Stockholders' Deficiency | 6. Stockholders’ Deficiency Company has 70,000,000 authorized shares of stock, consisting of 65,000,000 shares designated as common stock, par value $0.001 per share, and 5,000,000 shares designated as preferred stock, par value $0.001 per share. Preferred Stock The Company has authorized a total of 5,000,000 shares of preferred stock, par value $0.001 per share. As of September 30, 2018 and December 31, 2017, 1,250,000 shares were designated as 9% Cumulative Convertible Preferred Stock (non-voting, “9% Preferred Stock”); 37,500 shares were designated as Series B Convertible Preferred Stock (non-voting, “Series B Preferred Stock”); 205,000 shares were designated as Series A Junior Participating Preferred Stock (non-voting, “Series A Junior Participating Preferred Stock”); and 1,700 shares were designated as Series G 1.5% Convertible Preferred Stock. Accordingly, as of September 30, 2018 and December 31, 2017, 3,505,800 shares of preferred stock were undesignated and may be issued with such rights and powers as the Board of Directors may designate. There were no shares of 9% Preferred Stock, Series A Junior Participating Preferred Stock, or Series G 1.5% Convertible Preferred Stock outstanding as of September 30, 2018 and December 31, 2017. Series B Preferred Stock outstanding as of September 30, 2018 and December 31, 2017 consisted of 37,500 shares issued in a May 1991 private placement. Each share of Series B Preferred Stock is convertible into approximately 0.00030 shares of common stock at an effective conversion price of $2,208.375 per share of common stock, which is subject to adjustment under certain circumstances. As of September 30, 2018 and December 31, 2017, the shares of Series B Preferred Stock outstanding were convertible into 11 shares of common stock. The Company may redeem the Series B Preferred Stock for $25,001, equivalent to $0.6667 per share of Series B Preferred Stock, an amount equal to its liquidation preference, at any time upon 30 days prior notice. Common Stock There are 3,588,433 shares of the Company’s Common Stock outstanding as of September 30, 2018. After reserving for conversions of convertible debt as well as common stock purchase options and warrants exercises, there are 52,566,553 shares of the Company’s Common Stock available for future issuances. 2018 Unit Offering On September 12, 2018, the Company consummated an initial closing on an offering (“2018 Unit Offering”) of Units comprised of one share of the Company’s common stock and one common stock purchase warrant. The 2018 Unit Offering may be up to $1.5 million and has a final closing date of October 15, 2018. The initial closing was for $250,750 of which $200,750 was the gross cash proceeds. The additional $50,000 was represented by the conversion or exchange into the 2018 Unit Offering of the principal amount of the Arnold S. Lippa, Demand Promissory Note described below. Units were sold for $1.05 per unit and the warrants issued in connection with the units are exercisable through April 30, 2023 at a fixed price of 150% of the unit purchase price. The warrants contain a cashless exercise provision and certain blocker provisions preventing exercise if the investor would beneficially own more than 4.99% of the Company’s outstanding shares of common stock as a result of such exercise. The warrants are also subject to redemption by the Company at $0.001 per share upon ten (10) days written notice if the Company’s common stock closes at $3.00 or more for any five (5) consecutive trading days. In total, 238,814 shares of the Company’s common stock and 238,814 common stock purchase warrants were purchased. Other than Arnold S. Lippa, the investors in the offering were not affiliates of the Company. Investors also received an unlimited number of piggy-back registration rights in respect to the shares of common stock and the shares of common stock underlying the common stock purchase warrants, unless such common stock is eligible to be sold with volume limits under an exemption from registration under any rule or regulation of the SEC that permits the holder to sell securities of the Company to the public without registration and without volume limits (assuming the holder is not an affiliate). The shares of common stock and common stock purchase warrants were offered and sold without registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as provided in Rule 506(b) of Regulation D promulgated thereunder. None of the shares of common stock issued as part of the units, the common stock purchase warrants, the Common Stock issuable upon exercise of the common stock purchase warrants or any warrants issued to a qualified referral source (of which there were none in the initial closing) have been registered under the Securities Act or any other applicable securities laws, and unless so registered, may not be offered or sold in the United States except pursuant to an exemption from the registration requirements of the Securities Act. Prior to the initial closing of the 2018 Unit Offering, the Company issued to Arnold S. Lippa, Ph.D, the Company’s Interim President, Interim Chief Executive Officer, Executive Chairman and Chief Scientific Officer and James S. Manuso, Ph.D., the Company’s then Vice Chairman and then Chief Executive Officer, respectively, $100,000 aggregate principal amount ($50,000 each) of demand promissory notes bearing interest at 10% (the “Demand Promissory Notes”). The Demand Promissory Note issued to Dr. Lippa, exclusive of any interest accrued, was exchanged into the 2018 Unit Offering simultaneously with its initial closing. The principal amount of, but not the interest on, the Demand Promissory Note was taken into consideration when determining if the Company had achieved the minimum amount necessary to effect the initial closing of the 2018 Unit Offering. The Demand Promissory Note issued to Dr. Manuso was not exchanged or converted in connection with the closing of the 2018 Unit Offering. In addition, as set forth in the Purchase Agreements, each Purchaser has an unlimited number of exchange rights, which are options and not obligations, to exchange such Purchaser’s entire investment as defined (but not less than the entire investment) into one or more subsequent equity financings (consisting solely of convertible preferred stock or common stock or units containing preferred stock or common stock and warrants exercisable only into preferred stock or common stock) that would be considered as “permanent equity” under United States Generally Accepted Accounting Principles and the rules and regulations of the United States Securities and Exchange Commission, and therefore classified within stockholders’ equity, and excluding any form of debt or convertible debt or preferred stock redeemable at the discretion of the holder (each such financing a “Subsequent Equity Financing”). These exchange rights are effective until the earlier of: (i) the completion of any number of Subsequent Equity Financings that aggregate at least $15 million of gross proceeds, or (ii) December 30, 2018. For clarity, a Purchaser’s entire investment is the entire amount invested (“Investment Amount”) (for purposes of the multiple described below) and all of the Common Stock and Warrants purchased (for purposes of the exchange) pursuant to the Purchase Agreement of such Purchaser, however, if the Warrants have been exercised in part or in whole on a cashless basis, then the Investment Amount (for purposes of the multiple described below) will be the Investment Amount (for purposes of the multiple described below) and all of the Common Stock initially purchased pursuant to the Purchase Agreement of such Purchaser plus any shares of Common Stock issued pursuant to a cashless exercise and any Warrants remaining after such cashless exercise (for purposes of the exchange), or, if the Warrants have been exercised for cash, then the entire investment will be the Investment Amount plus the amount of cash paid upon cash exercise (for purposes of the multiple described below) and all of the Common Stock initially purchased pursuant to the Purchase Agreement of such Purchaser plus any shares of Common Stock issued pursuant to the cash exercise and any Warrants remaining after such cash exercise (for purposes of the exchange). 1 st On March 10, 2017 and March 28, 2017, the Company sold units to investors for aggregate gross proceeds of $350,000, with each unit consisting of one share of the Company’s common stock and one common stock purchase warrant to purchase one share of the Company’s common stock (the “1 st nd st On July 26, 2017, the Company’s Board approved an offering of securities conducted via private placement (the “2 nd nd st st nd st 2 nd On August 29, 2017, September 27, 2017, September 28, 2017, October 5, 2017, October 25, 2017, November 29, 2017, December 13, 2017, December 21, 2017, December 22, 2017 and December 29, 2017 the Company sold units in the 2 nd st nd nd nd The terms of the 2 nd nd st nd st nd st nd Common Stock Warrants A summary of warrant activity for the nine months ended September 30, 2018 is presented below. Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in Years) Warrants outstanding at December 31, 2017 1,464,415 $ 2.68146 3.73 Issued 238,814 1.57500 4.58 Warrants outstanding at September 30, 2018 1,703,229 $ 2.52632 4.08 Warrants exercisable at December 31, 2017 1,464,415 $ 2,68146 3.73 Warrants exercisable at September 30, 2018 1,703,229 $ 2.52632 4.08 The exercise prices of common stock warrants outstanding and exercisable are as follows at September 30, 2018: Exercise Price Warrants Outstanding (Shares) Warrants Exercisable (Shares) Expiration Date $ 1.0000 916,217 916,217 September 20, 2022 $ 1.2870 41,002 41,002 April 17, 2019 $ 1.5620 130,284 130,284 December 31, 2021 $ 1.5750 238,814 238,814 April 30, 2023 $ 2.7500 8,000 8000 September 20, 2022 $ 4.8500 5,155 5,155 September 23, 2019 $ 4.8750 108,594 108,594 September 30, 2020 $ 5.0000 5,000 5,000 September 22, 2019 $ 5.1025 10,309 10,309 January 29, 2019 $ 6.5000 8,092 8,092 February 4, 2019 $ 6.8348 145,758 145,758 September 30, 2020 $ 7.9300 86,004 86,004 February 28, 2021 1,703,229 1,703,229 Based on a fair market value of $0.7101 per share on September 30, 2018, there were no exercisable in-the money common stock warrants as of September 30, 2018. A summary of warrant activity for the nine months ended September 30, 2017 is presented below. Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in Years) Warrants outstanding at December 31, 2016 540,198 $ 4.84842 Issued 445,717 1.36478 Warrants outstanding at September 30, 2017 985,915 $ 3.27352 4.7567 Warrants exercisable at December 31, 2016 540,198 $ 4.84842 Warrants exercisable at September 30, 2017 985,915 $ 3.27352 4.7567 The exercise prices of common stock warrants outstanding and exercisable are as follows at September 30, 2017: Exercise Price Warrants Outstanding (Shares) Warrants Exercisable (Shares) Expiration Date $ 1.2870 41,002 41,002 April 17, 2019 $ 1.5620 0 0 December 31, 2021 $ 4.8500 5,155 5,155 September 23, 2019 $ 4.8750 108,594 108,594 September 30, 2020 $ 5.0000 5,000 5,000 September 22, 2019 $ 5.1025 10,309 10,309 January 29, 2019 $ 6.5000 8,092 8,092 February 4, 2019 $ 6.8348 145,758 145,758 September 30, 2020 $ 7.9300 86,005 86,005 February 28, 2021 $ 2.7500 108,000 108,000 December 31, 2021 $ 1.1000 468,000 468,000 September 29, 2022 985,915 985,915 Based on a fair market value of $1.40 per share on September 30, 2017, the intrinsic value of exercisable in-the-money common stock warrants was $144,633 as of September 30, 2017. Stock Options On March 18, 2014, the stockholders of the Company holding a majority of the votes to be cast on the issue approved the adoption of the Company’s 2014 Equity, Equity-Linked and Equity Derivative Incentive Plan (the “2014 Plan”), which had been previously adopted by the Board of Directors of the Company, subject to stockholder approval. The Plan permits the grant of options and restricted stock with respect to up to 325,025 shares of common stock, in addition to stock appreciation rights and phantom stock, to directors, officers, employees, consultants and other service providers of the Company. On June 30, 2015, the Board of Directors adopted the 2015 Stock and Stock Option Plan (the “2015 Plan”). The 2015 Plan initially provided for, among other things, the issuance of either or any combination of restricted shares of common stock and non-qualified stock options to purchase up to 461,538 shares of the Company’s common stock for periods up to ten years to management, members of the Board of Directors, consultants and advisors. The Company has not and does not intend to present the 2015 Plan to stockholders for approval. On August 18, 2015, the Board of Directors increased the number of shares that may be issued under the 2015 Plan to 769,231 shares of the Company’s common stock. On March 31, 2016, the Board of Directors further increased the number of shares that may be issued under the 2015 Plan to 1,538,461 shares of the Company’s common stock. On January 17, 2017, the Board of Directors further increased the number of shares that may be issued under the 2015 Plan to 3,038,461 shares of the Company’s common stock. On December 9, 2017, the Board of Directors further increased the number of shares that may be issued under the 2015 Plan to 6,985,260 shares of the Company’s common stock. Information with respect to the Black-Scholes variables used in connection with the evaluation of the fair value of stock-based compensation is provided at Note 3. A summary of stock option activity for the nine months ended September 30, 2018 is presented below. Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in Years) Options outstanding at December 31, 2017 3,996,167 $ 3.7634 6.30 Granted 327,150 1.1267 4.50 Options outstanding at September 30, 2018 4,323,317 $ 3.5855 6.17 Options exercisable at December 31, 2017 3,996,167 $ 3.7634 6.30 Options exercisable at September 30, 2018 4,323,317 $ 3.5855 6.17 The exercise prices of common stock options outstanding and exercisable were as follows at September 30, 2018: Exercise Price Options Outstanding (Shares) Options Exercisable (Shares) Expiration Date $ 1.1200 310,388 310,388 April 5, 2023 $ 1.2500 16,762 16,762 December 7, 2022 $ 1.3500 34,000 34,000 July 28, 2022 $ 1.4500 1,849,418 1,849,418 December 9, 2027 $ 1.4500 100,000 100,000 December 9, 2027 $ 2.0000 285,000 285,000 June 30, 2022 $ 2.0000 25,000 25,000 July 26, 2022 $ 3.9000 395,000 395,000 January 17, 2022 $ 4.5000 7,222 7,222 September 2, 2021 $ 5.6875 89,686 89,686 June 30, 2020 $ 5.7500 2,608 2,608 September 12, 2021 $ 6.4025 27,692 27,692 August 18, 2020 $ 6.4025 129,231 129,231 August 18, 2022 $ 6.4025 261,789 261,789 August 18, 2025 $ 6.8250 8,791 8,791 December 11, 2020 $ 7.3775 523,077 523,077 March 31, 2021 $ 8.1250 169,231 169,231 June 30, 2022 $ 13.0000 7,385 7,385 March 13, 2019 $ 13.0000 3,846 3,846 April 14, 2019 $ 13.9750 3,385 3,385 March 14, 2024 $ 15.4700 7,755 7,755 April 8, 2020 $ 15.9250 2,462 2,462 February 28, 2024 $ 16.0500 46,154 46,154 July 17, 2019 $ 16.6400 1,538 1,538 January 29, 2020 $ 19.5000 9,487 9,487 July 17, 2022 $ 19.5000 6,410 6,410 August 10, 2022 4,323,317 4,323,317 Based on a fair market value of $0.7101 per share on September 30, 2018, there were no exercisable in-the-money common stock options as of September 30, 2018. A summary of stock option activity for the nine months ended September 30, 2017 is presented below. Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in Years) Options outstanding at December 31, 2016 1,307,749 $ 7.6515 Granted 739,000 Options outstanding at September 30, 2017 2,046,749 $ 6.0125 4.54 Options exercisable at December 31, 2016 1,307,749 $ 7.6515 Options exercisable at September 30, 2017 2,019,249 $ 6.0125 4.54 The exercise prices of common stock options outstanding and exercisable were as follows at September 30, 2017: Exercise Price Options Outstanding (Shares) Options Exercisable (Shares) Expiration Date $ 1.3500 34,000 19,000 July 28, 2022 $ 2.0000 285,000 285,000 June 30, 2022 $ 2.0000 25,000 12,500 July 26, 2022 $ 3.9000 395,000 395,000 January 17, 2022 $ 4.5000 7,222 7,222 September 2, 2021 $ 5.6875 89,686 89,686 June 30, 2020 $ 5.7500 2,608 2,608 September 12, 2021 $ 6.4025 27,692 27,692 August 18, 2020 $ 6.4025 129,231 129,231 August 18, 2022 $ 6.4025 261,789 261,789 August 18, 2025 $ 6.8250 8,791 8,791 December 11, 2020 $ 7.3775 523,077 523,077 March 31, 2021 $ 8.1250 169,231 169,231 June 30, 2022 $ 13.0000 7,385 7,385 March 13, 2019 $ 13.0000 3,846 3,846 April 14, 2019 $ 13.9750 3,385 3,385 March 14, 2024 $ 15.4700 7,755 7,755 April 8, 2020 $ 15.9250 2,462 2,462 February 28, 2024 $ 16.0500 46,154 46,154 July 17, 2019 $ 16.6400 1,538 1,538 January 29, 2020 $ 19.5000 9,487 9,487 July 17, 2022 $ 19.5000 6,410 6,410 August 10, 2022 2,046,749 2,019,249 Based on a fair market value of $1.40 per share on September 30, 2017, exercisable in-the-money common stock options had an intrinsic value of $950. For the nine months ended September 30, 2018 and 2017, stock-based compensation costs included in the condensed consolidated statements of operations consisted of general and administrative expenses of $14,248 and $1,150,925, respectively, and research and development expenses of $0 and $606,901, respectively. Pier Contingent Stock Consideration In connection with the merger transaction with Pier effective August 10, 2012, RespireRx issued 179,747 newly issued shares of its common stock with an aggregate fair value of $3,271,402 ($18.2000 per share), based upon the closing price of RespireRx’s common stock on August 10, 2012. The shares of common stock were distributed to stockholders, convertible note holders, warrant holders, option holders, and certain employees and vendors of Pier in satisfaction of their interests and claims. The common stock issued by RespireRx represented approximately 41% of the 443,205 common shares outstanding immediately following the closing of the transaction. Pursuant to the terms of the transaction, RespireRx agreed to issue additional contingent consideration, consisting of up to 56,351 shares of common stock, to Pier’s former security holders and certain other creditors and service providers (the “Pier Stock Recipients”) that received RespireRx’s common stock as part of the Pier transaction if certain of RespireRx’s stock options and warrants outstanding immediately prior to the closing of the merger were subsequently exercised. In the event that such contingent shares were issued, the ownership percentage of the Pier Stock Recipients, following their receipt of such additional shares, could not exceed their ownership percentage as of the initial transaction date. The stock options and warrants outstanding at June 30, 2012 were all out-of-the-money on August 10, 2012. During late July and early August 2012, shortly before completion of the merger, the Company issued options to officers and directors at that time to purchase a total of 22,651 shares of common stock exercisable for ten years at $19.5000 per share. By October 1, 2012, these options, as well as the options and warrants outstanding at June 30, 2012, were also out-of-the-money and continued to be out-of-the-money through September 30, 2018. There were no stock options or warrants exercised subsequent to August 10, 2012 that triggered additional contingent consideration, and the only remaining stock options outstanding that could still trigger the additional contingent consideration remained out-of-the-money through September 30, 2018. As of September 30, 2018, due to the expirations and forfeitures of RespireRx stock options and warrants occurring since August 10, 2012, 6,497 contingent shares of common stock remained potentially issuable under the Pier merger agreement. The Company concluded that the issuance of any of the contingent shares to the Pier Stock Recipients was remote, as a result of the large spread between the exercise prices of these stock options and warrants as compared to the common stock trading range, the subsequent expiration or forfeiture of most of the options and warrants, the Company’s distressed financial condition and capital requirements, and that these stock options and warrants have remained significantly out-of-the-money through September 30, 2018. Accordingly, the Company considered the fair value of the contingent consideration to be immaterial and therefore did not ascribe any value to such contingent consideration. If any such shares are ultimately issued to the former Pier stockholders, the Company will recognize the fair value of such shares as a charge to operations at that time. Reserved and Unreserved Shares of Common Stock On January 17, 2017, the Board of Directors of the Company approved the adoption of an amendment of the Amended and Restated RespireRx Pharmaceuticals, Inc. 2015 Stock and Stock Option Plan (as amended, the “2015 Plan”). That amendment increases the shares issuable under the plan by 1,500,000, from 1,538,461 to 3,038,461. On December 9, 2017, the Board of Directors further amended the 2015 Plan to increase the number of shares that may be issued under the 2015 Plan to 6,985,260 shares of the Company’s common stock. Other than the change in the number of shares available under the 2015 Plan, no other changes were made to the 2015 Plan by these amendments. At September 30, 2018, the Company had 65,000,000 shares of common stock authorized and 3,588,433 shares of common stock issued and outstanding. Furthermore, as of September 30, 2018, the Company had reserved an aggregate of 11 shares for issuance upon conversion of the Series B Preferred Stock; 1,703,229 shares for issuance upon exercise of warrants; 4,323,317 shares for issuance upon exercise of outstanding stock options; 63,236 shares to cover equity grants available for future issuance pursuant to the 2014 Plan; 2,732,662 shares to cover equity grants available for future issuance pursuant to the 2015 Plan; 16,061 shares for issuance upon conversion of the Convertible Notes; and 6,497 shares issuable as contingent shares pursuant to the Pier merger. Accordingly, as of September 30, 2018, the Company had an aggregate of 8,845,013 shares of common stock reserved for issuance and 52,566,553 shares of common stock unreserved and available for future issuance. The Company expects to satisfy its future common stock commitments through the issuance of authorized but unissued shares of common stock. |