UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A

(Amendment No. 1)

 

(Mark One)

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2019

 

or

 

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

 

Commission File Number 001-37428

 

RITTER PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   26-3474527

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

1880 Century Park East, Suite 1000

Los Angeles, CA 90067

(Address and zip code of principal executive offices)

 

Registrant’s Telephone Number, Including Area Code: (310) 203-1000

 

Securities Registered Pursuant to Section 12(b) of the Exchange Act:

 

Title of Each Class   Trading Symbol   Name of Each Exchange on Which Registered
Common Stock, par value $0.001   RTTR   Nasdaq Capital Market

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ] No [X]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer [  ] Accelerated Filer [  ]
       
Non-Accelerated Filer [X] Smaller Reporting Company [X]
     
    Emerging Growth Company [X]

 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

As of June 28, 2019 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the registrant’s common stock held by non-affiliates was approximately $7.1 million based upon the closing price for shares of the registrant’s common stock of $1.07 as reported by the Nasdaq Capital Market on that date.

 

As of March 25, 2020, there were 45,713,862 shares outstanding of the registrant’s common stock, par value $0.001 per share.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

NONE.

 

 

 

 
 

 

EXPLANATORY NOTE

 

This Amendment No. 1 (this “Amendment”) to the Annual Report on Form 10-K of Ritter Pharmaceuticals, Inc. (the “Company”) is being filed to include a signed copy of the Report of Independent Registered Public Accounting Firm (the “Report”) on the Company’s financial statements filed under Item 8 of Part II of Form 10-K.  The original Annual Report on Form 10-K that was filed with the Securities and Exchange Commission (the “Commission”) on March 31, 2020 (the “Original Form 10-K”) inadvertently included an unsigned copy of the Report. 

 

This Amendment is also being filed to include the information required by Items 10 through 14 of Part III of Form 10-K, which was omitted from the Original Form 10-K, in reliance on General Instruction G(3) to Form 10-K, which provides for the incorporation by reference of certain provisions of a registrant’s definitive proxy statement into its Annual Report on Form 10-K.

 

In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended, Item 8 of Part II and Items 10 through 14 of Part III of the Original Form 10-K are hereby amended and restated in their entirety, and Part IV, Item 15 of the Original Form 10-K is hereby amended and restated in its entirety, for the purpose of adding new certifications by our principal executive officer and principal financial officer and a new consent of the Company’s independent registered public accounting firm. Except as otherwise expressly set forth in this Amendment, no portion of the Original Form 10-K is being amended, modified or updated by this Amendment. Accordingly, this Amendment should be read in conjunction with the Original Form 10-K and with our subsequent filings with the Commission.

 

Unless we specify otherwise, all references in this Amendment to “we,” “our,” “us,” or “the Company” refer to Ritter Pharmaceuticals, Inc.

 

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PART II

 

Item 8. Financial Statements and Supplementary Data.

 

The financial statements and the reports of our independent registered accounting firm required pursuant to this item are included in Item 15 of this report and are presented beginning on page F-1.

 

PART III

 

Item 10. Directors, Executive Officers, and Corporate Governance

 

The Board of Directors in General

 

Our board of directors currently consists of six members. Biographical information with respect to our directors is provided below.

 

Our directors hold office for one year or until their successors have been duly elected and qualified or until the earlier of their death, resignation or removal. Our amended and restated bylaws provide that the authorized number of directors comprising our board of directors will be fixed, from time to time, by a majority of the total number of directors.

 

There are no family relationships among any of our directors or executive officers, other than Ira and Andrew Ritter, who are father and son, respectively.

 

Name   Position with the Company   Age as
of the
Annual
Meeting
  Director Since
Andrew J. Ritter   President, Chief Executive Officer and Director   37   2008
Ira E. Ritter   Executive Chairman, Chief Strategic Officer and Director   71   2008
Noah J. Doyle   Director   52   2008
Matthew W. Foehr   Director   47   2015
Paul V. Maier   Director   72   2015
Dr. William M. Merino   Director   77   2017

 

Andrew J. Ritter served as Co-Founder, President and Chief Executive Officer of the Company’s predecessor in interest from its inception in 2004 until relinquishing the role of Chief Executive Officer to Mr. Step in October 2014. Mr. Ritter assumed the role of Chief Executive Officer, relinquishing the role of President in June 2018 when Mr. Step resigned as Chief Executive Officer. Mr. Ritter was a member of the board of directors of the Company’s predecessor since its inception in 2004 and has been a member of our board of directors since 2008 when the Company was formed. Mr. Ritter has been actively studying the field of lactose intolerance for over 15 years and currently holds over a dozen patents and over twenty pending international patent applications. In addition, he has co-published articles, has given presentations at major healthcare and medical conferences, and has been a guest lecturer of entrepreneurship at various graduate and undergraduate schools throughout Los Angeles including: University of Southern California Marshall School of Business, University of California at Los Angeles Anderson School of Business and Pepperdine University Graziadio School of Business and Management. Mr. Ritter served as a Los Angeles City Commissioner on the Commission for Children, Youth and Their Families from 2000 to 2002. He holds a B.A. in Political Science and a minor in Business from the University of Southern California. Mr. Ritter received a Master of Business Administration from the Wharton School of Business.

 

Qualifications: We believe that Mr. Ritter is well qualified to serve on our board of directors due to his over 15 years of research experience working in lactose intolerance and digestive diseases. Having founded the Company and invented Lactagen™, Mr. Ritter has an in depth knowledge of the Company, and provides senior leadership on the clinical and product development matters facing the Company. Mr. Ritter also brings to the board of directors an extensive scientific and operational background gained previously at Ritter Natural Sciences and over the years at Ritter.

 

Ira E. Ritter served as Co-Founder, Chief Strategic Officer and Executive Chairman of our predecessor from its inception in 2004 through the formation of Ritter Pharmaceuticals, Inc. in 2008 and has served in those positions with us since 2008. Mr. Ritter has extensive experience creating and building diverse business enterprises and has provided corporate management, strategic planning and financial consulting for a wide range of market segments including; health product related national distribution and private label production, television and publishing. He assisted taking us public on Nasdaq and Martin Lawrence Art Galleries public on The New York Stock Exchange.  Since 2010, Mr Ritter has also acted as a managing partner of Stonehenge Partners. Mr. Ritter has a long history of public service that includes appointments by three Governors to several State of California Commissions including eight years as Commissioner on the California Prison Industry Authority. He has guest lectured at University of Southern California Marshall School of Business and Pepperdine University Graziadio School of Business, where he also serves as an advisory board member to Pepperdine’s Graduate School of Education and Psychology, Social Entrepreneurship and Change Program. He previously served on the boards of directors for Vitavis Laboratories and SCWorx.

 

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Qualifications: We believe that Mr. Ritter is well suited to serve on our board of directors due to his over 40 years’ experience overseeing daily operations of diverse business enterprises, and his managing public as well as private companies. Mr. Ritter provides our board of directors with extensive background in operational and strategic planning, as well as general executive and leadership expertise. Mr. Ritter has served on the boards of several companies during his career.

 

Noah J. Doyle has served as a director of the Company since September 2008. He has been an entrepreneur and investor for over 20 years. Mr. Doyle is the managing director of Javelin GP, LLC, the general partner of Javelin GP, LP, which is the general partner of Javelin and the manager of Javelin SPV. Prior to forming the first Javelin entities in 2008, Mr. Doyle supported over a dozen start-ups as an angel investor, including Keyhole, Inc. (“Keyhole”) (acquired by Google Inc. in 2004), Cantametrix, Inc. (acquired by Gracenote, Inc. in 2002), Amae Software (acquired by Verint Systems, Inc. in 2006), Nuvon, Inc., Aquea Scientific Corporation, Emdigo Inc., Magnacash Inc. (acquired by Yaga, Inc. in 2001), and i-mint India. Mr. Doyle most recently directed the enterprise product line for Google’s geospatial products, Google Earth and Google Maps, from 2004 to 2007. From 2002 to 2004 he managed the Sales and Corporate Development functions at Keyhole, which created the first Web hosted digital earth model. Prior to Keyhole, Mr. Doyle helped establish the Internet loyalty rewards marketplace as a co-founder of MyPoints.com (“MyPoints”), the largest Internet loyalty program with over 6 million active members, where he led product management and business development functions from the company’s inception in 1996 through its initial public offering and subsequent acquisition by United Airlines in 2002. Prior to joining MyPoints, Mr. Doyle was based in Tokyo where he managed overseas sales and marketing for the OEM channel of Matsushita’s (Panasonic) communications equipment subsidiary in Japan, from 1990 to 1994. Mr. Doyle served on the board of directors of MOL Global, Inc. from July 2014 to February 2016. He was also chairman of the management board of the University of California, Berkeley’s campus bookstore, a $17 million retail operation, and also held product management and operations management roles at IBM/Rational (Pure Atria) and Oracle, from 1989 to 1990. Mr. Doyle holds M.B.A. and B.A. Economics degrees, as well as certificates in Management of Technology and Global Management from University of California, Berkeley.

 

Qualifications: We believe that Mr. Doyle is well suited to serve on our board of directors due to his over 20 years of experience as an entrepreneur and investor. Mr. Doyle has experience as a venture capitalist building and serving on the boards of many public and private emerging companies in leadership roles providing guidance on finance, development and operational growth.

 

Matthew W. Foehr has served as a director of the Company since February 2015. He currently serves as President and Chief Operating Officer at Ligand Pharmaceuticals Incorporated (“Ligand”), a biopharmaceutical company. Prior to joining Ligand in 2011, Mr. Foehr was Vice President and Head of Consumer Dermatology R&D, as well as Acting Chief Scientific Officer of Dermatology, in the Stiefel division of GlaxoSmithKline (“GSK”). Following GSK’s acquisition of Stiefel Laboratories, Inc. (“Stiefel”) in 2009, Mr. Foehr led the R&D integration of Stiefel into GSK. At Stiefel Laboratories, Inc., Mr. Foehr served as Senior Vice President of Global R&D Operations, Senior Vice President of Product Development& Support, and Vice President of Global Supply Chain Technical Services. Prior to joining Stiefel, Mr. Foehr held various executive roles at Connetics Corporation including Senior Vice President of Technical Operations and Vice President of Manufacturing. Currently, he is a member of the board of directors of Viking Therapeutics Inc. Mr. Foehr is the author of multiple scientific publications and is a named inventor on numerous U.S. patents. He received his Bachelor of Science degree in Biology from Santa Clara University.

 

Qualifications: We believe that Mr. Foehr is well suited to serve on our board of directors due to his more than 20 years of experience in the pharmaceutical industry and his experience managing global operations and research and development programs.

 

Paul V. Maier has served as a director of the Company since April 2015. From November 2009 through June 2014, Mr. Maier served as the Chief Financial Officer of Sequenom Inc., a publicly held company serving the discovery, clinical research, and diagnostics market. From February 2007 until November 2009, he served as an independent financial consultant. Previously, Mr. Maier was Senior Vice President and Chief Financial Officer of Ligand from 1992 through 2007. From 1990 to 1992, Mr. Maier served as Vice President, Finance of DFS West, a division of DFS Group LP, a private multinational retailer. From 1984 to 1990, Mr. Maier was employed by ICN Pharmaceuticals, a pharmaceutical and biotechnology research products company, where he held various executive positions in finance and general management in ICN as well as SPI Pharmaceuticals, a publicly held subsidiary. Mr. Maier currently serves on the board of directors of International Stem Cell Corporation, Biological Dynamics Inc. and Eton Pharmaceuticals, Inc. Mr. Maier served on the board of directors of Apricus Biosciences from 2012 to January 2019 and on the board of directors of MabVax Therapeutics from 2014 to July 2018. Mr. Maier received an MBA from Harvard Business School and a BS from Pennsylvania State University.

 

Qualifications: We believe that Mr. Maier is well suited to serve on our board of directors due to his over 25 years of experience as a senior executive in biotechnology and pharmaceutical companies and his extensive experience in finance.

 

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Dr. William M. Merino has served as a director of the Company since January 2017. Dr. Merino served as the Senior Vice President of Worldwide Regulatory Affairs for Warner Lambert Pharmaceuticals from 1987 to 2000, where he was a member of the Office of the Chairman and responsible for the registration and approval of pharmaceuticals products with regulatory agencies around the world. He was also responsible for quality assurance, quality control and drug safety for the company, and led efforts to gain expedited registration of Lipitor in the United States and abroad in 20 other countries. He also has previous experience leading international regulatory affairs at Alcon Pharmaceuticals, G.D. Searle & Co., and Riker Laboratories. Dr. Merino has served as a senior clinical and regulatory advisory to the Company. Dr. Merino received his PhD in Pharmacology from Purdue University.

 

Qualifications: We believe that Dr. Merino’s deep global experience in drug and device registration and his extensive work with senior members of the FDA as well as several international regulatory authorities will bring important insight and acumen to our board of directors, as the Company continues its interactions with the FDA in an effort to bring RP-G28 to market.

 

Code of Business Conduct and Ethics

 

We have adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. The code of business conduct and ethics is reviewed periodically and amended as necessary and is available on our website at www.ritterpharmaceuticals.com. Any amendments to the code of business conduct and ethics, or any waivers of its requirements that apply to our principal executive officer, principal financial officer or principal accounting officer, will be disclosed on our website.

 

Audit Committee

 

The current members of our Audit Committee are Matthew W. Foehr, Paul V. Maier (Chairman) and Dr. William M. Merino, each of whom was determined by our board of directors to be independent under Rule 10A-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the continued listing requirements of Nasdaq, and to satisfy the other continued listing requirements of Nasdaq for audit committee membership. Our board of directors has determined that Mr. Maier qualifies as an “audit committee financial expert,” as such term is defined by the Securities and Exchange Commission (the “SEC”), and that he has the requisite level of financial sophistication required by the continued listing requirements of Nasdaq.

 

Executive Officers

 

Our Executive Officers as of the date of this proxy statement are as follows:

 

Name   Age   Position with the Company
Andrew J. Ritter   37   Chief Executive Officer and Director
Ira E. Ritter   71   Executive Chairman and Chief Strategic Officer
John W. Beck   60   Chief Financial Officer

 

Officers serve at the discretion of the board of directors. There are no family relationships among any of our directors or executive officers, other than Ira and Andrew Ritter, who are father and son, respectively. There is no arrangement or understanding between any executive officer and any other person pursuant to which the executive officer was selected.

 

For the biographies of Andrew J. Ritter and Ira E. Ritter, please see “Board of Directors - The Board of Directors in General”.

 

John W. Beck has served as our Chief Financial Officer since May 2018. From 2008 until its acquisition by AstraZeneca in 2012, John W. Beck, served first as a board member and later as Chief Financial Officer and Senior Vice President of finance & operations of Ardea Biosciences Inc. (“Ardea”). Before joining Ardea, Mr. Beck spent 10 years with Metabasis Thereapeutics Inc., as a Co-Founder and its Chief Financial Officer. Mr. Beck has served on the advisory board of Pinnacle Medical Holdings, LLC, a Denver Colorado-based physician-led network of health-care providers, which was acquired by OnPoint Medical Group, LLC in 2017, since 2014. He has also served on the board of advisors of August Therapeutics, Inc., a San Diego California-based company developing non-systemic therapeutics to treat disordered eating and obesity, since 2017, and the board of directors of Artelo Biosciences Inc., a San Diego-based company focused on developing and commercializing a diverse portfolio of novel therapeutic candidates targeting the endocannabinoid system, since December 2019. Mr. Beck has also served as a scientific advisor and mentor to the University of California, San Diego’s student-run TRITON FUNDS since August 2019.

 

Delinquent Section 16(a) Reports

 

Section 16(a) of the Exchange Act, and the rules issued thereunder, requires our directors and executive officers and beneficial owners of more than 10% of the outstanding shares of our equity securities to file reports of ownership and changes in beneficial ownership of our equity securities with the SEC. Copies of these reports are furnished to the Company. The Company is required to identify any of those individuals who failed to file such reports on a timely basis. Based solely on our review of the copies of such reports furnished to us, and representations from the persons subject to Section 16(a) with respect to the Company, we believe that during 2019 all of our executive officers, directors and 10% stockholders complied with the Section 16(a) requirements.

 

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Item 11. Executive Compensation

  

Summary Compensation Table (2019 and 2018)

 

The following table sets forth the compensation paid or earned for the fiscal years ended December 31, 2019 and 2018 to our named executive officers for each of those years.

 

Name and Principal Position   Year     Salary(1)
($)
   

 

Bonus

($)

   

Stock Awards

($)

   

Option Awards(2)

($)

   

All Other Compensation(3)

($)

    Total
($)
 
                                           
Andrew J. Ritter     2019       450,651                   73,238       38,381       562,270  
Chief Executive Officer and Director     2018       410,939       168,750       1,774,500       292,668             2,646,857  
                                                         
Ira E. Ritter     2019       345,499                   58,125       24,814       428,438  
Executive Chairman and Chief Strategic Officer     2018       342,559       103,500       819,000       87,668             1,352,727  
                                                         
John W. Beck     2019       321,608                   30,516       57,563       409,687  
Chief Financial Officer     2018       180,923       56,000       409,500       170,439             816,862  

 

(1)   A portion of the amounts reported in this column were deferred by the named executive officers as follows: (i) for Andrew Ritter, $70,200 of this amount was deferred; (ii) for Ira Ritter, $53,820 of this amount was deferred; and (iii) for John Beck, $33,000 of this amount was deferred.  See “Narrative Summary Compensation Table—Offer Letter Amendments” below.
   
(2) Represent the grant date fair value of the option awards granted during the years presented, determined in accordance with FASB ASC Topic 718. We utilize the Black-Scholes option-pricing model to value awards. Key valuation assumptions include:
     
  Expected dividend yield. The expected dividend is assumed to be zero as we have never paid dividends and have no current plans to pay any dividends on our common stock.
     
  Expected stock-price volatility. As our common stock only recently became publicly traded, the expected volatility is derived from the average historical volatilities of publicly traded companies within our industry that we consider to be comparable to our business over a period approximately equal to the expected term.
     
  Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term.
     
  Expected term. The expected term represents the period that the stock-based awards are expected to be outstanding. Our historical share option exercise experience does not provide a reasonable basis upon which to estimate an expected term because of a lack of sufficient data. Therefore, we estimate the expected term by using the simplified method provided by the SEC. The simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the options.
     
  In addition to the assumptions used in the Black-Scholes option-pricing model, we also estimate a forfeiture rate to calculate the stock-based compensation for our equity awards. We will continue to use judgment in evaluating the expected volatility, expected terms and forfeiture rates utilized for our stock-based compensation calculations on a prospective basis.
   
(3) For Andrew Ritter, the amount reported in 2019 includes $8,910 for insurance premiums, $17,221 for social security and medicare employer contributions, and $12,250 for Young Presidents Organizations’ dues.  For Ira Ritter, the amount reported in 2019 includes $10,069 for insurance premiums and $14,745 for social security and medicare employer contributions.  For John Beck, the amount reported in 2019 includes $15,167 for insurance premiums, $13,596 for social security and medicare employer contributions, and $28,800 for housing expenses paid on Mr. Beck’s behalf.

 

Narrative to Summary Compensation Table

 

All share amounts referenced below have been adjusted to account for the reverse stock split that was effected March 23, 2018 (the “Reverse Stock Split”).

 

Offer Letters with Andrew Ritter

 

Under the terms of his offer letter that became effective June 29, 2015, Andrew Ritter was entitled to receive an annual base salary of $310,000 and was entitled to receive up to $180,000 payable over a three-year period for tuition reimbursement. He was also eligible to receive an annual bonus based on a percentage of his base salary, as then in effect, and subject to the achievement of certain performance measures, as determined by the board of directors. The initial target bonus opportunity was 40% of base salary.

 

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On June 26, 2018, in connection with his appointment as Chief Executive Officer of the Company, the Company entered into an amended and restated offer letter with Mr. Ritter, which provides for an annual base salary of $450,000. He is also eligible to receive an annual bonus based on a percentage of his base salary, as then in effect, and subject to the achievement of certain performance measures, as determined by the board of directors. The initial target bonus opportunity is 50% of base salary. Mr. Ritter is eligible to participate in all employee benefit programs generally available to other executive level employees of the Company.

 

Offer Letter with Ira Ritter

 

Under the terms of his offer letter, which became effective June 29, 2015, Ira Ritter is entitled to receive an annual base salary of $295,000. He is also eligible to receive an annual bonus based upon a percentage of his base salary, as then in effect, and subject to the achievement of specific performance measures, as determined by the board of directors. The initial target bonus opportunity was 35% of his base salary, which was raised to 40% of his base salary in 2018. Mr. Ritter is eligible to participate in all employee benefit programs generally available to other executive level employees of the Company.

 

Offer Letter with John W. Beck

 

Under the terms of his offer letter, which became effective May 23, 2018, Mr. Beck is entitled to receive an annual base salary of $320,000. He is eligible to receive an annual bonus equal to 40% of his base salary, as then in effect, as determined by the board of directors. He is also entitled to receive reimbursement in an amount up to $2,000 per month for reasonable travel and housing expenses. Mr. Beck is eligible to participate in all employee benefit programs generally available to other executive level employees of the Company.

 

Offer Letter Amendments

 

In connection with the Company’s previously announced plan to reduce operating expenses, on October 15, 2019, the Company and each of Andrew Ritter, John Beck and Ira Ritter entered into an amendment to their respective offer letters (the “Offer Letter Amendments”).

 

Pursuant to the terms of the Offer Letter Amendments, each of the executive officers agreed to defer a portion of his annual base salary (the “Deferred Amounts”), as set forth below, until such time as the board of directors, in its sole discretion, decides to pay the Deferred Amounts (or any portion of the Deferred Amounts) to the executive officers, if ever.

 

Name of Executive Officer  Deferred Amount 
Andrew J. Ritter  $70,200 
John W. Beck  $33,000 
Ira E. Ritter  $53,820 

 

The board of directors has since determined that the Deferred Amounts will be paid to the executive officers upon the closing of the proposed merger between the Company and Qualigen, Inc.

 

2015 Equity Incentive Plan

 

On June 15, 2015, our board of directors approved the 2015 Equity Incentive Plan (the “2015 Plan”), and on June 17, 2015, the 2015 Plan was approved by our stockholders. The 2015 Equity Incentive Plan was subsequently amended by the stockholders of the Company on June 3, 2016, June 2, 2017 and August 24, 2017.

 

The purposes of the 2015 Plan are to optimize the profitability and growth of the Company through long-term incentives that are consistent with the Company’s objectives and that link the interests of award recipients (“Grantees”), to those of the Company’s stockholders; to give award recipients an incentive for excellence in individual performance; to promote teamwork among Grantees; and to give the Company flexibility in attracting and retaining key employees, directors and consultants.

 

Selected employees, officers and directors of the Company or any subsidiary, and consultants, advisors and independent service providers to the Company and any subsidiary who qualify as a “consultant” under the applicable rules of the SEC for registration of shares on a Form S-8 registration statement, are eligible to receive awards under the 2015 Plan. The plan administrator may also grant awards to individuals in connection with hiring, retention or otherwise before the date the individual first performs services for the Company or any subsidiary; provided, however, that those awards will not become vested or exercisable before the date the individual first performs services for the Company or any subsidiary.

 

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The number of shares of common stock that we may issue pursuant to awards under the 2015 Plan is (i) 2,750,000 plus (ii) any shares which were available for grant under the 2008 Stock Plan or the 2009 Stock Plan (collectively, the “Prior Plans”), on the effective date of the 2015 Plan or are subject to awards under the Prior Plans which, after the effective date of the 2015 Plan, are forfeited or lapse unexercised or are settled in cash and are not issued under the Prior Plans. No more than 2,750,000 shares of common stock may be issued pursuant to incentive stock options intended to qualify under Section 422 of the Internal Revenue Code (the “Code”). No awards may be granted under any Prior Plan; however, any awards granted under any Prior Plan that were outstanding as of the effective date of the 2015 Plan continue to be subject to the terms and conditions of such Prior Plan.

 

The 2015 Plan provides for grants of stock options (including incentive stock options qualifying under Section 422 of the Code and nonstatutory stock options), restricted stock awards, stock appreciation rights, restricted stock units, performance awards, other stock-based awards or any combination of the foregoing.

 

Performance-Based Restricted Stock Units Granted in 2018

 

On June 26, 2018, our Compensation Committee granted performance-based restricted stock unit awards to each of Andrew J. Ritter (650,000 performance-based restricted stock units), Ira E. Ritter (300,000 performance-based restricted stock units) and John W. Beck (150,000 performance-based restricted stock units). The awards were subject to vesting criteria relating to the achievement of three specific performance goals established by the Compensation Committee. Each performance restricted stock unit represented a contingent right to receive one share of common stock, subject to the vesting conditions being satisfied. The terms of these awards provided as follows:

 

  If the first performance goal was achieved by the target date established by the Compensation Committee, then 100% of the target restricted stock units allocated to the first goal (i.e., 40% of the total target restricted stock units granted to the executive officer) would vest and the underlying shares of common stock would be issued, and if the first goal was achieved by an earlier date established by the Compensation Committee, then 125% of the target restricted stock units allocated to the first goal would vest and the underlying shares of common stock would be issued;
     
  If the second performance goal was achieved by the target date established by the Compensation Committee with respect to this goal, then 100% of the target restricted stock units allocated to the second goal (i.e., 40% of the total target restricted stock units granted to the executive officer) would vest and the underlying shares of common stock would be issued, and if the second goal was achieved by an earlier date established by the Compensation Committee, then 125% of the target restricted stock units allocated to the second goal would vest and the underlying shares of common stock would be issued; and
     
  If the third performance goal was achieved by the target date established by the Compensation Committee with respect to this goal, then 100% of the target restricted stock units allocated to the third goal (i.e., 20% of the total target restricted stock units granted to the executive officer) would vest and the underlying shares of common stock would be issued, and if the third goal was achieved by an earlier date established by the Compensation Committee, then 125% of the target restricted stock units allocated to the third goal would vest and the underlying shares of common stock would be issued.

 

On January 15, 2020, our board of directors cancelled these awards.

 

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Outstanding Equity Awards at 2019 Fiscal Year-End

 

The following table presents the outstanding equity awards held by each of the named executive officers as of December 31, 2019. The information included in the table and footnotes below has been adjusted to account for the Reverse Stock Split.

 

    Option Awards   Stock Awards
Name  

Grant

Date

 

Number of

Securities

Underlying

Unexercised

Options

(#)

Exercisable

   

Number of

Securities

Underlying

Unexercised

Options

(#)

Unexercisable

   

Option

Exercise

Price

($)

   

Option

Expiration

Date

 

 

Grant

Date

 

 Number

of Shares

or Units

of Stock

That

Have Not

Vested

(#)

   

Market

Value of

Shares or

Units of

Stock

That

Have Not

Vested

($)

   

Equity

Incentive

Plan

Awards:

Number of

Unearned

Shares,

Units or

Other

Rights That

Have Not

Vested

(#)

   

Equity

Incentive

Plan

Awards:

Market or

Payout

Value of

Unearned

Shares,

Units or

Other

Rights That

Have Not

Vested

($)

 
Andrew J. Ritter   9/25/2013     2,797             12.74     9/25/2023                                    
    12/2/2014     2,097             58.63     12/2/2024                                    
    12/2/2014     43,243             93.59     12/2/2024                                    
    7/5/2016     7,005 (1)     1,195 (1)     15.40     7/5/2026                                    
    10/25/2016     11,087 (2)     2,917 (2)     26.00     10/25/2026                                    
    1/23/2018     23,722 (3)     25,784 (3)     3.40     1/23/2028                                    
    6/26/2018     56,250 (4)     93,750 (4)     2.73     6/26/2028                                    
                                    6/26/2018                     650,000 (6)     110,500 (6)
    2/6/2019     52,500 (5)     199,500 (5)     0.60     2/6/2029                                    
                                                          (650,000 )(6)     (110,500 )(6)
Totals         198,7019       323,146                                              
Ira E. Ritter   9/25/2013     2,797       —        12,74     9/25/2023                                    
    12/2/2014     2,097       —        58.63     12/2/2024                                    
    12/2/2014     43,243       —        93.59     12/2/2024                                    
    7/5/2016     7,005 (7)     1,195 (7)     15.40     7/5/2026                                    
    10/25/2016     11,087 (8)     2,917 (8)     26.00     10/25/2026                                    
    1/23/2018     23,722 (9)     25,784 (9)     3.40     1/23/2028                                    
                                    6/26/2018                     300,000 (6)     180,000 (6)
    2/6/2019     41,667 (10)     158,333 (10)     0.60     2/6/2029                                    
                                                          (300,000) (6)     (180,000) (6)
Totals         131,618       188,229                                              
John W. Beck   5/23/2018     39,584 (11)     60,416 (11)     3.32     5/23/2018                                    
                                    6/26/2028                     150,000 (6)     90,000 (6)
    2/6/2019     21,875 (12)     83,125 (12)     0.60     2/6/2028                                    
                                                          (150,000 )(6)     (90,000 )(6)
                                                                     
Totals         61,459       143,541                                              

 

(1) This option was granted to Andrew Ritter on July 5, 2016 for an aggregate of 8,200 shares. The option vests in 48 equal monthly installments, the first of which vested on July 20, 2016 with the balance vesting on the 20th day of each calendar month thereafter until vested in full.
   
(2) This option was granted to Andrew Ritter on October 25, 2016 for an aggregate of 14,004 shares. The option vests ratably in 48 equal monthly installments following the public disclosure of top-line data results from the Company’s Phase 2b clinical trial.
   
(3) This option was granted to Andrew Ritter on January 23, 2018 for an aggregate of 49,506 shares. The option vests in 48 equal monthly installments, the first of which vested on February 23, 2018 with the balance vesting on the 23rd day of each calendar month thereafter until vested in full.
   
(4) This option was granted to Andrew Ritter on June 26, 2018 for an aggregate of 150,000 shares. The option vests in 48 equal monthly installments, the first of which vested on July 26, 2018 with the balance vesting on the 23rd day of each calendar month thereafter until vested in full.
   
(5) This option was granted to Andrew Ritter on February 6, 2019 for an aggregate of 252,000 shares. The option vests in 48 equal monthly installments beginning on March 6, 2019 with the balance vesting on the 6th day of each calendar month thereafter until vested in full.
   
(6) Represent performance-based restricted stock unit awards granted on June 26, 2018. Market value was calculated using the closing price of our common stock on December 31, 2019 ($0.17). These awards were subsequently cancelled by the board of directors of the Company in January 2020. For more information with respect to these awards, please see the “Narrative to Summary Compensation Table 2015 Equity Incentive Plan - Performance - Based Restricted Stock Units Granted in 2018” section above.
   
9 
 

 

(7) This option was granted to Ira Ritter on July 5, 2016 for an aggregate of 8,200 shares. The option vests in 48 equal monthly installments, the first of which vested on July 20, 2016 with the balance vesting on the 20th day of each calendar month thereafter until vested in full.
   
(8) This option was granted to Ira Ritter on October 25, 2016 for an aggregate of 14,004 shares. The option vests ratably in 48 equal monthly installments following the public disclosure of top-line data results from the Company’s Phase 2b clinical trial.
   
(9) This option was granted to Ira Ritter on January 23, 2018 for an aggregate of 49,506 shares. The option vests in 48 equal monthly installments, the first of which vested on February 23, 2018 with the balance vesting on the 23rd day of each calendar month thereafter until vested in full.
   
(10) This option was granted to Ira Ritter on February 6, 2019 for an aggregate of 200,000 shares. The option vests in 48 equal monthly installments beginning on March 6, 2019 with the balance vesting on the 6th day of each calendar month thereafter until vested in full.
   
(11) This option was granted to John Beck on May 23, 2018 for an aggregate of 100,000 shares. 25% of the shares underlying this option vest on May 24, 2019. The remaining 75% of the shares underlying the option will vest in 36 equal installments beginning on the 24th day of each calendar month thereafter.
   
(12) This option was granted to John Beck on February 6, 2019 for an aggregate of 105,000 shares. The option vests in 48 equal monthly installments beginning on March 6, 2019 with the balance vesting on the 6th day of each calendar month thereafter until vested in full.

 

Payments Due Upon Termination of Employment or a Change in Control

 

Executive Severance & Change in Control Agreements

 

We have entered into Executive Severance & Change in Control Agreements (the “Severance Agreements”), with each of our named executive officers. The Severance Agreements provide that if we terminate the executive’s employment without Cause, or the executive terminates his employment for Good Reason, the executive will be entitled to: (i) the Accrued Obligations; (ii) an amount equal to the sum of twelve (12) months of base salary for Andrew and Ira Ritter and six (6) months of base salary for John Beck, as in effect immediately prior to the termination date; (iii) medical, dental benefits provided by the Company to the executive and his spouse and dependents at least equal to the levels of benefits provided to other similarly situated active employees of the Company and its subsidiaries until the earlier of (a) the twelve (12) month anniversary of the date of termination or (b) the date that the executive becomes covered under a subsequent employer’s medical and dental plans; and (iv) acceleration of vesting of all equity and equity-based awards.

 

Pursuant to the terms of the Severance Agreements, in the event that within one (1) month prior to or the twelve (12) months following a Change in Control, the Company terminates the executive’s employment without Cause, or the executive terminates his employment for Good Reason, then, in lieu of the payments and benefits otherwise due to the executive in the preceding paragraph, the executive will be entitled to: (i) the Accrued Obligations; (ii) an amount equal to the sum of twelve (12) months of base salary for Andrew and Ira Ritter and six (6) months of base salary for John Beck, as in effect on the date of termination or the date of the Change in Control, whichever is greater; (iii) medical, dental benefits provided by the Company to the executive and his spouse and dependents at least equal to the level of benefits provided to other similarly situated active employees of the Company and its subsidiaries until the earlier of (a) the twelve (12) month anniversary of the date of termination or (b) the date that the executive becomes covered under a subsequent employer’s medical and dental plans; and (iv) acceleration of vesting of all equity and equity-based awards.

 

In the event the executive’s employment is terminated by him without Good Reason, by the Company for Cause or due to the executive’s death or disability, the executive and/or his estate or beneficiaries will be solely entitled to the Accrued Obligations.

 

The executive’s entitlement to the payments (other than the Accrued Obligations) and benefits described above is expressly contingent upon him providing the Company with a signed release satisfactory to the Company.

 

For purposes of the Severance Agreements:

 

Accrued Obligations” means (i) earned but unpaid base salary through the date of termination; (ii) payment of any annual, long-term, or other incentive award which relates to a completed fiscal year or performance period, as applicable, and is payable (but not yet paid) on or before the date of termination; (iii) a lump-sum payment in respect of accrued but unused vacation days at the executive’s per-business-day base salary rate in effect as of the date of termination; and (iv) any unpaid expense or reimbursements due pursuant to Company expense reimbursement policy.

 

10 
 

 

Cause” means a finding by the Company that the executive has (i) been convicted of a felony or crime involving moral turpitude; (ii) disclosed trade secrets or confidential information of the Company (or any parent or subsidiary) to persons not entitled to receive such information; (iii) engaged in conduct in connection with the executive’s employment or service to the Company (or any parent or subsidiary), that has, or could reasonably be expected to result in, material injury to the business or reputation of the Company (or any parent or subsidiary), including, without limitation, act(s) of fraud, embezzlement, misappropriation and breach of fiduciary duty; (iv) violated the operating and ethics policies of the Company (or any parent or subsidiary) in any material way, including, but not limited to those relating to sexual harassment and the disclosure or misuse of confidential information; (v) engaged in willful and continued negligence in the performance of the duties assigned to the executive by the Company, after the executive has received notice of and failed to cure such negligence; or (vi) breached any material provision of any agreement between the executive and the Company (or any parent or subsidiary), including, without limitation, any confidentiality agreement.

 

Change in Control” means the occurrence of any of the following events:

 

  (i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the voting power of the then outstanding securities of the Company; provided that a Change of Control will not be deemed to occur as a result of a change of ownership resulting from the death of a shareholder, and a Change of Control will not be deemed to occur as a result of a transaction in which the Company becomes a subsidiary of another corporation and in which the shareholders of the Company, immediately prior to the transaction, will beneficially own, immediately after the transaction, shares entitling such shareholders to more than 50% of all votes to which all shareholders of the parent corporation would be entitled in the election of directors (without consideration of the rights of any class of stock to elect directors by a separate class vote);
     
  (ii) A change in the effective control of the Company which occurs on the date that a majority of members of the board of directors is replaced during any twelve (12) month period by Directors whose appointment or election is not endorsed by a majority of the members of the board of directors prior to the date of the appointment or election; or
     
  (iii) The consummation of  (A) a merger or consolidation of the Company with another corporation where the shareholders of the Company, immediately prior to the merger or consolidation, will not beneficially own, immediately after the merger or consolidation, shares entitling such shareholders to more than 50% of all votes to which all shareholders of the surviving corporation would be entitled in the election of directors (without consideration of the rights of any class of stock to elect directors by a separate class vote); (B) a sale or other disposition of all or substantially all of the assets of the Company; or (C) a liquidation or dissolution of the Company.

 

Good Reason” means, without the executive’s express written consent, the occurrence of any one or more of the following: (i) a substantial and material diminution in the executive’s duties or responsibilities; (ii) a material reduction in the executive’s Base Salary; or (iii) the relocation of the executive’s principal place of employment to a location that is more than 50 miles from the prior location.

 

A termination of employment by the executive for Good Reason will be effectuated by giving the Company written notice, or Notice of Termination for Good Reason, not later than 90 days following the occurrence of the circumstance that constitutes Good Reason, setting forth in reasonable detail the specific conduct of the Company that constitutes Good Reason and the specific provision(s) of this Agreement on which the executive relied. The Company will be entitled, during the 30-day period following receipt of a Notice of Termination for Good Reason, to cure the circumstances that gave rise to Good Reason, provided that the Company shall be entitled to waive its right to cure or reduce the cure period by delivery of written notice to that effect to the executive (such 30-day or shorter period, the “Cure Period”). If, during the Cure Period, such circumstance is remedied, the executive will not be permitted to terminate his employment for Good Reason as a result of such circumstance. If, at the end of the Cure Period, the circumstance that constitutes Good Reason has not been remedied, the executive will terminate employment for Good Reason on the date of expiration of the Cure Period.

 

2008 Stock Plan

 

The 2008 Stock Plan provides that in the event of a merger or a Change in Control (as defined below), each outstanding award will be treated as the administrator determines, including, without limitation, that each award be assumed or an equivalent award be substituted by the successor corporation or a parent or subsidiary of the successor corporation. In the event of a Change in Control in which the successor corporation does not assume or substitute for the award, awards outstanding under the 2008 Stock Plan will become fully vested and exercisable, including shares as to which such award would not otherwise be vested or exercisable, and all restrictions on outstanding restricted stock awards will lapse.

 

11 
 

 

For purposes of the 2008 Stock Plan, “Change in Control” means the occurrence of any of the following events:

 

  (i) A change in the ownership of the Company which occurs on the date that any one person, or more than one person acting as a group (“Person”), acquires ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than 50% of the total voting power of the stock of the Company, except that any change in the ownership of the stock of the Company as a result of a private financing of the Company that is approved by the board of directors will not be considered a Change in Control; or
     
  (ii) If the Company has a class of securities registered pursuant to Section 12 of the Exchange Act, a change in the effective control of the Company which occurs on the date that a majority of members of the board of directors is replaced during any twelve (12) month period by directors whose appointment or election is not endorsed by a majority of the members of the board of directors prior to the date of the appointment or election; or
     
  (iii) A change in the ownership of a substantial portion of the Company’s assets which occurs on the date that any person acquires (or has acquired during the twelve month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 50% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions.

 

2015 Equity Incentive Plan

 

The 2015 Plan provides that notwithstanding any other provision of the 2015 Plan, in the event of a Change in Control (as defined below), unless otherwise determined by the plan administrator, each outstanding award under the plan will be assumed or an equivalent award substituted by the successor corporation or a parent or subsidiary of the successor corporation. In the event that, or to the extent that, the successor corporation in a Change in Control refuses to assume or substitute for the award, or if the plan administrator determines that such assumption or substitution is not desirable or is only desirable for a portion of any outstanding award, then the plan administrator may take any or all of the following actions: (i) determine that an outstanding award will accelerate and become exercisable, or determine that the restrictions and conditions on an outstanding award will lapse, in whole or in part, as applicable, upon the Change of Control or upon such other event as the plan administrator determines; (ii) require that a Grantee surrender his or her outstanding award, or any portion of such outstanding award, in exchange for a payment by the Company, in cash or stock, as determined by the plan administrator, in an amount equal to the fair market value of the vested portion of the award (with respect to options or stock appreciation rights, or other similar appreciation value awards, such value shall be determined by the amount by which the then fair market value of the shares subject to the Grantee’s unexercised award exceeds the any applicable exercise price or other grant price or base value or the award); or (iii) after giving the Grantee an opportunity to exercise the vested portion of his or her outstanding award, terminate any or all unexercised portion of the award at such time as the plan administrator deems appropriate. Such surrender or termination will take place as of the date of the Change of Control or such other date as the plan administrator may specify.

 

For purposes of the 2015 Plan, “Change in Control” means the occurrence of any of the following events:

 

  (i) A change in our ownership which occurs on the date that any one person, or more than one person acting as a group, or Person, acquires ownership of our stock that, together with the stock held by such Person, constitutes more than 50% of the total voting power of our stock, except that any change in the ownership of our stock as a result of a private financing that is approved by our board of directors will not be considered a Change in Control; or
     
  (ii) If we have a class of securities registered pursuant to Section 12 of the Exchange Act, a change in our effective control which occurs on the date that a majority of members of our board of directors is replaced during any twelve (12) month period by directors whose appointment or election is not endorsed by a majority of the members of our board of directors prior to the date of the appointment or election. For purposes of this paragraph (ii), if any Person is considered to be in effective control of our company, the acquisition of additional control of our company by the same Person will not be considered a Change in Control; or

 

  (iii) A change in the ownership of a substantial portion of our assets which occurs on the date that any Person acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) assets from us that have a total gross fair market value equal to or more than 50% of the total gross fair market value of all of our assets immediately prior to such acquisition or acquisitions. For purposes of this paragraph (iii), gross fair market value means the value of our assets, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.

 

Persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with us.

 

12 
 

 

Compensation of Directors

 

Non-Employee Director Compensation Program

 

Our non-employee directors are entitled to receive the following compensation for their services:

 

  Annual Cash Retainer — $35,000
     
  Chairman of the Board Cash Retainer — $25,000
     
  Audit Committee Chair Retainer — $15,000
     
  Compensation Committee Chair Retainer — $10,000
     
  Nominating and Corporate Governance Committee Chair Retainer — $7,500
     
  Initial Equity Grant — 40,000 shares
     
  Annual Equity Grant — 30,000 shares

 

2019 Director Compensation

 

The following table sets forth the compensation paid or earned for the fiscal year ended December 31, 2019 to our non-employee directors. Compensation paid to Andrew Ritter, and Ira Ritter is presented as part of the “Summary Compensation Table (2019 and 2018)” above. Our employee directors do not receive compensation for their service as directors.

 

Name of Director  Fees Earned and
Paid in Cash
($)
   Option
Awards(1)
($)
   All other compensation
($)
   Total
($)
 
Noah Doyle   38,625(2)   4,013        42,638 
Matthew W. Foehr   52,500(3)   4,013        56,513 
Paul V. Maier   58,625(4)   4,013        62,638 
Dr. William M. Merino   55,000(5)   4,013        59,013 

 

(1) Represents the aggregate grant date fair value of the options granted to the non-employee directors on February 6, 2019 determined in accordance with FASB ASC 718.

 

We utilize the Black-Scholes option-pricing model to value awards. Key valuation assumptions include:

 

  Expected dividend yield. The expected dividend is assumed to be zero as we have never paid dividends and have no current plans to pay any dividends on our common stock.
     
  Expected stock-price volatility. As our common stock only recently became publicly traded, the expected volatility is derived from the average historical volatilities of publicly traded companies within our industry that we consider to be comparable to our business over a period approximately equal to the expected term.
     
  Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term.
     
  Expected term. The expected term represents the period that the stock-based awards are expected to be outstanding. Our historical share option exercise experience does not provide a reasonable basis upon which to estimate an expected term because of a lack of sufficient data. Therefore, we estimate the expected term by using the simplified method provided by the SEC. The simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the options.

 

In addition to the assumptions used in the Black-Scholes option-pricing model, we also estimate a forfeiture rate to calculate the stock-based compensation for our equity awards. We will continue to use judgment in evaluating the expected volatility, expected terms and forfeiture rates utilized for our stock-based compensation calculations on a prospective basis.

 

13 
 

 

As of December 31, 2019, Mr. Foehr and Mr. Maier held options to purchase an aggregate of 39,400 shares of our common stock. Mr. Doyle held options to purchase an aggregate of 18,000 shares of our common stock and Dr. Merino held options to purchase an aggregate of 19,200 shares of our common stock.

 

(2)Amount includes $15,450 of director fees that have been deferred and are expected to be paid upon the closing of the proposed merger between the Company and Qualigen, Inc.

 

(3)Amount includes $21,000 of director fees that have been deferred and are expected to be paid upon the closing of the proposed merger between the Company and Qualigen, Inc.

 

(4)Amount includes $23,450 of director fees that have been deferred and are expected to be paid upon the closing of the proposed merger between the Company and Qualigen, Inc.

 

(5)Amount includes $11,000 of director fees that have been deferred and are expected to be paid upon the closing of the proposed merger between the Company and Qualigen, Inc.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

Security Ownership Of Certain Beneficial Owners And Management

 

The following table sets forth certain information with respect to the beneficial ownership of Ritter common stock as of April 10, 2020 (except where otherwise indicated) for:

 

  each person, or group of affiliated persons, known by Ritter to beneficially own more than 5% of the outstanding shares of Ritter common stock;
     
  each of Ritter’s named executive officers;
     
  each of Ritter’s directors; and
     
  all of Ritter’s current executive officers and directors as a group.

 

The number of shares beneficially owned by each entity, person, director or executive officer is determined under the rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has the sole or shared voting power or investment power and any shares that the individual has the right to acquire within 60 days of April 10, 2020, through the exercise of any stock option, warrant or other right (including shares of common stock issuable upon the conversion of convertible preferred stock). Shares of Ritter’s common stock that may be acquired by an individual or group within 60 days of April 10, 2020, pursuant to the exercise of options, warrants or other rights, are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of Ritter’s common stock of any other person shown in the table.

 

The percentage of beneficial ownership is based on 46,152,960 shares of Ritter common stock outstanding on April 10, 2020.

 

Subject to applicable community property laws, each person has sole investment and voting power with respect to the shares set forth in the following table. Except as otherwise noted below, the address for each person or entity listed in the table is c/o Ritter Pharmaceuticals, Inc., 1880 Century Park East, Suite 1000, Los Angeles, California 90067.

 

Except as contemplated by the merger, Ritter does not know of any arrangements the operation of which may at a subsequent date result in a change in control of Ritter.

 

Beneficial Owner  Number of Shares
Beneficially Owned
   Percentage of
Common stock
Beneficially Owned
 
Executive Officers, Directors and Director Nominees          
Andrew J. Ritter(1)   356,637    * 
Ira E. Ritter(2)   255,052    * 
John W. Beck(3)   85,000    * 
Noah J. Doyle(4)   798,924    1.7%
Matthew W. Foehr(5)   162,335    * 
Paul V. Maier(6)   23,700    * 
Dr. William M. Merino(7)   26,252    * 
All current executive officers and directors as a group
(7 persons)(8)
   1,607,453    3.4%

 

14 
 

 

* Represents beneficial ownership of less than 1% of the shares of common stock.

 

(1) Includes 625 shares owned directly, 255,565 shares underlying stock option awards that are currently exercisable or exercisable within 60 days of April 10, 2020 and 81,697 shares beneficially owned by Stonehenge Partners LLC (“Stonehenge”), including 18,750 shares that are issuable upon the exercise of warrants to purchase common stock that are currently exercisable. As a managing partner of Stonehenge, Andrew Ritter may be deemed the beneficial owner of these shares. Andrew Ritter expressly disclaims beneficial ownership of the shares held by Stonehenge.

 

(2) Includes as of April 10, 2020, 625 shares held in a retirement plan trust of which the reporting person and his spouse are trustees, 153,980 stock option awards that are currently exercisable or exercisable within 60 days of April 10, 2020, and 81,697 shares beneficially owned by Stonehenge, including 18,750 shares that are issuable upon the exercise of warrants to purchase common stock that are currently exercisable. As a managing partner of Stonehenge, Ira Ritter may be deemed the beneficial owner of these shares. Ira Ritter expressly disclaims beneficial ownership of the shares held by Stonehenge. 

 

(3) Represents shares underlying stock option awards held by Mr. Beck that are currently exercisable or exercisable within 60 days of April 10, 2020.

 

(4) Includes 2,272 shares owned directly by Mr. Doyle, 19,000 shares underlying stock options held by Mr. Doyle that are currently exercisable or exercisable within 60 days of April 10, 2020. This number also includes (i) 737,055 shares of common stock held directly by Javelin Venture Partners, L.P. and Javelin Partners I SPVI, LLC (“Javelin”) and 40,597 shares of common stock that Javelin has the right to acquire upon exercise of warrants to purchase common stock that are currently exercisable Javelin Venture Partners GP, L.P. (“Javelin GP, LP”) serves as the general partner for the Javelin entities. Javelin Venture Partners GP, LLC (“Javelin GP, LLC”) serves as the general partner of Javelin GP, LP, and Noah Doyle and Jed Katz serve as the managers of Javelin GP, LLC.

 

(5) Includes 138,635 shares owned directly by Mr. Foehr and 23,700 shares underlying stock options held by Mr. Foehr that are currently exercisable or exercisable within 60 days of April 10, 2020.

 

(6) Represents shares underlying stock options held by Mr. Maier that are currently exercisable or exercisable within 60 days of April 10, 2020.

 

(7) Includes 1,398 shares owned directly by Dr. Merino and 24,854 shares underlying stock options held by Dr. Merino that are currently exercisable or exercisable within 60 days of April 10, 2020.

 

(8) Includes 645,146 shares underlying stock options and warrants that are currently exercisable or exercisable within 60 days of April 10, 2020.

 

15 
 

 

Equity Compensation Plan Information

 

The following table sets forth aggregate information for the fiscal year ended December 31, 2019, regarding the Company’s compensation plans, including individual compensation agreements, under which equity securities of the Company are authorized for issuance:

 

   Number of securities
to
be issued
upon exercise of
outstanding options,
warrants and rights
(#)
   Weighted average
exercise price of
outstanding options,
warrants and rights
($)
   Number of securities
remaining available for future
issuance under
equity compensation
plans (excluding
securities reflected in column (a))
(#)
 
Plan Category  (a)   (b)   (c) 
Equity compensation plans approved by security holders   1,159,744(1)  $6.93    1,742,515(2)
Equity compensation plans not approved by security holders            
Total   1,159,744(1)  $6.93    1,742,515(2)

 

(1) Represents the number of underlying shares of common stock associated with outstanding options that were granted under the 2008 Stock Plan and the 2015 Equity Incentive Plan.
   
(2) Represents the number of shares of common stock available for future issuance under the 2015 Equity Incentive Plan. As of June 29, 2015, no further awards were permitted to be issued under the 2008 Stock Plan.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence.

 

Certain Relationships and Related Party Transactions

 

Our Audit Committee is responsible for reviewing, approving and overseeing any transaction between the Company and its directors, director nominees, executive officers, greater than 5% beneficial owners, and each of their respective immediate family members, where the amount involved exceeds the lesser of (i) $120,000 and (ii) one percent (1%) of the average of our total assets at year-end for the prior two fiscal years. Since January 1, 2018, there have been no such transactions.

 

Director Independence

 

Under Nasdaq’s continued listing requirements, a majority of a listed company’s board of directors must be comprised of independent directors, subject to certain exceptions. In addition, Nasdaq’s continued listing requirements require that, subject to certain exceptions, each member of a listed company’s audit, compensation and governance and nominating committees must be independent. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. Under Nasdaq’s continued listing requirements, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, such person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

 

Based upon information requested from and provided by each director concerning their background, employment and affiliations, including family relationships, our board of directors determined that each of Messrs. Doyle, Foehr and Maier and Dr. Merino are independent under the applicable rules and regulations of Nasdaq. In making such determinations, the board of directors considered the relationships that each such non-employee director has with our company and all other facts and circumstances the board of directors deemed relevant in determining their independence.

 

16 
 

 

Item 14. Principal Accountant Fees and Services

 

Fees and Services of Mayer Hoffman McCann P.C.

 

The following table sets forth the aggregate fees billed to the Company by MHM for the fiscal years ended December 31, 2019 and 2018:

 

   2019   2018 
Audit Fees(1)  $132,000   $130,000 
Audit-Related Fees        
Tax Fees        
All Other Fees(2)   31,110    11,000 
Total  $163,110   $141,000 

 

 

(1) Audit fees consisted of fees for audit work performed in the audit of financial statements, as well as fees for quarterly reviews and registration statements.
   
(2) All Other Fees for 2019 consists of fees paid in connection with registrations statements we filed with the SEC in 2019.  All Other Fees for 2018 consists of fees paid in connection with our November 2018 private placement financing.

 

The Audit Committee has adopted a formal policy on auditor independence requiring the advance approval by the Audit Committee of all audit and non-audit services provided by our independent registered public accounting firm. In determining whether to approve any services by our independent registered public accounting firm, the Audit Committee reviews the services and the estimated fees, and considers whether approval of the proposed services will have a detrimental impact on the auditor’s independence. On an annual basis, our management reports to the Audit Committee all audit services performed during the previous 12 months and all fees billed by our independent registered public accounting firm for such services.

 

In fiscal 2019 and 2018, all audit services and the corresponding fees were approved by our board of directors.

 

17 
 

 

PART IV

 

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a)(1) Financial Statements.

 

The following financial statements of Ritter Pharmaceuticals, Inc., together with the report thereon of Mayer Hoffman McCann P.C., an independent registered public accounting firm, are included in this Annual Report on Form 10-K:

 

  Page
Report of Independent Registered Public Accounting Firm F-1
   
Financial Statements:  
   
Balance Sheets as of December 31, 2019 and 2018 F-2
   
Statements of Operations and Comprehensive Loss for the years ended December 31, 2019 and 2018 F-3
   
Statements of Changes in Stockholders’ Equity for the years ended December 31, 2019 and 2018 F-4
   
Statements of Cash Flows for the years ended December 31, 2019 and 2018 F-5
   
Notes to Financial Statements F-6

 

(a)(2) Financial Statement Schedules.

 

All schedules have been omitted because they are not required or because the required information is given in the Financial Statements or Notes thereto set forth under Item 8 above.

 

(a)(3) Exhibits.

 

        Incorporated by Reference
Exhibit No.   Description   Form   File No.   Exhibit   Filing Date
                     
2.1   Agreement and Plan of Merger, by and among Ritter Pharmaceuticals, Inc., RPG28 Merger Sub, Inc. and Qualigen Inc., dated January 15, 2020   8-K   001-37428   2.1   1/21/2020
                     
2.2   Amendment No. 1 to Agreement and Plan of Merger by and among Ritter Pharmaceuticals, Inc., RPG28 Merger Sub, Inc. and Qualigen, Inc., dated February 1, 2020   S-4   333-236235   Annex B   4/6/2020
                     
2.3   Amendment No. 2 to Agreement and Plan of Merger by and among Ritter Pharmaceuticals, Inc., RPG28 Merger Sub, Inc. and Qualigen, Inc., dated February 1, 2020   S-4   333-236235   Annex C   4/6/2020
                     
3.1   Amended and Restated Certificate of Incorporation of Ritter Pharmaceuticals, Inc.   8-K   001-37428   3.1   7/1/2015
                     
3.2   Certificate of Amendment to the Amended and Restated Certificate of Incorporation   8-K   001-37428   3.1   9/15/2017
                     
3.3   Certificate of Amendment to the Amended and Restated Certificate of Incorporation   8-K   001-37428   3.1   3/22/2018
                     
3.4   Amended and Restated Bylaws of Ritter Pharmaceuticals, Inc.   8-K   001-37428   3.2   7/1/2015
                     
3.5   Certificate of Designation of Series A Convertible Preferred Stock   8-K   001-37428   3.1   10/4/2017
                     
3.6   Certificate of Designation of Series B Convertible Preferred Stock   10-Q   001-37428   3.1   11/9/2018

 

18 
 

 

3.7   Certificate of Designation of Series C Convertible Preferred Stock   10-Q   001-37428   3.2   11/9/2018
                     
4.1   Form of Common Stock Certificate of Ritter Pharmaceuticals, Inc.   8-K   001-37428   4.1   3/22/2018
                     
4.2   Form of Common Stock Purchase Warrant   S-1   333-208818   4.7   12/31/2015
                     
4.3   Form of Representative’s Warrant Agreement   S-1/A   333-202924   4.7   5/8/2015
                     
4.4   Warrant Agency Agreement by and between Ritter Pharmaceuticals, Inc. and Corporate Stock Transfer, Inc. and Form of Warrant Certificate   8-K   001-37428   4.1   10/4/2017
                     
4.5   First Amendment to Warrant Agency Agreement by and between Ritter Pharmaceuticals, Inc. and Corporate Stock Transfer, Inc.   8-K   001-37428   4.1   5/7/2018
                     
4.6   Registration Rights Agreement, by and among Ritter Pharmaceuticals, Inc. and the Purchasers signatory thereto, dated October 30, 2018   10-Q   001-37428   10.5   11/9/2018
                     
4.7   Description of Common Stock   10-K    001-37428    4.7    3/31/2020 
                     
10.1+   Executive Compensation Plan   S-1   333-202924   10.3   5/8/2015

 

19 
 

 

10.2+   2015 Equity Incentive Plan   S-8   333-207709   99.3   10/30/15
                     
10.3+   Amendment to 2015 Equity Incentive Plan   8-K   001-37428   10.1   6/6/2016
                     
10.4+   Second Amendment to 2015 Equity Incentive Plan   8-K   001-37428   10.1   6/6/2017
                     
10.5+   Third Amendment to 2015 Equity Incentive Plan   8-K   001-37428   10.1   9/15/2017
                     
10.6+   Form of Notice of Grant of Stock Option under the 2015 Equity Incentive Plan   S-8   333-207709   99.4   10/30/15
                     
10.7+   Form of Performance Restricted Stock Unit Award Agreement   10-K   001-37428   10.10   4/1/2019
                     
10.8+   Stock Option Agreement, dated September 25, 2013, by and between Ritter Pharmaceuticals, Inc. and Andrew J. Ritter   S-1   333-202924   10.11   5/8/2015
                     
10.9+   Stock Option Agreement, dated December 2, 2014, by and between Ritter Pharmaceuticals, Inc. and Andrew J. Ritter   S-1   333-202924   10.12   5/8/2015
                     
10.10+   Stock Option Agreement, dated December 2, 2014, by and between Ritter Pharmaceuticals, Inc. and Andrew J. Ritter   S-1   333-202924   10.13   5/8/2015
                     
10.11+   Stock Option Agreement, dated September 25, 2013, by and between Ritter Pharmaceuticals, Inc. and Ira E. Ritter   S-1   333-202924   10.14   5/8/2015
                     
10.12+   Stock Option Agreement, dated December 2, 2014, by and between Ritter Pharmaceuticals, Inc. and Ira E. Ritter   S-1   333-202924   10.15   5/8/2015
                     
10.13+   Stock Option Agreement, dated December 2, 2014, by and between Ritter Pharmaceuticals, Inc. and Ira E. Ritter   S-1   333-202924   10.16   5/8/2015
                     
10.14   Research and Development Agreement & License, dated November 30, 2010, by and among Kolu Pohaku Technologies, LLC, Kolu Pohaku Management, LLC and Ritter Pharmaceuticals, Inc.   S-1   333-202924   10.17   5/8/2015

 

20 
 

 

10.15   Amendment No. 1 to Research and Development Agreement & License, dated July 6, 2011, by and among Kolu Pohaku Technologies, LLC, Kolu Pohaku Management, LLC and Ritter Pharmaceuticals, Inc.   S-1   333-202924   10.18   5/8/2015
                     
10.16   Amendment No. 2 to Research and Development Agreement & License, dated September 30, 2011, by and among Kolu Pohaku Technologies, LLC, Kolu Pohaku Management, LLC and Ritter Pharmaceuticals, Inc.   S-1   333-202924   10.19   5/8/2015
                     
10.17   Amendment No. 3 to Research and Development Agreement & License, dated February 6, 2012, by and among Kolu Pohaku Technologies, LLC, Kolu Pohaku Management, LLC and Ritter Pharmaceuticals, Inc.   S-1   333-202924   10.20   5/8/2015
                     
10.18   Amendment No. 4 to Research and Development Agreement & License, dated November 4, 2013, by and among Kolu Pohaku Technologies, LLC, Kolu Pohaku Management, LLC and Ritter Pharmaceuticals, Inc.   S-1   333-202924   10.21   5/8/2015
                     
10.19   Put and Call Option Agreement, dated November 30, 2010, by and between Kolu Pohaku Technologies, LLC and Ritter Pharmaceuticals, Inc.   S-1   333-202924   10.22   5/8/2015
                     
10.20+   Form of Indemnification Agreement between Ritter Pharmaceuticals, Inc. and each of its directors and executive officers   S-1/A   333-202924   10.29   4/24/2015
                     
10.21   Clinical Supply and Operation Agreement, dated December 16, 2009, by and among Ritter Pharmaceuticals, Inc. and Ricerche Sperimentali Montale SpA and Inalco SpA   S-1/A   333-202924   10.30   4/24/2015
                     
10.22   Amendment 1 to the Clinical Supply and Cooperation Agreement, dated September 25, 2010, by and among Ritter Pharmaceuticals, Inc. and Ricerche Sperimentali Montale SpA and Inalco SpA   S-1/A   333-202924   10.31   4/24/2015
                     
10.23+   Amended and Restated Offer Letter, by and between Ritter Pharmaceuticals, Inc. and Andrew J. Ritter   10-Q   001-37428   10.5   8/14/2018
                     
10.24+   Offer Letter, by and between Ritter Pharmaceuticals, Inc. and Ira E. Ritter   10-Q   001-37428   10.2   8/12/2015
                     
10.25+   Executive Severance & Change in Control Agreement, by and between Ritter Pharmaceuticals, Inc. and Andrew J. Ritter   10-Q   001-37428   10.3   8/12/2015
                     
10.26+   Executive Severance & Change in Control Agreement, by and between Ritter Pharmaceuticals, Inc. and Ira E. Ritter   10-Q   001-37428   10.4   8/12/2015

 

21 
 

 

10.27   Lease Agreement, dated July 9, 2015, between the Company and Century Park   10-Q   001-37428   10.1   11/10/2015
                     
10.28+   Letter of Agreement, dated October 20, 2015 between Ritter Pharmaceuticals, Inc. and Chord Advisors, LLC   10-Q   001-37428   10.4   11/10/2015
                     
10.29   Amended and Restated Master Services Agreement, dated May 1, 2018, by and between Ritter Pharmaceuticals, Inc. and Medpace, Inc.   8-K   001-37428   10.1   5/7/2018
                     
10.30+   Offer Letter with John W. Beck, dated May 23, 2018   8-K   001-37428   10.1   5/29/2018
                     
10.31   Executive Severance and Change in Control Agreement, by and between Ritter Pharmaceuticals, Inc. and John W. Beck, effective May 24, 2018   8-K   001-37428   10.2   5/29/2018
                     
10.32   Securities Purchase Agreement, by and among Ritter Pharmaceuticals, Inc. and the Purchasers signatory thereto, dated October 30, 2018   10-Q   001-37428   10.3   11/9/2018
                     
10.33   Form of Common Stock Purchase Warrant   10-Q   001-37428   10.4   11/9/2018
                     
10.34   Amended and Restated Common Stock Purchase Agreement, by and between Ritter Pharmaceuticals, Inc. and Aspire Capital Fund, LLC, dated July 23, 2019   8-K   001-37428   10.1   7/24/2019
                     
10.35   Amendment to Employment Salary Terms, by and between Ritter Pharmaceuticals, Inc. and Andrew Ritter dated October 15, 2019   8-K   001-37428   10.1   10/15/2019
                     
10.36   Amendment to Employment Salary Terms, by and between Ritter Pharmaceuticals, Inc. and John Beck, dated October 15, 2019   8-K   001-37428   10.2   10/15/2019
                     
10.37   Amendment to Employment Salary Terms, by and between Ritter Pharmaceuticals, Inc. and Ira Ritter, dated October 15, 2019   8-K   001-37428   10.3   10/15/2019
                     
10.38   Sales Agreement, by and between Ritter Pharmaceuticals, Inc. and A.G.P./Alliance Global Partners   8-K   001-37428   10.1   11/7/2019
                     
10.39   Form of Irrevocable Consent and Waiver of Restriction on Dilutive Issuances   10-Q   001-37428   10.5   11/14/2019
                     
10.40   Form of Agreement to Exchange Warrants   8-K   001-37428   10.1   2/21/2020
                     
23.1*   Consent of Mayer Hoffman McCann P.C., independent registered public accounting firm        
                     
24.1   Power of Attorney (included on signature page)   10-K   001-37428   24.1   3/31/2020

 

22 
 

 

31.1*   Certificate of principal executive officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                
                     
31.2*   Certificate of principal financial officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                
                     
32.1*   Certificate of principal executive officer and principal financial officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                

 

101.INS#*   XBRL Instance Document.
     
101.SCH#*   XBRL Taxonomy Extension Schema Document.
     
101.CAL#*   XBRL Taxonomy Extension Calculation Linkbase Document.
     
101.DEF#*   XBRL Taxonomy Extension Definition Linkbase Document.
     
101.LAB#*   XBRL Taxonomy Extension Label Linkbase Document.
     
101.PRE#*   XBRL Taxonomy Extension Presentation Linkbase Document.

 

* Filed herewith.

+ Indicates management contract or compensatory plan or arrangement.

# XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement or Prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

Item 16. Form 10-K Summary

 

None.

 

23 
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

RITTER PHARMACEUTICALS, INC.  
   
By: /s/ John W. Beck  
Name: John W. Beck  
Title: Principal Financial Officer and Principal Accounting Officer  

 

Date: April 24, 2020

 

24 
 

 

INDEX TO FINANCIAL STATEMENTS

 

  Page
Report of Independent Registered Public Accounting Firm F-1
   
Financial Statements:  
   
Balance Sheets as of December 31, 2019 and 2018 F-2
   
Statements of Operations and Comprehensive Loss for the years ended December 31, 2019 and 2018 F-3
   
Statements of Changes in Stockholders’ Equity for the years ended December 31, 2019 and 2018 F-4
   
Statements of Cash Flows for the years ended December 31, 2019 and 2018 F-5
   
Notes to Financial Statements F-6

 

25 
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of Ritter Pharmaceuticals, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Ritter Pharmaceuticals, Inc. (the “Company”) as of December 31, 2019 and 2018, and the related statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern Uncertainty

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred recurring operating losses and is dependent on additional financing to fund operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 2 to the financial statements. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

We have served as the Company's auditor since 2014.

 

/s/ Mayer Hoffman McCann P.C.  

Los Angeles, California

March 31, 2020

 

 F-1 

 

 

RITTER PHARMACEUTICALS, INC.

BALANCE SHEETS

 

   December 31, 2019   December 31, 2018 
ASSETS          
Current assets          
Cash and cash equivalents  $1,699,971   $7,812,259 
Accrued interest receivable   771    54,456 
Investment in marketable securities       6,988,780 
Prepaid expenses and other current assets   509,519    421,522 
Total current assets   2,210,261    15,277,017 
Other assets          
Right-of-use assets   93,032     
Other assets   478,075    22,725 
Total other assets   571,107    22,725 
Property and equipment, net   15,656    20,160 
Total Assets  $2,797,024   $15,319,902 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities          
Accounts payable  $1,417,317   $4,512,316 
Accrued expenses   179,258    1,407,843 
Lease liabilities   100,471     
Other liabilities       13,359 
Total current liabilities   1,697,046    5,933,518 
           
Stockholders’ equity          
Series A preferred stock, $0.001 par value; 9,500 shares authorized; 0 and 4,080 shares issued and outstanding as of December 31, 2019 and 2018, respectively       2,289,324 
Series B preferred stock, $0.001 par value; 6,000 shares authorized; 1,850 and 5,608 shares issued and outstanding as of December 31, 2019 and 2018, respectively   1,288,956    3,906,931 
Series C preferred stock, $0.001 par value; 1,880 shares authorized; 240 and 1,880 shares issued and outstanding as of December 31, 2019 and 2018, respectively   240,000    1,880,000 
Common stock, $0.001 par value; 225,000,000 shares authorized; 19,108,331 and 6,036,562 shares issued and outstanding as of December 31, 2019 and 2018, respectively   19,108    6,037 
Additional paid-in capital   79,885,078    71,505,160 
Accumulated other comprehensive loss       (923)
Accumulated deficit   (80,333,164)   (70,200,145)
Total stockholders’ equity   1,099,978    9,386,384 
Total Liabilities and Stockholders’ Equity  $2,797,024   $15,319,902 

 

The accompanying notes are an integral part of these financial statements.

 

 F-2 

 

 

RITTER PHARMACEUTICALS, INC.

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 

   For the Year Ended 
   December 31, 
   2019   2018 
Operating costs and expenses:          
Research and development (a)  $6,126,972   $12,259,940 
Patent costs   146,281    204,396 
General and administrative   4,570,932    5,425,033 
Total operating costs and expenses   10,844,185    17,889,369 
Operating loss   (10,844,185)   (17,889,369)
           
Other income:          
Interest income   123,052    126,835 
Settlement of accounts payable (a)   588,114    893,823 
Total other income   711,166    1,020,658 
Net loss  $(10,133,019)  $(16,868,711)
           
Other comprehensive gain (loss):          
Unrealized gain (loss) on debt securities   923    (923)
Comprehensive loss  $(10,132,096)  $(16,869,634)
           
Net Loss   (10,133,019)   (16,868,711)
Deemed dividend of preferred stock       (2,537,844)
Net loss applicable to common stockholders  $(10,133,019)  $(19,406,555)
Net loss per common share – basic and diluted  $(1.06)  $(3.66)
           
Weighted average common shares outstanding – basic and diluted   9,570,061    5,304,667 

 

  (a)

For comparative presentation purposes, settlement of accounts payable of $893,823 for the year ended December 31, 2018 was reclassified out of research and development and into settlement of accounts payable under other income.

 

The accompanying notes are an integral part of these financial statements.

 

 F-3 

 

 

RITTER PHARMACEUTICALS, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

   Series A
Preferred Stock
   Series B
Preferred Stock
   Series C
Preferred Stock
   Common Stock   Additional Paid-in   Additional Accumulated   Other Comprehensive   Total
Stockholders’
 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Loss   Equity 
Balance at December 31, 2017   9,140   $5,128,536       $       $    4,939,639   $4,940   $68,323,940   $(53,331,434)  $      ―   $20,125,982 
Payout to shareholders for fractional shares                                   (3,256)           (3,256)
Issuance of Series B preferred shares upon closing of private placement           6,000    4,570,848                    792,037            5,362,885 
Commissions and offering costs of private placement               (390,449)                   (122,081)           (512,530)
Deemed dividend of preferred stock   (1,880)   (1,054,886)           1,880    1,880,000            (188,000)           637,114 
Stock-based compensation                                   645,823            645,823 
Conversion of Series A preferred shares into common stock   (3,180)   (1,784,326)                   795,000    795    1,783,531             
Conversion of Series B preferred shares into common stock           (392)   (273,468)           301,923    302    273,166             
Change in unrealized loss on investment in marketable debt securities                                           (923)   (923)
Net loss                                       (16,868,711)       (16,868,711)
Balance at December 31, 2018   4,080   $2,289,324    5,608   $3,906,931    1,880   $1,880,000    6,036,562   $6,037   $71,505,160   $(70,200,145)  $(923)  $9,386,384 
Shareholders fractional adjustment                           (2)                    
Issuance of common shares from ATM Agreement                           8,126,375    8,126    1,448,942            1,457,068 
Stock issuance costs of ATM Agreement                                   (49,626)           (49,626)
Conversion of Series A preferred shares into common stock   (4,080)   (2,289,324)                   1,020,000    1,020    2,288,304              
Conversion of Series B preferred shares into common stock           (3,758)   (2,617,975)           2,890,396    2,890    2,615,085             
Conversion of Series C preferred shares into common stock                   (1,640)   (1,640,000)   1,000,000    1,000    1,639,000             
Settlement of RSUs                           35,000    35    (35)            
Stock-based compensation                                   438,248            438,248 
Change in unrealized loss on available-for-sale securities                                           923    923 
Net loss                                       (10,133,019)       (10,133,019)
Balance at December 31, 2019      $    1,850   $1,288,956    240   $240,000    19,108,331   $19,108   $79,885,078   $(80,333,164)  $   $1,099,978 

 

The accompanying notes are an integral part of these financial statements.

 

 F-4 

 

 

RITTER PHARMACEUTICALS, INC.

STATEMENTS OF CASH FLOWS

 

   For the Years Ended December 31, 
   2019   2018 
Cash flows from operating activities          
Net loss  $(10,133,019)  $(16,868,711)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation   6,093    5,721 
Amortization of right-of-use assets   105,287     
Stock-based compensation   438,248    645,823 
Settlement of accounts payable   (588,114   (893,823)
Amortization of discount on available-for-sale debt securities   (9,769)   (19,789)

Change in unrealized gain (loss) on investment in marketable debt securities

   923    (923)
Changes in operating assets and liabilities:          
Accrued interest receivable   53,685    (54,456)
Prepaid expenses and other current assets   (87,997)    (254,122)
Other assets   (455,350)   (12,399)
Accounts payable   (2,506,885)   3,168,559 
Accrued expenses   (1,228,585)   953,591 
Lease liabilities   (97,848)    
Other liabilities   (13,359)   (2,398)

Net cash and cash equivalents used in operating activities

   (14,516,690)   (13,332,927)