable to SY Corporation consists of the following at September 30, 2021 and December 31, 2020:

 

 

   September 30, 2021   December 31, 2020 
Principal amount of note payable  $399,774   $399,774 
Accrued interest payable   447,266    411,384 
Foreign currency transaction adjustment   (16,838)   53,393 
Total note payable  $830,202   $864,551 

 

Interest expense with respect to this promissory note was $35,881 and $36,013 for the nine-months ended September 30, 2021 and 2020, respectively, and $12,092 for the three-months ended September 30, 2021 and 2020.

 

Notes Payable to Officers and Former Officers

 

The following amounts were charged to interest expense with respect to notes payable to Dr. Arnold S. Lippa: $3,096 and $2,848 for the three-months ended September 30, 2021 and 2020, respectively, and $ 9,193 and $8,481 for the nine-months ended September 30, 2021 and 2020, respectively.

 

The following amounts were charged to interest expense with respect to notes payable to Dr. James S. Manuso: $4,702 and $4,274 for the three-months ended September 30, 2021 and 2020, respectively, and $13,954 and $12,714 for the nine-months ended September 30, 2021 and 2020, respectively.

 

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Other Short-Term Notes Payable

 

Other short-term notes payable at September 30, 2021 and December 31, 2020 consisted of premium financing agreements with respect to various insurance policies. At September 30, 2021, a premium financing agreement was payable in the initial amount of $81,672 (after payment of a deposit of $20,347), with interest at 11% per annum, in eight monthly installments of $10,635. In addition, there is $9,238 of short-term financing of office and clinical trials insurance premiums. At September 30, 2021 and December 31, 2020, the aggregate amount of the short-term notes payable was $35,982 and $4,608 respectively.

 

5. Settlement and Payment Agreements

 

On February 21, 2020, Sharp Clinical Services, Inc. (“Sharp”), a vendor of the Company, filed a complaint against the Company in the Superior Court of New Jersey Law Division, Bergen County related to a December 16, 2019 demand for payment of past due invoices inclusive of late fees totaling $103,890 of which $3,631 related to late fees, seeking $100,259 plus 1.5% interest per month on outstanding unpaid invoices. On May 29, 2020, a default was entered against the Company, and on September 4, 2020, a final judgment by default was entered against the Company in the amount of $104,217. On March 3, 2021, we executed a settlement agreement with Sharp (the “Sharp Settlement Agreement”), and on March 9, 2021, Sharp requested of the Bergen (NJ) County Sheriff, the return of the Writ of Execution which resulted in a release of the lien in favor of Sharp. The Sharp Settlement Agreement calls for a payment schedule of ten $10,000 payments due on April 1, 2021 and every other month thereafter, and permitted early settlement at $75,000 if the Company had paid Sharp that lower total by August 1, 2021, but the Company did not pay Sharp that lower amount by that date. The Company has recorded a liability to Sharp of $63,859 as of September 30, 2021 after payments totaling $30,000 pursuant to the Sharp Settlement Agreement.

 

By letter dated February 5, 2016, the Company received a demand from a law firm representing Salamandra, LLC (“Salamandra”) alleging an amount due and owing for unpaid services rendered. On January 18, 2017, following an arbitration proceeding, an arbitrator awarded Salamandra the full amount sought in arbitration of $146,082. Additionally, the arbitrator granted Salamandra attorneys’ fees and costs of $47,937. All such amounts have been accrued as of September 30, 2021 and December 31, 2020, including accrued interest at 4.5% annually from February 26, 2018, the date of the judgment, through September 30, 2021, totaling $29,897. The Company had previously entered into a settlement agreement with Salamandra that is no longer in effect. The Company has approached Salamandra seeking to negotiate a new settlement agreement. A lien with respect to the amounts owed is in effect.

 

On February 23, 2021, our bank received two New Jersey Superior Court Levies totaling $320,911 related to amounts owed to Sharp and Salamandra which amounts were not in dispute. The bank debited our accounts and restricted access to those accounts pursuant to the liens placed on the accounts. Our accounts were debited for $1,559 on February 23, 2021, which represented all of the cash in our accounts on that date.

 

On April 29, 2021, the Company entered into a payment and settlement agreement with the University of California Innovation and Entrepreneurship, pursuant to which it agreed to a payment schedule that is reflected in accounts payable and accrued expenses in the Company’s condensed consolidated financial statements. The total amount due is $234,657. The agreed payment schedule is for the Company to pay $10,000 on each of July 1, 2021, September 1, 2021, November 1, 2021, January 1, 2022 and March 31, 2022. If the Company pays an aggregate of $175,000 on or before March 31, 2022, the amounts will be considered paid in full with no further amounts due. If an aggregate of $175,000 has not been paid by March 31, 2022, the remaining unpaid amount up to an aggregate of the original amount of $234,657 would be due and payable. The payments due on July 1, 2021 and September 1, 2021 were timely paid.

 

On September 14, 2021, the Company and DNA Healthlink, Inc. (“DNA Healthlink”) entered into a settlement agreement (the “ DNA Healthlink