RSPI RespireRx Pharmaceuticals Inc (CE)

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. On January 11, 2023, RespireRx formed what is initially a wholly-owned subsidiary, ResolutionRx Ltd (“ResolutionRx”), an unlisted public company in Australia, into which the Company is in the process of contributing 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 as the “Company,” “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”).

2. Business

The mission of the Company is to develop innovative and revolutionary treatments to combat disorders caused by disruption of neuronal signaling. We are developing treatment options that address conditions affecting millions of people, but for which there are limited or poor treatment options, including OSA, attention deficit hyperactivity disorder (“ADHD”), epilepsy, acute and chronic pain, including inflammatory and neuropathic pain, recovery from spinal cord injury (“SCI”) and certain orphan disorders. We are also considering developing treatment options for other conditions based on results of preclinical and clinical studies to date. To achieve these goals, the Company has determined that some or all of these opportunities should be contributed to what could be, wholly-owned subsidiaries, joint ventures, licenses or sub-licenses, or even sold and has initiated efforts to do so.

In order to facilitate our business activities and product development and to set up our programs for development by subsidiaries, partnering or sale, we have implemented an internal restructuring plan based upon our two research platforms: pharmaceutical cannabinoids and neuromodulators. As of January 11, 2023, the Company formed ResolutionRx Ltd, initially a wholly-owned subsidiary focused on pharmaceutical cannabinoids and EndeavourRx, the business unit focused on neuromodulators. It is anticipated that the Company will use, at least initially, its management personnel to provide management, operational and oversight services to these two lines of business.

Like ResolutionRx, which as of January 11, 2023, was organized as a wholly-owned subsidiary, of the Company, management also intends to organize our EndeavourRx business unit, in part or in whole, into a subsidiary which would conduct research and development 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 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, seeking transactions 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 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.

The Company is also engaged in business development efforts (licensing/sub-licensing, joint venture and other commercial structures) with a view to securing strategic partnerships that represent strategic and operational infrastructure additions, as well as cash and in-kind funding opportunities. 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 January 11, 2023, RespireRx established ResolutionRx Ltd, initially a wholly-owned subsidiary and an unlisted public company in Australia. 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 research and development (“R&D”) program, including but not limited to conducting laboratory experiments to determine a final optimum dronabinol formulation, scaling up and manufacturing the chosen formulation for clinical use, preparing and submitting regulatory documents and designing and conducting clinical trials.

On January 27, 2023 ResolutionRx entered into a letter of intent and term sheet with Radium Capital (“Radium”) for a series of debt financings secured by the Australian Research and Development Tax Incentive (“R&DTI”), a tax credit or rebate available for the component of R&D activities that are qualified core and supporting activities. In the case of ResolutionRx, this is anticipated to be a 43.5% tax rebate, with up to, and at the discretion of ResolutionRx, 80% to be financed by Radium and collateralized by the rebate. The Company believes that these are two of the first steps taken in a series of anticipated transactions that will enable the debt and equity or equity-linked financing of ResolutionRx, to support its R&D efforts over the next approximately two and half to three years. RespireRx is in the process of entering into a Master Intercompany Services Agreement (“Master Services Agreement”) with ResolutionRx pursuant to which the Company will provide certain services to ResolutionRx for which RespireRx will be paid.

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. See Note 9. Subsequent Events.

On May 11, 2023, RespireRx entered into a Letter Agreement (“Letter Agreement”) with Viridian Capital Advisors (“VCA”) pursuant to which, VCA will 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 report (“Valuation Report”) specifically with respect to the Company’s cannabinoid program. The Letter Agreement becomes effective upon payment by the Company of a minimum of the required deposit of $35,000. 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 are to be contributed. See Note 9. Subsequent Events.

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 $430,063 for the three-months ended March 31, 2023 and a net loss attributable to common stockholders of $2,102,720, and after accounting for deemed dividends, a total net loss of $3,972,993 for the fiscal year ended December 31, 2022, as well as negative operating cash flows of $29,188 for the three-months ended March 31, 2023 and $143,905 for the fiscal year ended December 31, 2022. The Company also had a stockholders’ deficiency of $12,310,383 at March 31, 2023 and expects to continue to incur net losses and negative operating cash flows for at least the next few years. Additionally, as of March 31, 2023, the Company has, with respect to ten of fourteen similar convertible notes outstanding, $930,907 maturity amount inclusive of accrued interest which have matured, but for which no notices of default have been received which must be paid or converted. The remaining four similar convertible notes outstanding as of March 31, 2023 have maturity dates that range from April 14, 2023 to May 31, 2023 and have maturity amounts inclusive of accrued interest as of March 31, 2023 of $137,630. See Note 4. Notes Payable. The Company will seek to have maturity dates extended in order to avoid a default on such convertible notes, which the Company has achieved in the past, but with respect to which, the Company can provide no assurance. The Company has also not met its payment obligations to the UWM Research Foundation (“UWMRF”) of the University of Wisconsin-Milwaukee, but has not received a notice of default and is in regular communication with the UWMRF regarding the establishment of a payment schedule. 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.

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 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.

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 subsidiaries, Pier and ResolutionRx. Intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

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

Concentration of Credit Risk

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

Value of Financial Instruments

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

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

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

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

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

The carrying amounts of financial instruments (consisting of cash, cash equivalents, and accounts payable and accrued expenses) are considered by the Company to be representative of the respective values of these instruments due to the short-term nature of those instruments. With respect to the note payable to SY Corporation 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.

Deferred Financing Costs

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

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

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.

Convertible Notes Payable

Convertible notes are evaluated to determine if they should be recorded at amortized cost. To the extent that there are associated warrants or 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 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 condensed consolidated balance sheet at each reporting date and amortized to the Company’s condensed 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 other 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 and directors, outside consultants and vendors 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, as appropriate, 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 compensation 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 value of the common stock on the grant date, and the estimated volatility of the common stock over the estimated life 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 value of common stock is determined by reference to the quoted market price of the Company’s common stock.

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

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 no stock or stock option grants during the three-months ended March 31, 2023.

There were no stock options exercised during the three-months ended March 31, 2023 and 2022.

There were no warrants issued as compensation or for services during the three-months ended March 31, 2023 and 2022. Warrants, if issued for services, are typically issued to placement agents or brokers for fund raising services, or to lenders, and are not issued from any of the Company’s stock and option plans, from which options issued to non-employees for services are typically issued.

Income Taxes

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

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

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

As of March 31, 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 March 31, 2023, 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.

Research and Development

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

License Agreements

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

Patent Costs

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

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.

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

At March 31, 2023 and 2022 the Company excluded the outstanding securities summarized below, which entitle the holders thereof to acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.

  Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share

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.

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. Management has evaluated the potential impact and has early adopted as of January 1, 2022. Management believes the adoption has simplified the accounting for convertible debt instruments and does not believe adoption has had a substantial impact on the financial statements, however, it is possible that this ASU may have a substantial impact on the Company’s financial statements from future convertible debt financings.

4. Notes Payable

Convertible Notes Payable

The table below summarizes all convertible notes outstanding as of March 31, 2023. Those with similar characteristics outstanding as of March 31, 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 period ended March 31, 2023:

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 September 30, 2013 and subsequently, the promissory note was outstanding and in default, although SY Corporation has not issued a notice of default or a demand for repayment. Management believes that SY Corporation is in default of its obligations under its January 2012 license agreement, as amended, with the Company, but the Company has not yet issued a notice of default. The Company has in the past made several efforts towards a comprehensive resolution of the aforementioned matters involving SY Corporation. During the three-months ended March 31, 2023, there were no further communications between the Company and SY Corporation.

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

The note payable to SY Corporation consists of the following at March 31, 2023 and December 31, 2022:

Interest expense with respect to this promissory note was $11,829 for each of the three-months ended March 31, 2023 and 2022, respectively.

Notes Payable to Officers and Former Officers

For the three-months ended March 31, 2023 and 2022, $3,671 and $3,338 was charged to interest expense with respect to Dr. Arnold S. Lippa’s notes, respectively. At March 31, 2023, amounts owed to Dr. Lippa, including notes payable, advances and accrued interest were $408,243.

In addition, Dr. Lippa periodically makes advances to the Company which are re-payable upon demand, do not accrue interest and are included in the total of notes payable to Officers.

For the three-months ended March 31, 2023 and 2022, $5,566 and $5,060, respectively, was charged to interest expense with respect to former executive officer, Dr. James S. Manuso’s notes. At March 31, 2023, amounts owed to Dr. Manuso, including one note payable and accrued interest were $231,310.

Other Short-Term Notes Payable

Other short-term notes payable at March 31, 2023 and December 31, 2022 consisted primarily of premium financing agreements with respect to the Company’s directors and officers liability insurance policies. At March 31, 2023, a premium financing agreement was payable in the initial amount of $96,408 (prior to payment of a deposit of $19,228 which was paid in May 2023), with interest at 8.99% per annum, in nine monthly installments of $8,900. At March 31, 2023 and December 31, 2022, the aggregate amount of the short-term notes payable was $96,408 and $15,847 respectively.

5. Settlement and Payment Agreements

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 $100,000 payments by the Company to UIL are eliminated and the unpaid amount of $200,000 for calendar years 2021 and 2022 are no longer due and payable. Among other changes, the $75,000 payment that was due after the dosing of the 1^st patient in a Phase II study anywhere in the world is now reduced to $10,000 and UIL has been given an extension in the term of the License and a deferred compensation obligation of RespireRx including the 4% royalty on net sales due to UIL has been extended for up to 8 years after the original patent rights expire by including a royalty on the net sales protected by a patent application submitted by the Company describing a new formulation of dronabinol. See Note 8. Commitments and Contingencies-Significant Agreements and Contracts-University of Illinois Exclusive License Agreement for more details.

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 $2,608,914 to such counsel and that under the terms of the agreement the amount owed and payable by wire transfer on or before December 30, 2022 shall be $250,000. If that amount was paid on or before December 30, 2022, certain mutual releases would become effective and no further amounts would be due. If the $250,000 amount was not paid by December 30, 2022, the section of the agreement related to mutual releases would be null and void ab initio and the amount immediately due and payable by the Company to its former counsel would be adjusted to $2,608,914 less any amounts paid on or after the date of the agreement. The amount due by December 30, 2022 was not paid and the payment settlement agreement was amended to call for a payment of $350,000 by February 15, 2023, which amount was also not paid. The Company and its former legal counsel are in discussions regarding further revised payment settlement terms. The amount due to the Company and its former legal counsel included in accounts payable as of March 31, 2023 is $2,608,914.

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 $789,267 in accordance with a schedule set forth in the SA based on amounts of funding raised by the Company, all in payment for Mr. Jones’ service to the Company as President and Chief Executive Officer prior to January 31, 2022. All such amounts are included in accrued compensation as of March 31, 2023 and December 31, 2022. Mr. Jones did not resign because of any disagreement with the Company relating to the Company’s operations, policies or practices.

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 March 31, 2023. The total amount due is $234,657. The agreed payment schedule is for the Company to pay $10,000 on each of July 1, 2021, September 1, 2021, November 1, 2021, January 1, 2022 and March 31, 2022. If RespireRx paid an aggregate of $175,000 on or before March 31, 2022, the amounts would have been considered paid in full with no further amounts due. RespireRx has not made any payments after the September, 2021 payment. According to the terms of the agreement, if an aggregate of $175,000 was not 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. Payment was not made and the original amount of $234,657 has been recorded in accounts payable at March 31, 2023. The Company remains in discussions with an agent on behalf of UIC to establish a new payment settlement schedule.

On February 21, 2020, Sharp Clinical Services, Inc. (“Sharp”), a vendor of the Company, filed a complaint against the Company in the Superior Court of New Jersey Law Division, Bergen County related to a December 16, 2019 demand for payment of past due invoices inclusive of late fees totaling $103,890. On May 29, 2020, a default was entered against the Company, and on September 4, 2020, a final judgment was entered against the Company in the amount of $104,217. On March 3, 2021, we executed a settlement agreement with Sharp (the “Sharp Settlement Agreement”), and on March 9, 2021, Sharp requested of the Bergen (NJ) County Sheriff, the return of the Writ of Execution which resulted in a release of the lien in favor of Sharp. The Sharp Settlement Agreement calls for a payment schedule of ten $10,000 payments due on April 1, 2021 and every other month thereafter, and permitted early settlement at $75,000 if the Company had paid Sharp that lower total by August 1, 2021. The Company did not pay Sharp that lower amount by that date. The Company has recorded a liability to Sharp of $53,568 as of March 31, 2023 after payments totaling $30,000 pursuant to the Sharp Settlement Agreement in August, October and December 2021. The Company has not made the any of the payments due on or after October 1, 2021. On March 3, 2022, Company’s then counsel received a default notice from counsel to Sharp with respect to the Sharp Settlement Agreement, which stated that Sharp may exercise its remedies. Company’s then counsel communicated with counsel to Sharp. On March 28, 2022, one of the Company’s bank accounts was debited for the benefit of Sharp $415 inclusive of fees about which the Company is seeking additional information but which the management believes indicates that either a new Writ of Execution was established or the original writ was re-established.

By letter dated February 5, 2016, the Company received a demand from a law firm representing Salamandra, LLC (“Salamandra”) alleging an amount due and owing for unpaid services rendered. On January 18, 2017, following an arbitration proceeding, an arbitrator awarded Salamandra the full amount sought in arbitration of $146,082. Additionally, the arbitrator granted Salamandra attorneys’ fees and costs of $47,937. All such amounts have been accrued as of December 31, 2022, including accrued interest at 4.5% annually from February 26, 2018, the date of the judgment, through December 31, 2022, totaling $39,552. 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 September 14, 2021, the Company and DNA Healthlink, Inc. (“DNA Healthlink”) entered into a settlement agreement (the “ DNA Healthlink Settlement Agreement”) regarding $410,000 in unpaid accounts payable owed by the Company to DNA Healthlink (the “DNA Healthlink Settlement Amount”) for services provided by DNA Healthlink to the Company pursuant to an agreement by and between the Company and DNA Healthlink dated October 15, 2014. Under the terms of the DNA Healthlink Settlement Agreement, the Company is obligated to pay to DNA Healthlink the full DNA Healthlink Settlement Amount as follows: twelve monthly payments of $8,000 commenced on November 15, 2021, followed by twelve monthly payments of $10,000 which commenced on November 15, 2022, followed by twelve monthly payments of $15,000 commencing on November 15, 2023, followed by one final payment of $14,000 on November 15, 2024. If, prior to March 14, 2023, the Company had received one or more upfront license fee payments or any other similar fee or fees from one or more strategic partners that aggregate at least fifteen million dollars ($15,000,000.00) (“Upfront Fees”), then the full DNA Healthlink Settlement Amount, less any amounts previously paid, would have been accelerated and become due and payable in full within ninety (90) days of receipt of any Upfront Fees. As a result of the DNA Healthlink Settlement Agreement, the Company recorded a gain with respect to vendor settlements of $62,548 during the fiscal year ended December 31, 2021. The Company made payments of $8,000 in November 2021 and December 2021, but has not made payments thereafter. Of the $390,000 total amount due, $174,000 has been reflected as long-term liabilities and the remaining amount has been reflected in accounts payable and accrued expenses in the Company’s condensed consolidated balance sheet as of March 31, 2023.

By email dated July 21, 2016, the Company received a demand from an investment banking consulting firm that represented the Company in 2012 in conjunction with the Pier transaction alleging that $225,000 is due and payable for investment banking services rendered. Such amount has been included in accrued expenses at March 31, 2023 and December 31, 2022.

The Company is periodically the subject of various pending and threatened legal actions and claims. In the opinion of management of the Company, adequate provision has been made in the Company’s condensed consolidated financial statements as of March 31, 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.

6. Stockholders’ Deficiency

Preferred Stock

RespireRx has authorized a total of 5,000,000 shares of preferred stock, par value $0.001 per share. As of March 31, 2023 and December 31, 2022, 37,500 shares were designated as Series B Convertible Preferred Stock (non-voting, “Series B Preferred Stock”).

Series B Preferred Stock outstanding as of March 31, 2023 and December 31, 2022 consisted of 37,500 shares issued in a May 1991 private placement. The shares of Series B Preferred Stock are convertible into 1 share of common stock. RespireRx may redeem the Series B Preferred Stock for $25,001 at any time upon 30 days prior notice.

As of March 31, 2023, there were 1,376 shares of Series H Preferred Stock designated and available for issuance.

Although other series of preferred stock have been designated, no other shares of preferred stock are outstanding. As of March 31, 2023 and December 31, 2022, 3,504,424 shares of preferred stock were undesignated and may be issued with such rights and powers as the Board of Directors may designate.

On April 3, 2023 and April 12, 2023, the Company filed a Certificate of Designation, Preferences, Rights and Limitations of its Series I Preferred Stock and a Certificate of Designation of Series J 8% Redeemable Preferred Stock with the Secretary of State of the state of Delaware, respectively, and amended the Company’s certificate of incorporation on each date. See Note 9. Subsequent Events.

Common Stock

RespireRx has authorized 2,000,000,000 shares of Common Stock, par value $0.001 (“Common Stock”). There are 144,326,672 shares of the Company’s Common Stock outstanding as of March 31, 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 776,233,719 shares of the Company’s Common Stock available for future issuances as of March 31, 2023. No options were exercised during the three-month period ended March 31, 2023. During that period, warrants exercisable into 24,300,000 shares of Common Stock if exercised on a cash basis were exercised on a cashless basis resulting in the issuance of 18,782,396 shares of Common Stock. No warrants or options were exercised after March 31, 2023. No warrants or options expired during the three-month period ended March 31, 2023. In April, 2023, 23,881 warrants and 31,039 options expired. See Note 9. Subsequent Events.

The exercise prices of common stock warrants outstanding and exercisable are as follows at March 31, 2023:

 Schedule of Exercise Prices of Common Stock Warrants Outstanding and Exercisable

Based on a value of $0.0039 per share on March 31, 2023, there were 369,582,308 exercisable in-the-money common stock warrants as of March 31, 2023.

Based on a value of $0.01 per share on March 31, 2022, there were no exercisable in-the-money common stock warrants as of March 31, 2022.

Stock Options

On March 18, 2014, the stockholders of RespireRx holding a majority of the votes to be cast on the issue approved the adoption of RespireRx’s 2014 Equity, Equity-Linked and Equity Derivative Incentive Plan (the “2014 Plan”), which had been previously adopted by the Board of Directors, subject to stockholder approval. The Plan permits the grant of options and restricted stock in addition to stock appreciation rights and phantom stock, to directors, officers, employees, consultants and other service providers of the Company. As of March 31, 2023, there are 6,325 share available in the 2014 Plan.

On June 30, 2015, the Board of Directors adopted the 2015 Stock and Stock Option Plan (as amended, the “2015 Plan”). As of March 31, 2023, there are 13,670,110 shares available in the 2015 Plan. The Company has not and does not intend to present the 2015 Plan to stockholders for approval.

Information with respect to the Black-Scholes variables used in connection with the evaluation of the fair value of stock-based compensation costs and fees is provided at Note 3.

A summary of stock option activity for the three-months ended March 31, 2023 is presented below.

The exercise prices of common stock options outstanding and exercisable were as follows at March 31, 2023:

There was no deferred compensation expense for the outstanding and unvested stock options at March 31, 2023.

Based on a fair value of $0.0039 per share on March 31, 2023, there were no exercisable in-the-money common stock options as of March 31, 2023.

Reserved and Unreserved Shares of Common Stock

As of March 31, 2023, there are 2,000,000,000 shares of Common Stock, par value $0.001 authorized, of which 144,326,672 are issued and outstanding. As of March 31, 2023, there were outstanding options to purchase 9,199,356 shares of Common Stock and 6,325 and 13,670,110 shares available for issuance under the 2014 Plan and 2015 Plan respectively. There are 649 Pier contingent shares of Common Stock that may be issued under certain circumstances. As of March 31, 2023, there are 661,179,985 issuable upon conversion of convertible notes. As of March 31, 2023, there are 395,383,183 shares that may be issued upon exercise of outstanding warrants. As of March 31, 2023, the Series B Preferred Stock may convert into 1 share of Common Stock. Therefore, the Company is reserving 1,079,439,609 shares of Common Stock for future issuances with respect to conversions and exercises as well as for the Pier contingent shares. In addition, certain convertible notes and related warrants impose an additional contractual reserve requirement, above the number of shares into which such convertible notes and related warrants may convert or exercise respectively.

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 three-months ended March 31, 2023 or the fiscal year ended December 31, 2022, Aurora had previously provided services to the Company and there remains $96,000 owed to Aurora by RespireRx which amount is included in accounts payable and accrued expenses as of March 31, 2023.

A description of advances and notes payable to officers is provided at Note 4. Notes Payable.

8. Commitments and Contingencies

Pending or Threatened Legal Action and Claims

The Company is periodically the subject of various pending and threatened legal actions and claims. In the opinion of management of the Company, adequate provision has been made in the Company’s condensed consolidated financial statements as of March 31, 2023, consolidated financial statements as of December 31, 2022 and condensed consolidated financial statements as of March 31, 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, the Company’s Senior Vice President of Research and Development since October 15, 2014, has provided his services to the Company on an at will and month-to-month basis. Since agreeing to a payment and settlement agreement, the Company has contracted for his services on a prepaid hourly basis at a rate of $250 per hour, through his consulting firm, DNA Healthlink, Inc. See Note 5. Payment and Settlement Agreements for a description of the current payment terms. During the three-month period ended March 31, 2023 Mr. Purcell did not provide any services to the Company.

The Company entered into a consulting contract with David Dickason effective September 15, 2020 pursuant to which Mr. Dickason was appointed to and serves as the Company’s Senior Vice President of Pre-Clinical Product Development on an at-will basis at the rate of $250 per hour. During the three-month periods ended March 31, 2023 and 2022, Mr. Dickason did not provide any services to the Company.

Employment Agreements

Effective on May 6, 2020, Timothy Jones was appointed as RespireRx’s President and Chief Executive Officer and entered into an employment agreement as of that date. Effective January 31 2022, Mr. Jones resigned as RespireRx’s President and Chief Executive Officer as well as a member of RespireRx’s Board of Directors pursuant to an Employment Agreement Termination and Separation Agreement dated February 8, 2022. 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. Dr. Lippa continues to serve as RespireRx’s Executive Chairman and as a member of the Board of Directors as well as the Company’s Chief Scientific Officer.

Jeff E. Margolis currently serves as the Company’s Senior Vice President, Chief Financial Officer, Treasurer and Secretary. Mr. Margolis also serves on the Company’s Board of Directors.

The table below summarized the current cash commitments to Dr. Lippa and Mr. Margolis through the next September 30^th renewal date.

Under certain circumstances base salaries may be contractually increased or the executives may become eligible for additional benefits and base salaries may be increased at the discretion of the Board of Directors. All executives are eligible for stock and stock option and similar grants at the discretion of the Board or Directors.

The payment of certain amounts reflected in the table above have been voluntarily deferred indefinitely and payments against accrued compensation may be made based upon the Company’s ability to make such payments.

UWMRF Patent License Agreement

On August 1, 2020, RespireRx exercised its option pursuant to its option agreement dated March 2, 2020, between RespireRx and UWM Research Foundation, an affiliate of the University of Wisconsin-Milwaukee (“UWMRF”). Upon exercise, RespireRx and UWMRF executed the UWMRF Patent License Agreement effective August 1, 2020 pursuant to which RespireRx licensed the identified intellectual property.

Under the UWMRF Patent License Agreement, the Company has an exclusive license to commercialize GABAkine products based on UWMRF’s rights in certain patents and patent applications, and a non-exclusive license to commercialize products based on UWMRF’s rights in certain technology that is not the subject of the patents or patent applications. UWMRF maintains the right to use, and, upon the approval of the Company, to license, these patent and technology rights for any non-commercial purpose, including research and education. The UWMRF Patent License Agreement expires upon the later of the expiration of the Company’s payment obligations to UWMRF or the expiration of the last remaining licensed patent granted thereunder, subject to early termination upon the occurrence of certain events. The License Agreement also contains a standard indemnification provision in favor of UWMRF and confidentiality provisions obligating both parties.

Under the UWMRF Patent License Agreement, in consideration for the licenses granted, the Company will pay to UWMRF the following: (i) patent filing and prosecution costs incurred by UWMRF prior to the effective date, paid in yearly installments over three years from the Effective Date; (ii) annual maintenance fees, beginning on the second anniversary of the Effective Date, which annual maintenance fees terminate upon the Company’s payment of royalties pursuant to clause (iv) below; (iii) milestone payments, paid upon the occurrence of certain dosing events of patients during clinical trials and certain approvals by the FDA; and (iv) royalties on net sales of products developed with the licenses, subject to minimum annual payments and to royalty rate adjustments based on whether separate royalty payments by the Company yield an aggregate rate beyond a stated threshold. The Company will pay to UWMRF certain percentages of revenues generated from sublicenses of the licenses provided under the UWMRF Patent License Agreement by the Company to third parties.

Certain payments under the UWMRF Patent License Agreement have not been paid by the Company. The Company is in regular discussions with UWMRF regarding when the Company may be able to commence making payments. The Company has not received a notification of default either during or before the three-month period ended March 31, 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 March 31, 2023 in accounts payable and accrued expenses.

University of Wisconsin-Milwaukee Outreach Services Agreement

On July 12, 2021, the Company and the Board of Regents of the University of Wisconsin System on behalf of the University of Wisconsin-Milwaukee (“UWM”) entered into an Outreach Services Agreement pursuant to which UWM agreed to provide, among other molecules, multiple milligram to gram quantities of KRM-II-81 (GABAkine) and the Company agreed to pay UWM an annual sum of $75,000 payable in three installments of $25,000 each beginning October 12, 2021, which amount was timely paid, and on a quarterly basis thereafter. The payments that were due on January 12, 2022 and April 12, 2022 have not yet been paid. The agreement terminated on June 30, 2022. Amounts due totaling $50,000 on January 12, 2022 and April 12, 2022 are recorded in accounts payable as of March 31, 2023.

University of Illinois 2014 Exclusive License Agreement

On June 27, 2014, the Company entered into an Exclusive License Agreement (the “2014 License Agreement”) with the University of Illinois, the material terms of which were similar to a License Agreement between the parties that had been previously terminated on March 21, 2013. The 2014 License Agreement became effective on September 18, 2014, upon the completion of certain conditions set forth in the 2014 License Agreement, including: (i) the payment by the Company of a $25,000 licensing fee, (ii) the payment by the Company of outstanding patent costs aggregating $15,840, and (iii) the assignment to the University of Illinois of rights the Company held in certain patent applications, all of which conditions were fulfilled. The 2014 License Agreement was amended on July 25, 2017 and effective December 15, 2022, the first amendment was to extend certain timeframes and the second amendment represented an extensive set of modifications (“2^nd Amendment”).

The 2014 License Agreement granted the Company (i) exclusive rights to several issued and pending patents in numerous jurisdictions and (ii) the non-exclusive right to certain technical information that is generated by the University of Illinois in connection with certain clinical trials as specified in the 2014 License Agreement, all of which relate to the use of cannabinoids for the treatment of sleep related breathing disorders. The Company is developing dronabinol (Δ9-tetrahydrocannabinol), a cannabinoid, for the treatment of OSA, the most common form of sleep apnea.

Among other things, the 2^nd 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 of a regulatory approved product but after the patent rights have expired. The 2^nd 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 (the Company) provides notice of 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 (the Company) owes payments to the University. The 2^nd Amendment amended and clarified Schedule 2 to the 2014 License Agreement, as amended by among other things, by (i) including a 4% royalty on Net Sales by the Licensee or sublicensee as Deferred Compensation Annual License Payments

The 2014 License Agreement provides for various commercialization and reporting requirements commencing on June 30, 2015. In addition, the 2014 License Agreement provides for various royalty payments, including a royalty on net sales of 4%, payment on sub-licensee revenues of 12.5%, and a minimum annual royalty beginning in 2015 of $100,000, which is due and payable on December 31 of each year beginning on December 31, 2015. The minimum annual royalty obligation of $100,000 due on December 31, 2021, was extended to May 31, 2022 and then further extended to an indefinite future date while discussions to amend the obligation are taking place. The minimum annual royalty obligation due on December 31, 2021 has not yet been paid. What was the $100,000 annual minimum that existed from inception through December 31, 2020 was eliminated and therefore the amounts previously recorded in accounts payable and accrued expenses, were reduced to $0. The annual minimum amount due the first year with a market approval from the US FDA (United States Food and Drug Administration) or a foreign equivalent and every year thereafter until the first commercial sale of a product of $350,000 replaced two similarly timed payments of $150,000 and $200,000. The first year with a commercial sale of a product and every year thereafter is now $400,000 whereas it was previously $250,000 after the first year of commercial sale. One time milestone payments have been changed to read as follows:

There are reporting requirements by the Licensee to the University.

Royalty stacking provisions remained unchanged in the 2^nd Amendment.

The concept of reduced royalties upon expiration of the patent rights, but while technical information was being used, was eliminated with the 2^nd Amendment.

During the three-months ended March 31, 2023 and 2022, the Company recorded charges to operations of $0 and $25,000, respectively representing the annual minimum royalty, which is included in research and development expenses in the Company’s condensed consolidated statement of operations. The $100,000 from the fiscal year ended December 31, 2021 was reversed as a result of the effectiveness of the 2^nd Amendment as of December 15, 2022 and the estimate for the fiscal year ended December 31, 2022 was $0.

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 the Company with access or a right of reference letter entitling the Company to make continuing reference to the DMFs during the term of the agreement in connection with any regulatory filings made with the FDA by the Company, (iii) participate on a development committee, and (iv) make available its regulatory consultants, collaborate with any regulatory consulting firms engaged by the Company and participate in all FDA or Drug Enforcement Agency (“DEA”) meetings as appropriate and as related to the API. We now refer to the second-generation product as our proprietary formulation or proprietary product and have de-emphasized the first-generation product.

In consideration for these supplies and services, the Company has agreed to purchase exclusively from 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.

There was no activity during the three-month periods ended March 31, 2023 or 2022 with respect to the Purisys Agreement.

Summary of Principal Cash Obligations and Commitments

The following table sets forth the Company’s principal cash obligations and commitments for the next five fiscal years as of March 31, 2023, aggregating $423,285. License agreement amounts included in the 2023 column represent amounts contractually due from April 1, 2023 through December 31, 2023 (nine months) and in each of the subsequent years, represents the full year. Employment agreement amounts included in the 2023 column represent amounts contractually due from April 1, 2023 through September 30, 2023 (six months) when such contracts expire unless extended pursuant to the terms of the contracts.

9. Subsequent Events

Establishment of Series I Preferred Stock and Series J Preferred Stock

On April 3, 2023, the Company filed a Certificate of Designation, Preferences, Rights and Limitations of its Series I Preferred Stock (“Series I Certificate of Designation”) with the Secretary of State of the State of Delaware to amend the Company’s certificate of incorporation. The filing of the Series I Certificate of Designation was approved by the Company’s Board of Directors. The Series I Certificate of Designation sets forth the preferences, rights and limitations of the Series I Preferred Stock, a brief summary of which is as follows:

The number of shares designated as Series I 8% Redeemable Preferred Stock (“Series I Preferred Stock”) is 3,500 (which is not subject to increase without the written consent of a majority of the holders (each a “Series I Holder”) of the Series I Preferred Stock or as otherwise set forth in the Certificate of Designation). The Series I Preferred Stock Par Value is $0.001 and the Series I Preferred Stock Stated Value is $100.00. The dividend rate is 8% per annum based on a 365 day year, payable in-kind.

Redemption shall happen upon the payment of a Series I “Eligible Payment” which takes place upon the occurrence of an Eligible Payment Event, as both terms are defined in the Certificate. The Series I Eligible Payment is calculated as the Series I Maximum Appreciated Price, which is $0.02, subject to certain adjustments (unless a lesser price is agreed by the Corporation and the Series I Holder) multiplied by the number of shares of Common Stock corresponding to the number of Series I Preferred Shares divided by the Series I Base Measurement Price ($0.0015), multiplied by the Series I Preferred Stock Stated Value. A Series I Eligible Payment Event shall include: (i) any license, sublicense, joint venture or similar transaction resulting in an upfront payment of at least $15,000,000.00, or (ii) any milestone payment with respect to research and development of at least $15,000,000.00, or (iii) receipt of royalties in any one year of at least $15,000,000.00 or (iv) any event resulting in the Company’s receipt of an amount deemed by the Company’s Board of Directors to be establish a Series I Eligible Payment Event. Certain Fundamental Transactions as defined in the Series I Certificate of Designation may be Series I Eligible Payment Events.

For a detailed description the Series Certificate of Designation and the Series I Preferred Stock to be issued, please refer to our Current Report on Form 8-K, filed with the SEC on April 6, 2023, including but not limited to Exhibit 3.1 to the Current Report of Form 8-K.

On April 12, 2023, the Company filed the Series J Certificate of Designation with the Secretary of State of the state of Delaware.

The Series J Certificate of Designation sets forth the preferences, rights and limitations of the Series J Preferred Stock, a summary of which is as follows:

The number of shares designated as Series J 8% Redeemable Preferred Stock (“Series J Preferred Stock”) is 15,000 (which is not subject to increase without the written consent of a majority of the holders (each a “Series J Holder”) of the Series J Preferred Stock or as otherwise set forth in the Series J Certificate of Designation). The Series J Preferred Stock Par Value is $0.001 and the Series J Preferred Stock Stated Value is $100.00. The dividend rate is 8% per annum based on a 365 day year, payable in-kind.

Redemption shall happen upon the payment of an Series J “Eligible Payment” which takes place upon the occurrence of a Series J Eligible Payment Event, as both terms are defined in the Series J Certificate. The Series J Eligible Payment is calculated as the Maximum Appreciated Price, which is closing price per share of Common Stock or its equivalent on the day that is the trading day on which an Series J Eligible Payment Event is publicly announced prior to the opening of financial markets, or the trading day following the public announcement of the Series J Eligible Payment Event if announced after the opening of the financial markets on the date of the Series J Eligible Payment Event (unless a lesser price is agreed by the Company and the Series I Holder) multiplied by the number of shares of Common Stock corresponding to the number of Series J Preferred Shares divided by the Series J Base Measurement Price ($0.006), subject to certain adjustments, multiplied by the Series J Preferred Stock Stated Value. A Series J Eligible Payment Event shall include: (i) any license, sublicense, joint venture or similar transaction resulting in an upfront payment of at least $20,000,000.00, or (ii) any milestone payment with respect to research and development of at least $20,000,000.00, or (iii) receipt of royalties in any one year of at least $20,000,000.00 or (iv) any event resulting in the Corporation’s receipt of an amount deemed by the Corporation’s Board of Directors to be establish a Series J Eligible Payment Event. Certain Fundamental Transactions as defined in the Series J Certificate of Designation may be Series J Eligible Payment Events.

Each share of Series J Preferred Stock shall be entitled to that number of votes, which shall be eligible to vote along with the Common Stockholders, or, as the case may be, when voting as a class, that is equal to one hundred (100x) times number calculated by dividing the number of shares of Series J Preferred Stock by the Base Measurement Price as of the record date for such vote or written consent or, if there is no specified record date, as of the date of such vote or written consent.

Upon any liquidation, dissolution or winding-up of the Company, no distribution shall be made to the holders of any shares of capital stock of the Company unless, prior thereto, the Series J Holders receive (i) an amount equal to 100% of the stated value, plus any accrued and unpaid dividends plus (ii) an amount equal to a pro rata portion of the Series J Eligible Payment Amount less the Series J Preferred Stock Stated Value paid pursuant to (i) above, plus (iii) the pro rata amount when considered with all outstanding shares of Common Stock and any securities that may be convertible into, exercisable for or exchanged for Common Stock that have similar rites, of any remaining distribution. The distribution shall result in a Redemption. If the assets of the Company are insufficient to pay in full such amounts due the Series J Holders or any holders of another class that is parri pasu with the Series J Holders (“Series J Pari Passu Holders”), then the entire assets shall be distributed ratably among the Series J Holders and Series J Pari Passu Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full and such distribution shall result in a Redemption. A Fundamental Transaction, or a Change of Control Transaction, each as defined in the Certificate, shall be deemed to be Liquidations.

Exchange and Exchange and Settlement Agreements

On April 12, 2023, RespireRx entered into an exchange agreement and two exchange and settlement agreements with two executive officers and one vendor collectively, the “Series J Settlement Agreements” and the executive officers and vendor are referred to herein as the “Series J Exchangers.”

Pursuant to the terms of the Settlement Agreements, the Company, in exchange for the issuance of Series J Preferred Stock to the Exchangers, the Exchangers exchanged or settled their rights to receive an aggregate of $570,000 of accrued compensation or debt, advances or other liabilities owed to them. The Series J Preferred Stock is transferrable to Affiliates as such term is defined in the Series J Certificate of Designation. The two executives immediately transferred all of their shares of Series J Preferred Stock to separate trusts of which each is separately the grantor and that are Affiliates of each. The vendor immediately transferred its shares to an individual Affiliate of the vendor.

The Settlement Agreements, the transfer requests and the Series J Certificate of Designation and the delivery of the Series J Preferred Stock was approved by the Company’s Board of Directors.

Convertible Note Conversion

On April 17, 2023 and May 10, 2023, a convertible note holder converted as partial conversions, an aggregate of $18,050 of principal, and $1,000 of conversion fees for a total of $19,050 at a conversion price of $0.015 resulting in the issuance of 12,700,000 shares of Common Stock.

Advance from Officer

On May 16, 2023 and May 17, 2023, the Company’s Interim President, Interim Chief Executive Officer and Chief Scientific Officer advanced $81,500 to the Company which funds were used to pay certain accounts payable. This advance is identical in nature to several advances made in prior periods by the same officer for similar purposes. It is anticipated that additional advances will be made and exchanged for a demand promissory note payable and warrants.

Advance from Controller

On April 28, 2023, Marc M. Radin, the Company’s controller, advanced $28,128 which funds were used to remit the deposit and the first monthly installment with respect to the directors and officers liability insurance policy. It is anticipated that $25,000 of this advance will be exchanged for a demand promissory note payable and warrants.

Warrant and Option Expirations

In April, 2023, 23,881 warrants and 31,039 options expired. The warrants had an exercise price of $15.75 per share of Common Stock and the options had an exercise price of $11.20 per share of Common Stock.

Letter Agreement for Valuation Report

On May 11, 2023, RespireRx entered into a Letter Agreement (“Letter Agreement”) with Viridian Capital Advisors (“VCA”) pursuant to which, VCA will 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 report (“Valuation Report”) specifically with respect to the Company’s cannabinoid program. The Letter Agreement becomes effective upon payment by the Company of at least a minimum of the required deposit of $35,000. 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 are to be contributed.

Letter of Intent for Financing ResolutionRx

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, over the R&D period, 25% of the clinical trial costs of the cannabinoid program that are the subject of the Australian CRO Agreement with iNGENu. The Cantheon LOI calls for the initial pricing of the Series A Preference Shares at 90% of the value of the net assets of the Company’s cannabinoid program in the Valuation Report with a price on a per Series A Preference Share basis of 90% of a maximum value for the cannabinoid program net of any associated liabilities of US$25,000,000. Among other provisions, the Series A Preference Shares have broad-based anti-dilution protections, are convertible at the option of the holder into Ordinary Shares of ResolutionRx on a 1:1 basis, subject to adjustment, and are also mandatorily convertible under certain circumstances. The Series A Preference Shares may be offered to sophisticated or professional investors in Australia and to accredited investors in the United States.