UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
[X] Annual Report pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year
ended December 31, 2013
OR
[ ] Transition Report
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission file number 1-16467
Cortex Pharmaceuticals,
Inc.
(Exact name of registrant
as specified in its charter)
Delaware |
|
33-0303583 |
(State
or other jurisdiction of
incorporation or organization) |
|
(I.R.S.
Employer
Identification Number) |
126 Valley Road, Suite C
Glen Rock, New Jersey 07452
(Address of principal executive offices,
including zip code)
(201) 444-4947
(Registrant’s telephone number, including
area code)
Securities registered under Section 12(b)
of the Act: None
Securities registered under Section 12(g)
of the Act:
Common Stock, $0.001 par value
(Title of Class)
Indicate by check mark whether 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 Exchange 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 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements
for the past 90 days. YES [ ] NO [X]
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). YES [ ] NO [X]
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained,
to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of
“accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer
[ ] |
Accelerated
filer [ ] |
Non-accelerated filer [ ]
(Do not check if a smaller reporting company) |
Smaller reporting company [X] |
Indicate by check mark whether the registrant
is a shell company (as defined in Exchange Act Rule 12b-2). YES [ ] NO [X]
The aggregate market value of the voting stock
held by non-affiliates as of June 30, 2013 was approximately $8,500,000 (based on the closing sale price of the common stock as
reported by the Over the Counter Bulletin Board). As of December 31, 2013, there were 144,041,556 shares of the registrant’s
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
TABLE OF CONTENTS
In this Annual Report
on Form 10-K, the terms “Cortex,” the “Company,” “we,” “us” and “our”
refer to Cortex Pharmaceuticals, Inc., a Delaware corporation, and, unless the context indicates otherwise, its consolidated subsidiaries.
This Annual Report on Form 10-K is being filed by new management substantially after the deadline for its filing. In an effort
to provide the most current information, at various points in the document, information regarding events that occurred after December
31, 2013 has been included.
INTRODUCTORY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This Annual Report on
Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934 (the “Exchange Act”) and we intend that such forward-looking statements
be subject to the safe harbors created thereby. These forward-looking statements, which may be identified by words including “anticipates,”
“believes,” “intends,” “estimates,” “expects,” “plans,” and similar
expressions include, but are not limited to, statements regarding (i) future research plans, expenditures and results, (ii) potential
collaborative arrangements, (iii) the potential utility of our proposed products and (iv) the need for, and availability of, additional
financing.
The forward-looking statements
included herein are based on current expectations that involve a number of risks and uncertainties. These forward-looking statements
are based on assumptions regarding our business and technology, which involve judgments with respect to, among other things, future
scientific, economic and competitive conditions, and future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond our control. Although we believe that the assumptions underlying the forward-looking statements
are reasonable, actual results may differ materially from those set forth in the forward-looking statements. In light of the significant
uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded
as a representation by us or any other person that our objectives or plans will be achieved.
Forward-looking statements
speak only as of the date they are made. We do not undertake and specifically decline any obligation to update any forward-looking
statements or to publicly announce the results of any revisions to any statements to reflect new information or future events
or developments.
PART I
Item 1. Business
Since its formation in
1987, the Company has engaged in the discovery, development and commercialization of innovative pharmaceuticals for the treatment
of neurological and psychiatric disorders. In 2011, however, we conducted a re-evaluation of our strategic focus and determined
that clinical development in the area of respiratory disorders, particularly respiratory depression and sleep apnea, provided
the most cost-effective opportunities for potential rapid development and commercialization of our compounds. As a result of our
scientific discoveries and the acquisition of strategic, exclusive license agreements, we believe we are now a leader in the discovery
and development of innovative pharmaceuticals for the treatment of respiratory disorders.
Saying that there exists
an unmet need for new drug treatments for breathing disorders is an understatement. According
to the
Centers for Disease Control and Prevention, the
rate of
respiratory disorders is reaching
epidemic proportions,
with estimates that
1 in 4 men
and 1 in
10 women
in this
country have sleep
apnea. Sleep apnea places a considerable burden on
society and the health care
system because
of
its association with adverse events ranging from
loss of
productivity to
increased risk of
cardiopulmonary illness and related
death. No drugs currently are approved for the treatment of sleep apnea.
Even
in patients without sleep apneas, the use of drugs such as propofol, used as an anesthetic during surgery, and opioid analgesics
such as morphine, used for the treatment of post-surgical and chronic pain, are well known for producing respiratory depression.
In fact, while respiratory depression is
the leading cause
of death
from the overdose
of most classes
of abused drugs, it also arises during normal, physician-supervised procedures
such as surgical anesthesia, post-operative analgesia and as a result of normal outpatient management of pain.
Although naloxone
(Narcan) and nalmefene
(Revex) can reverse respiratory depression
associated with opioids, they
have several major
shortcomings. First and foremost,
these opioid antagonists do not reverse the respiratory
depression produced by other classes of drugs often given/taken
either alone or in combination with narcotics. Second, while these drugs reverse the serious side effects of the opioids,
they also dramatically reduce their analgesic effectiveness. Third, the side effects
of opioid antagonists are themselves serious
and include seizures, agitation, convulsions, tachycardia, hypotension, nausea, and
vomiting.
Clearly, considerable
need exists for pharmaco-therapeutic agents
to 1.) treat sleep apnea, and 2.) prevent and
reverse the respiratory depression produced
by different classes of
drugs. The Company currently has two drug platforms, each with a clinical stage compound directed at these needs.
Sleep Apnea
Sleep apnea is a serious
disorder in which breathing repeatedly stops long enough to disrupt sleep, and temporarily decreases the amount of oxygen and
increases the amount of carbon dioxide in the blood. Apnea is defined by more than five periods per hour of ten seconds or longer
without breathing. The repetitive cessation of breathing during sleep has substantial impact on the affected individuals. The
disorder is associated with major co-morbidities including excessive daytime sleepiness and increased risk of cardiovascular disease
(such as hypertension, stroke and heart failure), diabetes and weight gain. Sleep apnea is often made worse by central nervous
system depressants such as opioids, benzodiazepines, barbiturates and alcohol. It is therefore important for these patients to
seek therapy.
The most common type of
sleep apnea is obstructive sleep apnea (“OSA”), which occurs by repetitive narrowing or collapse of the pharyngeal
airway during sleep. There is currently no approved pharmacotherapy, and the most common treatment is to use continuous positive
airway pressure (“CPAP”) delivered via a nasal or full-face mask, as long as patients are able to tolerate the treatment.
It is estimated that in more than 50% of cases patients stop using the CPAP device on a regular basis. Given the large patient
population and a lack of suitable treatment options, there is a very large opportunity for pharmacotherapy to treat this disorder.
Central sleep apnea (“CSA”),
a less frequently diagnosed type of sleep apnea, is caused by alterations in the brain mechanisms responsible for maintaining
normal respiratory drive. CSA is most frequently observed in heart failure patients and in patients taking chronic opioids. In
fact, CSA is a predictor of mortality in heart failure patients. CPAP has not demonstrated efficacy in treating CSA and no drugs
presently are approved for this indication.
Mixed sleep apnea, a third
type of sleep apnea, is a combination of central and obstructive factors occurring in the same episode of sleep apnea.
Drug-induced Respiratory Depression
Drug-induced
respiratory depression (“RD”) is a life-threatening condition caused
by a variety of depressant drugs, including analgesic, hypnotic, and
anesthesia medications.
RD is a leading cause of death
from the overdose of some classes of abused drugs, yet it also arises during
normal, physician-supervised procedures such as
surgical anesthesia and post-operative pain
management. For example, in the hospital
setting, anesthetics, such as propofol, are well known for their propensity to produce RD. With
more than 40 million
surgical procedures performed
annually, it is notable that post-operative respiratory failure produces the highest mortality rate, the second highest
attributable number of deaths and the second largest overall excess cost to the Medicare system, when compared to other patient
safety indicators.
In the hospital setting,
the most serious
complication of patient-controlled analgesia is RD and, despite
nurses’ vigilance, adverse
events associated with opioids continue to
increase. Drug-induced RD is associated
with a high mortality
rate relative to other adverse drug events. If high-risk
patients are receiving combination therapies, they are at
even higher risk.
Outside the hospital,
the primary risk
factor for RD
is the use
of a single
opioid in large
doses or concomitant use of opioids
and sedative agents. Whether as
a result of normal outpatient management of pain or as a result of substance
abuse, RD has been reported to be the leading cause of death from drug overdose, with the drug overdose death rate tripling since
1991. It has been estimated that nearly 15,000 people die every
year as a result of overdoses involving
prescription painkillers. Oxycodone and fentanyl have been reported to be the
two most frequently reported drugs associated with death and serious nonfatal outcomes from 1998 to
2005, exceeding the number of deaths from heroin and cocaine combined. Opioid use has increased
significantly along with a dramatic increase in
unintentional poisoning deaths from opioids. Unintentional deaths from opioids are not only related
to diversion for nonmedical use and misuse by patients, but by prescriber’s error as
well.
Cannabinoids
In order to expand the
Company’s respiratory disorders program, on August 10, 2012, pursuant to an Agreement and Plan of Merger by and among Pier
Pharmaceuticals Inc., a privately-held corporation, (“Pier”) Pier Acquisition Corp., a Delaware corporation (“Merger
Sub”) and a wholly-owned subsidiary of Cortex, and Cortex, Merger Sub merged with and into Pier (the “Merger”)
and Pier became a wholly-owned subsidiary of Cortex. Pier had been formed in June 2007 (under the name SteadySleep Rx Co.) as
a clinical stage pharmaceutical company to develop a pharmacologic treatment for the respiratory disorder known as obstructive
sleep apnea and had been engaged in research and clinical development activities since formation.
Through the Merger, the
Company gained access to an Exclusive License Agreement, as amended (the “License Agreement”), that Pier had entered
into with the University of Illinois on October 10, 2007. The License Agreement covered certain patents and patent applications
in the United States and other countries claiming the use of certain compounds referred to as cannabinoids for the treatment of
sleep related breathing disorders (including sleep apnea), of which dronabinol is a specific example of one type of cannabinoid.
Dronabinol is a synthetic derivative of the naturally occurring substance in the cannabis plant, otherwise known as Δ9-THC
(Δ9-tetrahydrocannabinol). Dronabinol is currently approved by the U. S. Food and Drug Administration (“FDA”)
and is sold generically for use in refractory chemotherapy-induced nausea and vomiting, as well as for anorexia in patients with
AIDS. The License Agreement was terminated effective March 21, 2013 due to the Company’s failure to make a required payment.
However, on June 27, 2014,
the Company entered into a new license agreement with the Board of Trustees of the University of Illinois. In exchange for certain
milestone and royalty payments, the License Agreement grants the Company (i) exclusive rights to several issued and pending patents
in numerous jurisdictions and (ii) the non-exclusive right to certain technical information that is generated by the University
of Illinois in connection with certain clinical trials as specified in the License Agreement, all of which relate to the use of
cannabinoids for the treatment of sleep related breathing disorders. The Company is developing dronabinol for the treatment of
OSA, the most common form of sleep apnea.
The Company previously
conducted a 21 day, randomized, double-blind, placebo-controlled, dose escalation Phase 2 clinical study in 22 patients with OSA,
in which dronabinol produced a statistically significant reduction in the Apnea-Hypopnea Index (AHI), the primary therapeutic
end-point, and was observed to be safe and well tolerated. Dronabinol is currently under investigation, at the University of Illinois
and other centers, in a potentially pivotal Phase 2 OSA clinical trial, fully funded by the National Institutes of Health.
Dronabinol is a Schedule
III, controlled generic drug with a relatively low abuse potential that is approved by the FDA for the treatment of AIDS related
anorexia and chemotherapy induced emesis. The use of dronabinol for the treatment of OSA is a novel indication for an already
approved drug and, as such, the Company believes that it should only require approval by the FDA of a supplemental new drug application.
Ampakines
Since its founding, the
Company has been engaged in the research and clinical development of a class of compounds referred to as ampakines. By acting
as positive allosteric modulators of AMPA glutamate receptors, ampakines increase the excitatory effects of the neurotransmitter
glutamate. Early preclinical and clinical research suggested that these ampakines might have therapeutic potential for the treatment
of memory and cognitive disorders, depression, attention deficit disorder and schizophrenia. Given our current focus on respiratory
disorders, we may seek to partner, out-license or sell our rights to the use of ampakine compounds for the treatment of neurological
and psychiatric indications, as we focus on the development of our compounds for the treatment of brain-related breathing disorders.
The early ampakines discovered
by Cortex, Eli Lilly and Company, and others were ultimately abandoned due to the presence of undesirable side effects, particularly
convulsive activity. Subsequently, Cortex scientists discovered a new, chemically distinct series of molecules termed “low
impact” as opposed to the “high impact” designation given to the earlier compounds. While these low impact compounds
shared many pharmacological properties with the high impact compounds, they did not produce convulsive effects in animals. These
low impact compounds do not bind to the same molecular site as the high impact compounds and, as a result, do not produce the
undesirable electrophysiological and biochemical effects that lead to convulsive activity.
The Company owns patents
and patent applications for certain families of chemical compounds that claim the chemical structures and their use in the treatment
of various disorders. These patents cover, among other compounds, the Company’s lead ampakines CX1739 and CX1942 and extend
through at least 2028.
In order to broaden the
use of the Company’s ampakine technology into the area of respiratory disorders, on May 8, 2007, the Company entered into
a license agreement, as subsequently amended, with the University of Alberta granting the Company exclusive rights to practice
patents held by the University of Alberta claiming the use of ampakines for the treatment of various respiratory disorders. These
patents, along with the Company’s own patents claiming chemical structures, comprise the Company’s principal intellectual
property supporting the Company’s research and clinical development program in the use of ampakines for the treatment of
respiratory disorders.
The Company has obtained
pre-clinical results indicating that several of its low impact ampakines, including CX717, CX1739 and CX1942, were able to antagonize
the respiratory depression caused by opioids, barbiturates and anesthetics without offsetting the analgesic effects of the opiates
or the sedative effects of the anesthetics. Dr. John Greer, Director of the Neuroscience and Mental Health Institute at the University
of Alberta, has shown that these ampakine effects are due to a direct action on neurons in pre-Botzinger’s complex, a brain
stem region responsible for regulating respiratory drive.
After several Phase 1
and 2 studies to demonstrate safety and tolerability, the first of these low impact compounds, CX717, was tested in two Phase
2A clinical studies to determine its ability to antagonize the respiratory depressant effects of fentanyl, a potent opioid analgesic.
In both of these studies, one of which was published in a peer-reviewed journal, CX717 antagonized the respiratory depression
produced by fentanyl without altering the analgesia produced by this drug.
After considerable delay
in the development of CX717, due to regulatory issues with the FDA, the Company finally has decided to terminate development of
this compound because of the impending loss of its U.S. patents in 2017 and international patents in 2018. Nevertheless, the Company
believes that CX717 has demonstrated clinical proof of principle for the use of low impact ampakines in the treatment of opioid-induced
respiratory depression.
The Company’s present
lead ampakine, CX1739, has demonstrated safety and tolerability in several Phase 1 clinical studies, with maximum well-tolerated
single dose identified as 900mg and 450 mg twice-a-day (for a 900mg total daily dose) for 7 days. Pharmacokinetic results to date
from the volunteers who have taken CX1739 show that drug absorption over the range of 50mg to 1200mg was linear and predictable,
with an approximate half-life of 8 hours.
The Company has conducted
a single dose, randomized, double-blind, placebo-controlled study with CX1739 in 20 subjects with moderate to severe sleep apnea.
Analysis of a range of sleep apnea parameters assessed by overnight polysomnography revealed that, while a single dose of CX1739
improved a number of sleep apnea parameters across most of the patients who were given the drug, the primary effects were observed
within a sub-group of patients diagnosed with either central or mixed sleep apnea. CX1739 was safe, but the dose appeared to be
near the limits of tolerability. There were no serious adverse events and no clinically relevant changes in vital signs, cardiovascular
or other safety assessments.
We believe that the results
from this study merit conducting a larger study with CX1739 that will be focused on patients with central and/or mixed sleep apnea.
It is possible that repeated daily treatment with CX1739 for several weeks may prove to be tolerated better and with greater efficacy
than a single dose. However, given the time and expense necessary to conduct such a clinical trial, the Company is not currently
planning to conduct such a study. Instead, subsequent to additional funding, and using a design similar to that in which CX717
demonstrated clinical efficacy, the Company plans to conduct two clinical studies investigating the ability of orally administered
CX1739 to antagonize the respiratory depressant effects of fentany and propofol without altering the analgesic and anesthetic
effects of these drugs. The Company’s short term commercial goals are to obtain FDA approval for the use of orally administered
CX1739 for the following indications: 1.) pre-surgical administration for the prevention of respiratory depression produced by
propofol and 2.) peri- and post-operative administration in a hospital setting for the prevention of respiratory depression produced
by opiods. The Company believes that these goals can be achieved in a timely and cost-effective manner. Longer term goals include
obtaining FDA approval for the use oral administration of CX1739 given concomitantly with an opioid analgesic for the safe management
of pain in a home setting. The Company believes that successful commercial implementation of these goals will require corporate
partnership.
In addition to CX1739,
the Company is developing CX1942, a soluble ampakine, to be used in an injectable formulation as a rescue medication for the emergency
treatment of drug-induced respiratory depression. Animal studies have indicated that intravenously injected CX1942 can reverse
the respiratory depression produced by fentanyl. In October 2014, the Company intends to begin a study, funded by the National
Institute of Drug Abuse, to determine the parameters whereby CX1942 is able to reverse the respiratory depression and lethality
produced by a number of respiratory depressant drugs, including opioids. One aspect of the study will be to determine whether
intramuscular or subcutaneous injections are as effective as intravenous. Upon completion of this study and the choice of a route
of administration, preclinical toxicology and safety studies can be conducted relatively quickly and inexpensively, since the
clinical indication supported by these studies is for acute use.
Manufacturing
We have no experience
or capability to either manufacture bulk quantities of the new compounds that we develop, or to produce finished dosage forms
of the compounds, such as tablets or capsules. We rely, and presently intend to continue to rely, on the manufacturing and quality
control expertise of contract manufacturing organizations or current and prospective corporate partners. There is no assurance
that we will be able to enter into manufacturing arrangements to produce bulk quantities of our compounds on favorable financial
terms. There is, however, substantial availability of both bulk chemical manufacturing and dosage form manufacturing capability
throughout the world that we believe we can readily access. See “Risk Factors – Risks related to our business –
We are at an early stage of development and we may not be able to successfully develop and commercialize our products and technologies”
for a discussion of certain risks related to the development and commercialization of our products.
Marketing
We have no experience
in the marketing of pharmaceutical products and do not anticipate having the resources to distribute and broadly market any products
that we may develop. We will therefore continue to seek commercial development arrangements with other pharmaceutical companies
for our proposed products for those indications that require significant sales forces to effectively market. In entering into
such arrangements, we may seek to retain the right to promote or co-promote products for certain of the Orphan Drug indications
in North America. We believe that there is a significant expertise base for such marketing and sales functions within the pharmaceutical
industry and expect that we could recruit such expertise if we choose to directly market a drug. See “Risk Factors—Risks
related to our business—We are at an early stage of development and we may not be able to successfully develop and commercialize
our products and technologies” for a discussion of certain risks related to the marketing of our products.
Employees
As of December 31, 2013,
the Company employed three people (all officers), one of whom was full time. The Company currently employs six people (including
certain contractors who provide substantial services to the Company), one of whom is full time.
Technology Rights
University of California, Irvine License
Agreements
The Company entered into
a series of license agreements in 1993 and 1998 with the University of California, Irvine (“UCI”) that granted the
Company proprietary rights to certain chemical compounds that acted as ampakines and their therapeutic uses. These agreements
granted the Company, among other provisions, exclusive rights: (i) to practice certain patents and patent applications, as defined
in the license agreement, that were then held by UCI; (ii) to identify, develop, make, have made, import, export, lease, sell,
have sold or offer for sale any related licensed products; and (iii) to grant sub-licenses of the rights granted in the license
agreements, subject to the provisions of the license agreements. The Company was required, among other terms and conditions, to
pay UCI a license fee, royalties, patent costs and certain additional payments.
Under such license agreements,
the Company was required to make minimum annual royalty payments of approximately $70,000. The Company was also required to spend
a minimum of $250,000 per year to advance the ampakine compounds until the Company began to market an ampakine compound. At December
31, 2012, the Company was not in compliance with its minimum annual payment obligations and believed that this default constituted
a termination of the license agreements. On April 15, 2013, the Company received a letter from UCI indicating that the license
agreements between UCI and the Company had been terminated due to the Company’s failure to make certain payments required
to maintain the agreements. Since the patents covered in these license agreements had begun to expire and the therapeutic uses
described in these patents were no longer germane to the Company’s new focus on respiratory disorders, the loss of these
license agreements is not expected to have a material impact on the Company’s current drug development programs. In the
opinion of management, the Company has made adequate provision for any liability relating to this matter in its financial statements
at December 31, 2013 and 2012.
University of Alberta License Agreement
On May 8, 2007, the Company
entered into a license agreement, as subsequently amended, with the University of Alberta granting the Company exclusive rights
to practice patents held by the University of Alberta claiming the use of ampakines for the treatment of various respiratory disorders.
The Company agreed to pay the University of Alberta a licensing fee and a patent issuance fee, which were paid, and prospective
payments consisting of a royalty on net sales, sublicense fee payments, maintenance payments and milestone payments. The prospective
maintenance payments commence on the enrollment of the first patient into the first Phase 2B clinical trial and increase upon
the successful completion of the Phase 2B clinical trial. As the Company does not at this time anticipate scheduling a Phase 2B
clinical trial, no maintenance payments are currently due and payable to the University of Alberta. In addition, no other prospective
payments are currently due and payable to the University of Alberta.
University of Illinois
License Agreement
Through the merger with
Pier, the Company gained access to the License Agreement that Pier had entered into with the University of Illinois on October
10, 2007. The License Agreement covered certain patents and patent applications in the United States and other countries claiming
the use of certain compounds referred to as cannabinoids for the treatment of sleep related breathing disorders (including sleep
apnea), of which dronabinol is a specific example of one type of cannabinoid. The License Agreement was terminated effective March
21, 2013 due to the Company’s failure to make a required payment.
On June 27, 2014, the
Company entered into a new license agreement with the Board of Trustees of the University of Illinois that was similar, but not
identical, to the License Agreement between the parties that had been terminated on March 21, 2013. In exchange for certain milestone
and royalty payments, the License Agreement grants the Company (i) exclusive rights to several issued and pending patents in numerous
jurisdictions and (ii) the non-exclusive right to certain technical information that is generated by the University of Illinois
in connection with certain clinical trials as specified in the License Agreement, all of which relate to the use of cannabinoids
for the treatment of sleep related breathing disorders. The Company is developing dronabinol for the treatment of OSA, the most
common form of sleep apnea.
Item 1A. Risk Factors
In addition to the other
matters set forth in this Annual Report on Form 10-K, our continuing operations and the price of our common stock are subject
to the following risks:
Risks related to our business
Our independent registered public accounting firm has expressed
substantial doubt about our ability to continue as a going concern.
In its audit opinion issued
in connection with our balance sheets as of December 31, 2013 and 2012 and our statements of operations, stockholders’ equity
(deficiency), and cash flows for the years ended December 31, 2013 and 2012, our independent registered public accounting firm
has expressed substantial doubt about our ability to continue as a going concern given our limited working capital, recurring
net losses and negative cash flows from operations. The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal
course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification
of recorded asset amounts or amounts of liabilities that might be necessary should we be unable to continue in existence. While
we have relied principally in the past on external financing to provide liquidity and capital resources for our operations, we
can provide no assurance that cash generated from our operations together with cash received in the future from external financing,
if any, will be sufficient to enable us to continue as a going concern.
We have a history of net losses; we expect to continue to incur
net losses and we may never achieve or maintain profitability.
Since our formation on
February 10, 1987 through the end of our most recent fiscal year ended December 31, 2013, we have generated only modest operating
revenues and we have incurred net losses of $129,542,788. We have also experienced additional losses subsequent to this period.
For the fiscal year ended December 31, 2013, our net loss was $1,201,457 and as of December 31, 2013, we had an accumulated deficit
of $129,542,788. For the year ended December 31, 2012, our net loss was $7,572,244 and as of December 31, 2012, we had an accumulated
deficit of $128,341,331. We have not generated any revenue from product sales to date, and it is possible that we will never generate
revenues from product sales in the future. Even if we do achieve significant revenues from product sales, we expect to incur significant
net losses over the next several years. As with other companies in the biotechnology industry, it is possible that we will never
achieve profitable operations.
We will need additional capital in the
future and, if such capital is not available on terms acceptable to us or available to us at all, we may need to scale back our
research and development efforts and may be unable to continue our business operations.
We will require substantial
additional funds to advance our research and development programs and to continue our operations, particularly if we decide to
independently conduct later-stage clinical testing and apply for regulatory approval of any of our proposed products, and if we
decide to independently undertake the marketing and promotion of our products. Additionally, we may require additional funds in
the event that we decide to pursue strategic acquisitions of or licenses for other products or businesses. Based on our operating
plan as of December 31, 2013, we estimated that our existing cash resources may not be sufficient to meet our requirements for
2014. We believe that we will require additional capital to fund on-going operations. Additional funds may result from agreements
with larger pharmaceutical companies that include the license or rights to the technologies and products that we are currently
developing, although there is no assurance that we will secure such a transaction in a timely manner, or at all.
Our cash requirements
in the future may differ significantly from our current estimates, depending on a number of factors, including:
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the time and costs involved in obtaining regulatory
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the costs of setting up and operating our own marketing
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the ability to obtain funding under contractual and licensing agreements; |
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the costs involved in obtaining and enforcing patents
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our success in entering into collaborative relationships
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To finance our future
activities, we may seek funds through additional rounds of financing, including private or public equity or debt offerings and
collaborative arrangements with corporate partners. We cannot say with any certainty that we will be able to obtain the additional
needed funds on reasonable terms, or at all. The sale of additional equity or convertible debt securities could result in additional
and possibly substantial dilution to our stockholders. If we issued preferred equity or debt securities, these securities could
have rights superior to holders of our common stock, and such instruments entered into in connection with the issuance of securities
could contain covenants that will restrict our operations. We might have to obtain funds through arrangements with collaborative
partners or others that may require us to relinquish rights to our technologies, product candidates or products that we otherwise
would not relinquish. In early March 2009 and again in August 2011, we reduced our workforce in an effort to conserve our capital
resources. In 2012, several members of management departed. In March 2013 the then-current remaining members of management were
removed by our newly elected board of directors and new officers were appointed. If adequate funds are not available in the future,
as required, we could lose our key employees and might have to further delay, scale back or eliminate one or more of our research
and development programs, which would impair our future prospects. In addition, we may be unable to meet our research spending
obligations under our existing licensing agreements and may be unable to continue our business operations.
Our products rely on licenses from research
institutions and if we lose access to these technologies or applications, our business could be substantially impaired.
Under our agreements with
The Regents of the University of California, we had exclusive rights to certain ampakine compounds for all applications for which
the University had patent rights, other than endocrine modulation. The license securing these rights has since been terminated.
Under a patent license
agreement with The Governors of the University of Alberta, we have exclusive rights to the use of certain ampakine compounds to
prevent and treat respiratory depression induced by opiate analgesics, barbiturates and anesthetic and sedative agents.
On May 8, 2007, the Company
entered into a license agreement, as subsequently amended, with the University of Alberta granting the Company exclusive rights
to practice patents held by the University of Alberta claiming the use of ampakines for the treatment of various respiratory disorders.
The Company agreed to pay the University of Alberta a licensing fee and a patent issuance fee, which were paid, and prospective
payments consisting of a royalty on net sales, sublicense fee payments, maintenance payments and milestone payments. The prospective
maintenance payments commence on the enrollment of the first patient into the first Phase 2B clinical trial and increase upon
the successful completion of the Phase 2B clinical trial. As the Company does not at this time anticipate scheduling a Phase 2B
clinical trial, no maintenance payments are currently due and payable to the University of Alberta. In addition, no other prospective
payments are currently due and payable to the University of Alberta.
Through the merger with
Pier, the Company gained access to an Exclusive License Agreement (as amended, the Pier License Agreement), that Pier had entered
into with the University of Illinois on October 10, 2007. The Pier License Agreement covered certain patents and patent applications
in the United States and other countries claiming the use of certain compounds referred to as cannabinoids for the treatment of
sleep related breathing disorders (including sleep apnea), of which dronabinol is a specific example of one type of cannabinoid.
Dronabinol is a synthetic derivative of the naturally occurring substance in the cannabis plant, otherwise known as Δ9-THC
(Δ9-tetrahydrocannabinol). Dronabinol is currently approved by the FDA and is sold generically for use in refractory chemotherapy-induced
nausea and vomiting, as well as for anorexia in patients with AIDS. Pier’s business plan was to determine whether dronabinol
would significantly improve subjective and objective clinical measures in patients with obstructive sleep apnea. In addition,
Pier intended to evaluate the feasibility and comparative efficacy of a proprietary formulation of dronabinol. The Pier License
Agreement was terminated effective March 21, 2013 due to the Company’s failure to make a required payment and on June 27,
2014, the Company entered into a new license agreement with the University of Illinois that was similar, but not identical, to
the Pier License Agreement that had been terminated. If we are unable to comply with the terms of the new license agreement, such
as required payments thereunder, the new license agreement might be terminated.
We are at an early stage of development
and we may not be able to successfully develop and commercialize our products and technologies.
The development of ampakine
products and cannabinoid products is subject to the risks of failure commonly experienced in the development of products based
upon innovative technologies and the expense and difficulty of obtaining approvals from regulatory agencies. Drug discovery and
development is time consuming, expensive and unpredictable. On average, only one out of many thousands of chemical compounds discovered
by researchers proves to be both medically effective and safe enough to become an approved medicine. All of our proposed products
are in the preclinical or early clinical stage of development and will require significant additional funding for research, development
and clinical testing before we are able to submit them to any of the regulatory agencies for clearances for commercial use.
The process from discovery
to development to regulatory approval can take several years and drug candidates can fail at any stage of the process. Late stage
clinical trials often fail to replicate results achieved in earlier studies. Historically, in our industry more than half of all
compounds in development failed during Phase 2 trials and 30% failed during Phase 3 trials. We cannot assure you that we will
be able to complete successfully any of our research and development activities. Even if we do complete them, we may not be able
to market successfully any of the products or be able to obtain the necessary regulatory approvals or assure that healthcare providers
and payors will accept our products. We also face the risk that any or all of our products will not work as intended or that they
will be unsafe, or that, even if they do work and are safe, that our products will be uneconomical to manufacture and market on
a large scale. Due to the extended testing and regulatory review process required before we can obtain marketing clearance, we
do not expect to be able to commercialize any therapeutic drug for several years, either directly or through our corporate partners
or licensees.
We may not be able to enter into the strategic
alliances necessary to fully develop and commercialize our products and technologies, and we will be dependent on our corporate
partners if we do.
We are seeking pharmaceutical
company partners to develop other major indications for the ampakine compounds and cannabinoids. These agreements would potentially
provide us with additional funds in exchange for exclusive or non-exclusive license or other rights to the technologies and products
that we are currently developing. Competition between biopharmaceutical companies for these types of arrangements is intense.
We cannot give any assurance that our discussions with candidate companies will result in an agreement or agreements in a timely
manner, or at all. Additionally, we cannot assure you that any resulting agreement will generate sufficient revenues to offset
our operating expenses and longer-term funding requirements.
Risks related to our industry
If we fail to secure adequate intellectual
property protection, it could significantly harm our financial results and ability to compete.
Our success will depend,
in part, on our ability to obtain and maintain patent protection for our products and processes in the United States and elsewhere.
We have filed and intend to continue to file patent applications as we need them. However, additional patents that may issue from
any of these applications may not be sufficiently broad to protect our technology. Also, any patents issued to us or licensed
by us may be designed around or challenged by others, and if such design or challenge is effective, it may diminish our rights.
If we are unable to obtain
and maintain sufficient protection of our proprietary rights in our products or processes prior to or after obtaining regulatory
clearances, our competitors may be able to obtain regulatory clearance and market similar or competing products by demonstrating
the equivalency of their products to our products. If they are successful at demonstrating the equivalency between the products,
our competitors would not have to conduct the same lengthy clinical tests that we have or will have conducted.
We also rely on trade
secrets and confidential information that we try to protect by entering into confidentiality agreements with other parties. Those
confidentiality agreements may be breached, and our remedies may be insufficient to protect the confidential information. Further,
our competitors may independently learn our trade secrets or develop similar or superior technologies. To the extent that our
consultants, key employees or others apply technological information independently developed by them or by others to our projects,
disputes may arise regarding the proprietary rights to such information or developments. We cannot assure you that such disputes
will be resolved in our favor.
We may be subject to potential product
liability claims. One or more successful claims brought against us could materially impact our business and financial condition.
The clinical testing,
manufacturing and marketing of our products may expose us to product liability claims. We have never been subject to a product
liability claim, and we require each patient in our clinical trials to sign an informed consent agreement that describes the risks
related to the trials, but we cannot assure you that the coverage limits of our insurance policies will be adequate or that one
or more successful claims brought against us would not have a material adverse effect on our business, financial condition and
result of operations. Further, if one of our ampakine or cannabinoid compounds is approved by the FDA for marketing, we cannot
assure you that adequate product liability insurance will be available, or if available, that it will be available at a reasonable
cost. Any adverse outcome resulting from a product liability claim could have a material adverse effect on our business, financial
condition and results of operations.
We face intense competition that could result in products that
are superior to the products that we are developing.
Our business is characterized
by intensive research efforts. Our competitors include many companies, research institutes and universities that are working in
a number of pharmaceutical or biotechnology disciplines to develop therapeutic products similar to those we are currently investigating.
Most of these competitors have substantially greater financial, technical, manufacturing, marketing, distribution and/or other
resources than we do. In addition, many of our competitors have experience in performing human clinical trials of new or improved
therapeutic products and obtaining approvals from the FDA and other regulatory agencies. We have no experience in conducting and
managing later-stage clinical testing or in preparing applications necessary to obtain regulatory approvals. Accordingly, it is
possible that our competitors may succeed in developing products that are safer or more effective than those that we are developing
and/or may obtain FDA approvals for their products faster than we can. We expect that competition in this field will continue
to intensify.
We may be unable to recruit and retain
our senior management and other key technical personnel on whom we are dependent.
We are highly dependent
upon senior management and key technical personnel and currently do not carry any insurance policies on such persons. In particular,
we were highly dependent on our President and Chief Executive Officer, Mark A. Varney, Ph.D. and our Vice President of Preclinical
Development, Steven A. Johnson, Ph.D., each of whom entered into employment agreements with us and served in those roles until
removed in March 2013. Since our change in management in March 2013, we are now highly dependent on Arnold S. Lippa, Ph.D., our
President and Chief Executive Officer, Jeff E. Margolis, our Treasurer and Secretary, and, since his appointment in April 2013,
our Chief Financial Officer Robert N. Weingarten. Competition for qualified employees among pharmaceutical and biotechnology companies
is intense. The loss of any of our senior management, or our inability to attract, retain and motivate the additional or replacement
highly-skilled employees and consultants that our business requires, could substantially hurt our business and prospects.
The regulatory approval process is expensive,
time consuming, uncertain and may prevent us from obtaining required approvals for the commercialization of some of our products.
The FDA and other similar
agencies in foreign countries have substantial requirements for therapeutic products. Such requirements often involve lengthy
and detailed laboratory, clinical and post-clinical testing procedures and are expensive to complete. It often takes companies
many years to satisfy these requirements, depending on the complexity and novelty of the product. The review process is also extensive,
which may delay the approval process even more.
As of yet, we have not
obtained any approvals to market our products. Further, we cannot assure you that the FDA or other regulatory agency will grant
us approval for any of our products on a timely basis, if at all. Even if regulatory clearances are obtained, a marketed product
is subject to continual review, and later discovery of previously unknown problems may result in restrictions on marketing or
withdrawal of the product from the market.
Other risks
Our stock price may be volatile and our common stock could decline
in value.
The market price of securities
of life sciences companies in general has been very unpredictable. The range of sales prices of our common stock for the fiscal
years ended December 31, 2013 and 2012, as quoted on the Over the Counter Bulletin Board, was $0.03 to $0.10 and $0.02 to $0.11,
respectively. The following factors, in addition to factors that affect that market generally, could significantly affect our
business, and the market price of our common stock could decline:
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competitors announcing technological innovations
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competitors’ publicity regarding actual or potential products under
development; |
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regulatory developments in the United States
and foreign countries; |
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developments concerning proprietary rights,
including patent litigation; |
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public concern over the safety of therapeutic
products; and |
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changes in healthcare reimbursement policies
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Our
common stock is thinly traded and you may be unable to sell some or all of your shares at the price you would like, or at all,
and sales of large blocks of shares may depress the price of our common stock.
Our common stock has historically
been sporadically or “thinly-traded,” meaning that the number of persons interested in purchasing shares of our common
stock at desired prices at any given time may be relatively small or nonexistent. As a consequence, there may be periods of several
days or more when trading activity in shares of our common stock is minimal or non-existent, as compared to a seasoned issuer
that has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect
on share price. This could lead to wide fluctuations in our share price. You may be unable to sell your common stock at or above
your purchase price, which may result in substantial losses to you. Also, as a consequence of this lack of liquidity, the trading
of relatively small quantities of shares by our stockholders may disproportionately influence the price of shares of our common
stock in either direction. The price of shares of our common stock could, for example, decline precipitously in the event a large
number of share of our common shares are sold on the market without commensurate demand, as compared to a seasoned issuer which
could better absorb those sales without adverse impact on its share price.
There is a large number of shares of the Company’s common
stock that may be issued or sold, and if such shares are issued or sold, the market price of our common stock may decline.
As of December 31, 2013,
we had 144,041,556 shares of our common stock outstanding.
If all warrants and options
outstanding as of December 31, 2013 are exercised prior to their expiration, up to 9,166,668 additional shares of our common stock
could become freely tradable. Such sales of substantial amounts of common stock in the public market could adversely affect the
prevailing market price of our common stock and could also make it more difficult for us to raise funds through future offerings
of common stock. Included in the 9,166,668 potentially issuable shares of common stock were shares issuable upon the exercise
of warrants to purchase up to 4,000,000 shares of common stock which expired unexercised in June 2014.
Since December 31, 2013,
we have issued our Series G Preferred Stock and additional convertible notes and warrants, all of which are convertible into shares
of our common stock (see Note 12 to our consolidated financial statements for the years ended December 31, 2013 and 2012—Subsequent
Events—Series G Preferred Stock Placement) and may in the future issue additional equity or equity-based securities.
If some or all of our Series G Preferred Stock, convertible Notes or warrants converts to common stock, or if we issue additional
equity or equity-based securities, the number of shares of our common stock outstanding could increase substantially, which could
adversely affect the prevailing market price of our common stock and could also make it more difficult for us to raise funds through
future offerings of common stock.
Our charter document may prevent or delay an attempt by our
stockholders to replace or remove management.
Certain provisions of
our restated certificate of incorporation, as amended, could make it more difficult for a third party to acquire control of our
business, even if such change in control would be beneficial to our stockholders. Our restated certificate of incorporation, as
amended, allowed the Board of Directors of the Company, referred to as the Board or Board of Directors, to issue as of December
31, 2013 up to 3,507,500 shares of preferred stock without stockholder approval. The ability of our Board of Directors to issue
additional preferred stock may have the effect of delaying or preventing an attempt by our stockholders to replace or remove existing
directors and management. While additional shares of our preferred stock have been authorized and issued in March and April 2014,
the Company retains the authority to issue a substantial number of shares of preferred stock without stockholder approval.
If our common stock is determined to be
a “penny stock,” a broker-dealer may find it more difficult to trade our common stock and an investor may find it
more difficult to acquire or dispose of our common stock in the secondary market.
In addition, our common
stock may be subject to the so-called “penny stock” rules. The United States Securities and Exchange Commission (“SEC”)
has adopted regulations that define a “penny stock” to be any equity security that has a market price per share of
less than $5.00, subject to certain exceptions, such as any securities listed on a national securities exchange. For any transaction
involving a “penny stock,” unless exempt, the rules impose additional sales practice requirements on broker-dealers,
subject to certain exceptions. If our common stock is determined to be a “penny stock,” a broker-dealer may find it
more difficult to trade our common stock and an investor may find it more difficult to acquire or dispose of our common stock
on the secondary market.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of December 31, 2013,
the Company did not maintain any operating facilities.
On May 14, 2012, the Company
executed a three-year lease for approximately 5,000 square feet of office space beginning June 1, 2012 at a monthly rate of $9,204.
During the three months ended December 31, 2012, the Company substantially vacated its operating facility and abandoned its furniture,
equipment and leasehold improvements. In May 2013, the Company received notice that it had been sued in the Superior Court of
California in a complaint filed on March 28, 2013 by its former landlord, PPC Irvine Center Investment, LLC, seeking among other
things, $57,535 in past due rent, termination of the lease agreement, and reasonable attorney’s fees. On May 23, 2013, a
settlement was reached with the landlord that provided for the Company to relinquish its security deposit in the amount of $29,545,
transfer title to its remaining furniture, equipment and leasehold improvements, and pay an additional $26,000.
Item 3. Legal Proceedings
We were not a party to
any material legal proceedings, nor has any material proceeding been terminated during the fiscal year ended December 31, 2013,
except the resolution of the matter related to our lease discussed in Item 2—Properties above.
Since December 31, 2013,
we have been periodically subject to various pending and threatened legal actions and claims. See Note 11 to our consolidated
financial statements for the years ended December 31, 2013 and 2012—Commitments and Contingencies—Pending or Threatened
Legal Actions and Claims and Note 12 to our consolidated financial statements for the years ended December 31, 2013 and 2012—Subsequent
Events—Debt Settlements for details regarding these matters.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is quoted
on the Over the Counter Bulletin Board, referred to as OTCBB, under the symbol “CORX”. The following table presents
quarterly information on the high and low sales prices of the common stock furnished by the OTCBB for the fiscal years ended December
31, 2013 and 2012. The quotations on the OTCBB reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.
| |
High | | |
Low | |
Fiscal Year ended December 31, 2013 | |
| | | |
| | |
| |
| | | |
| | |
Fourth Quarter | |
$ | 0.05 | | |
$ | 0.03 | |
Third Quarter | |
| 0.10 | | |
| 0.03 | |
Second Quarter | |
| 0.08 | | |
| 0.03 | |
First Quarter | |
| 0.05 | | |
| 0.03 | |
| |
| | | |
| | |
Fiscal Year ended December 31, 2012 | |
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| | |
| |
| | | |
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Fourth Quarter | |
$ | 0.07 | | |
$ | 0.02 | |
Third Quarter | |
| 0.09 | | |
| 0.05 | |
Second Quarter | |
| 0.11 | | |
| 0.04 | |
First Quarter | |
| 0.11 | | |
| 0.05 | |
As of December 31, 2013,
there were 403 stockholders of record of our common stock, and approximately 8,000 beneficial owners. The high and low sales prices
for our common stock on December 31, 2013, as quoted on the OTC market, were $0.0275 and $0.0261, respectively.
We have never paid cash
dividends on our common stock and do not anticipate paying such dividends in the foreseeable future. The payment of dividends,
if any, will be determined by the Board in light of conditions then existing, including our financial condition and requirements,
future prospects, restrictions in financing agreements, business conditions and other factors deemed relevant by the Board.
During the fiscal year
ended December 31, 2013, we did not repurchase any of our securities.
Item 6. Selected Financial Data
Not applicable to smaller reporting companies.
Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should
be read in conjunction with the audited financial statements and notes related thereto appearing elsewhere in this document.
Overview
Cortex Pharmaceuticals,
Inc. (“Cortex”) was formed in 1987 to engage in the discovery, development and commercialization of innovative pharmaceuticals
for the treatment of neurological and psychiatric disorders. In 2011, prior management conducted a re-evaluation of Cortex’s
strategic focus and determined that clinical development in the area of respiratory disorders, particularly respiratory depression
and sleep apnea, provided the most cost-effective opportunities for potential rapid development and commercialization of Cortex’s
compounds. Accordingly, Cortex narrowed its clinical focus at that time and abandoned other avenues of scientific inquiry. This
re-evaluation provided the impetus for Cortex’s acquisition of Pier in August 2012, as described below. Cortex and its wholly-owned
subsidiary, Pier Pharmaceuticals, Inc. (“Pier”), are collectively referred to herein as the “Company.”
On March 22, 2013, the
Company received a written consent of stockholders holding a majority of the Company’s common stock signed by Origin Ventures
II LP, Illinois Emerging Technologies Fund, LP, Illinois Ventures LLC, Samyang Optics Co. Ltd., Samyang Value Partners Co., Ltd.,
Steven Chizzik, Kenneth M. Cohen, Peter Letendre, David W. Carley and Aurora Capital LLC (the “Written Consent”) (i)
removing Charles J. Casamento, M. Ross Johnson, John F. Benedik and Mark A. Varney from their positions as directors of the Company,
and (ii) appointing each of Arnold S. Lippa, Ph.D. and Jeff E. Margolis to fill two of the vacancies created, each to hold such
office until the next annual meeting of the stockholders and until their successors have been duly elected and qualified. The
Written Consent did not remove Moogak Hwang, Ph.D., a representative of Samyang Optics Co. Ltd., a lender to and significant stockholder
of the Company, from the Board of Directors. Dr. Hwang continued to serve as a director until his resignation from the Board of
Directors effective September 30, 2013.
Following the delivery
of the Written Consent, the Board of Directors, acting by unanimous written consent dated March 22, 2013, removed all officers
of the Company and appointed Dr. Lippa, as Chairman of the Board, President and Chief Executive Officer and Mr. Margolis, as Vice
President, Treasurer and Secretary. On April 29, 2013, Robert N. Weingarten was appointed as a director, Vice President and Chief
Financial Officer.
Since new management’s
appointment in March 2013, it has continued to implement this revised strategic focus, including seeking the capital to fund such
efforts. As a result of the Company’s scientific discoveries and the acquisition of strategic, exclusive license agreements
(including a new license agreement with the University of Illinois, as described below), management believes that the Company
is now a leader in the discovery and development of innovative pharmaceuticals for the treatment of respiratory disorders.
Since its formation in
1987, Cortex has been engaged in the research and clinical development of a class of compounds referred to as ampakines. By acting
as positive allosteric modulators of AMPA glutamate receptors, ampakines increase the excitatory effects of the neurotransmitter
glutamate. Preclinical research suggested that these ampakines might have therapeutic potential for the treatment of certain respiratory
disorders, as well as cognitive disorders, depression, attention deficit disorder and schizophrenia.
In its early stages, Cortex
entered into a series of license agreements in 1993 and 1998 with the University of California, Irvine (“UCI”) that
granted Cortex proprietary rights to certain chemical compounds that acted as ampakines and their therapeutic uses. These agreements
granted Cortex, among other provisions, exclusive rights: (i) to practice certain patents and patent applications, as defined
in the license agreement, that were then held by UCI; (ii) to identify, develop, make, have made, import, export, lease, sell,
have sold or offer for sale any related licensed products; and (iii) to grant sub-licenses of the rights granted in the license
agreements, subject to the provisions of the license agreements. Cortex was required, among other terms and conditions, to pay
UCI a license fee, royalties, patent costs and certain additional payments.
At December 31, 2012,
the Company was not in compliance with its minimum annual payment obligations and believed that this default constituted a termination
of the license agreements. On April 15, 2013, UCI notified the Company that these license agreements were terminated due to the
Company’s failure to make its obligatory payments. Since the patents covered in these license agreements had begun to expire
and the therapeutic uses described in these patents were no longer germane to the Company’s new focus on respiratory disorders,
the loss of these license agreements is not expected to have a material impact on the Company’s current or future drug development
programs.
The Company also owns
patents and patent applications for certain families of chemical compounds, including ampakines, which claim the chemical structures
and their use in the treatment of various disorders. These patents cover, among other compounds, the Company’s lead ampakines
CX1739 and CX1942, and extend through at least 2028.
On May 8, 2007, Cortex
entered into a license agreement, as subsequently amended, with the University of Alberta granting Cortex exclusive rights to
practice patents held by the University of Alberta claiming the use of ampakines for the treatment of various respiratory disorders.
These patents, along with Cortex’s own patents claiming chemical structures, comprise Cortex’s principal intellectual
property supporting Cortex’s research and clinical development program in the use of ampakines for the treatment of respiratory
disorders. Cortex has completed pre-clinical studies indicating that several of its ampakines, including CX717, CX1739 and CX1942,
were efficacious in treating drug induced respiratory depression caused by opiates or certain anesthetics without offsetting the
analgesic effects of the opiates or the anesthetic effects of the anesthetics. In two clinical Phase 2 studies, one of which was
published in a peer-reviewed journal, CX717, a predecessor compound to CX1739 and CX1942, antagonized the respiratory depression
produced by fentanyl, a potent narcotic, without affecting the analgesia produced by this drug. In addition, Cortex has conducted
a Phase 2A clinical study in which patients with sleep apnea were administered CX1739, Cortex’s lead clinical compound.
Preliminary results suggested that CX1739 might have use for the treatment of central and mixed sleep apnea, but not obstructive
sleep apnea.
In order to expand the
Company’s respiratory disorders program, the Company acquired 100% of the issued and outstanding equity securities of Pier
effective August 10, 2012 pursuant to an Agreement and Plan of Merger, as described below.
Loan from SY Corporation Co., Ltd.
On June 25, 2012, the
Company borrowed 465,000,000 Won (the currency of South Korea, equivalent to approximately $400,000 US dollars) from and executed
a secured note payable to SY Corporation Co., Ltd., formerly known as Samyang Optics Co. Ltd. (“Samyang”), an approximately
20% common stockholder of the Company at that time. The note accrues simple interest at the rate of 12% per annum and has a maturity
date of June 25, 2013, although Samyang was permitted to demand early repayment of the promissory note on or after December 25,
2012. Samyang did not demand early repayment. The Company has not made any payments on the promissory note. At June 30, 2013 and
subsequently, the promissory note was outstanding and in technical default, although Samyang has not issued a notice of default
or a demand for repayment. The Company believes that Samyang is in default of its obligations under its January 2012 license agreement,
as amended, with the Company, but the Company has not yet issued a notice of default. The Company anticipates entering into discussions
with Samyang with a view toward a comprehensive resolution of the aforementioned matters.
Merger with Pier Pharmaceuticals, Inc.
Cortex acquired 100% of
the issued and outstanding equity securities of Pier effective August 10, 2012 pursuant to an Agreement and Plan of Merger. Pier
was formed in June 2007 (under the name SteadySleep Rx Co.) as a clinical stage pharmaceutical company to develop a pharmacologic
treatment for the respiratory disorder known as obstructive sleep apnea and had been engaged in research and clinical development
activities since formation.
In connection with the
merger transaction with Pier, Cortex issued 58,417,893 newly issued shares of its common stock with an aggregate fair value of
$3,271,402 ($0.056 per share), based upon the closing price of the Company’s common stock on August 10, 2012. The shares
of common stock were issued to stockholders, convertible note holders, warrant holders, option holders, and certain employees
and vendors of Pier in satisfaction of their interests and claims. The common stock issued by Cortex represented approximately
41% of the 144,041,556 common shares outstanding immediately following the closing of the transaction.
Through the merger, Cortex
gained access to an Exclusive License Agreement, as amended (the “License Agreement”), that Pier had entered into
with the University of Illinois on October 10, 2007. The License Agreement covered certain patents and patent applications in
the United States and other countries claiming the use of certain compounds referred to as cannabinoids, of which dronabinol is
a specific example, for the treatment of sleep related breathing disorders (including sleep apnea). Dronabinol is a synthetic
derivative of the naturally occurring substance in the cannabis plant, otherwise known as Δ9-THC (Δ9-tetrahydrocannabinol).
Pier’s business plan was to determine whether dronabinol would significantly improve subjective and objective clinical measures
in patients with obstructive sleep apnea (“OSA”). In addition, Pier intended to evaluate the feasibility and comparative
efficacy of a proprietary formulation of dronabinol.
The License Agreement
granted Pier, among other provisions, exclusive rights: (i) to practice certain patents and patent applications, as defined in
the License Agreement, that were then held by the University of Illinois; (ii) to identify, develop, make, have made, import,
export, lease, sell, have sold or offer for sale any related licensed products; and (iii) to grant sub-licenses of the rights
granted in the License Agreement, subject to the provisions of the License Agreement. Pier was required under the License Agreement,
among other terms and conditions, to pay the University of Illinois a license fee, royalties, patent costs and certain milestone
payments.
Prior to the merger, Pier
conducted a 21 day, randomized, double-blind, placebo-controlled dose escalation Phase 2 clinical study in 22 patients with obstructive
sleep apnea, in which dronabinol produced a statistically significant reduction in the Apnea-Hypopnea Index (“AHI”),
the primary therapeutic end-point, and was observed to be safe and well tolerated. Dronabinol is currently under investigation,
at the University of Illinois and other centers, in a potentially pivotal 120 patient, double-blind, placebo-controlled Phase
2B OSA clinical trial, fully funded by the National Institutes of Health.
Dronabinol is a Schedule
III, controlled generic drug with a relatively low abuse potential that is approved by the U.S. Food and Drug Administration (“FDA”)
for the treatment of AIDS-related anorexia and chemotherapy induced emesis. The use of dronabinol for the treatment of OSA is
a novel indication for an already approved drug and, as such, the Company believes that it would only require approval by the
FDA of a supplemental new drug application.
The Company accounted
for the Pier transaction pursuant to ASC Topic 805, Business Combinations. The Company identified and evaluated the fair value
of the assets acquired. Based on the particular facts and circumstances surrounding the history and status of Pier, including
its business and intellectual property at the time of the merger transaction, the Company determined that the identifiable intangible
assets were comprised solely of contract-based intangible assets, and that there was no measurable goodwill.
The intangible asset acquired
in the Pier transaction consisted of the License Agreement. Unless terminated earlier, the License Agreement would terminate upon
expiration or termination of all patent rights. The License Agreement defined patent rights as all of the University of Illinois’
rights in the patents and patent applications, and (b) all of the University of Illinois’ rights in all divisions, continuations,
continuation-in-part applications, reissues, renewals, re-examinations, foreign counterparts, substitutions or extensions thereof.
Based upon the expiration date of the underlying patents, the License Agreement would be amortized on a straight-line basis over
the remaining life of the underlying patents of 172 months from the date of acquisition.
The following table summarizes
the fair value of the assets acquired and liabilities assumed by the Company at the closing of the Pier transaction on August
10, 2012.
Fair value of assets acquired: | |
| | |
Cash | |
$ | 23,208 | |
Other current assets | |
| 698 | |
Equipment | |
| 3,463 | |
License agreement | |
| 3,411,157 | |
Total assets acquired | |
$ | 3,438,526 | |
| |
| | |
Consideration transferred by the Company: | |
| | |
Fair value of common shares issued | |
$ | 3,271,402 | |
Liabilities assumed | |
| 167,124 | |
Total consideration paid | |
$ | 3,438,526 | |
The License Agreement
was terminated effective March 21, 2013 due to the Company’s failure to make a required payment. New management subsequently
opened negotiations with the University of Illinois and as a result, the Company ultimately entered into a new license agreement
with the University of Illinois on June 27, 2014, the material terms of which were similar to the License Agreement that had been
terminated on March 21, 2013.
Additional information
with respect to the Pier transaction, including the impairment of the License Agreement that resulted in the Company recording
an impairment charge to operations of $3,321,678 at December 31, 2012, is included in Notes 3 and 4 to the Company’s consolidated
financial statements for the years ended December 31, 2013 and 2012, which is included elsewhere in this document.
Significant Developments Subsequent to December 31, 2013
Series G Preferred Stock Placement
On March 14, 2014, the
Company filed a Certificate of Designation, Preferences, Rights and Limitations, (the “Certificate of Designation”)
of its Series G Preferred Stock (“Series G Preferred Stock”) with the Secretary of State of the State of Delaware
to amend the Company’s certificate of incorporation. The number of shares designated as Series G Preferred Stock is 1,700
(which shall not be subject to increase without the written consent of a majority of the holders of the Series G Preferred Stock
or as otherwise set forth in the Certificate of Designation). The Stated Value of each share of Series G Preferred Stock is $1,000.
The Company shall pay
a stated dividend on the Series G Preferred Stock at a rate per share (as a percentage of the Stated Value per share) of 1.5%
per annum, payable quarterly within 15 calendar days of the end of each fiscal quarter of the Company, in duly authorized, validly
issued, fully paid and non-assessable shares of Series G Preferred Stock, which may include fractional shares of Series G Preferred
Stock.
The Series G Preferred
Stock shall be convertible, beginning 60 days after the last share of Series G Preferred Stock is issued in the Private Placement,
at the option of the holder, into common stock at the applicable conversion price, at a rate determined by dividing the Stated
Value of the shares of Series G Preferred Stock to be converted by the conversion price, subject to adjustments for stock dividends,
splits, combinations and similar events as described in the form of Certificate of Designation. The stated value of the Series
G Preferred Stock is $1,000 per share, and the fixed conversion price is $0.0033. Accordingly, at the option of the holder, each
share of Series G Preferred Stock is convertible commencing on the date that is 60 calendar days after the date on which the last
share of Series G Preferred Stock is issued pursuant to a Purchase Agreement, into 303,030.3 shares of common stock. In addition,
the Company has the right to require the holders of the Series G Preferred Stock to convert such shares into common stock under
certain enumerated circumstances set forth in the Certificate of Designation.
Upon either (i) a Qualified
Public Offering (as defined in the Certificate of Designation) or (ii) the affirmative vote of the holders of a majority of the
Stated Value of the Series G Preferred Stock issued and outstanding, all outstanding shares of Series G Preferred Stock, plus
all accrued or declared, but unpaid, dividends thereon, shall mandatorily be converted into such number of shares of common stock
determined by dividing the Stated Value of such Series G Preferred Stock (together with the amount of any accrued or declared,
but unpaid, dividends thereon) by the Conversion Price (as defined in the Certificate of Designation). If not earlier converted,
the Series G Preferred Stock shall be redeemed by conversion on the two year anniversary of the date the last share of Series
G Preferred Stock is issued in the Private Placement at the Conversion Price.
Except as described in
the Certificate of Designation, holders of the Series G Preferred Stock will vote together with holders of the Company common
stock on all matters, on an as-converted to common stock basis, and not as a separate class or series (subject to limited exceptions).
In the event of any liquidation
or winding up of the Company prior to and in preference to any Junior Securities (including common stock), the holders of the
Series G Preferred Stock will be entitled to receive in preference to the holders of the Company common stock a per share amount
equal to the Stated Value, plus any accrued and unpaid dividends thereon.
On March 18, 2014, the
Company entered into Securities Purchase Agreements with various accredited investors (the “Initial Purchasers”),
pursuant to which the Company sold an aggregate of 753.22 shares of its Series G Preferred Stock for a purchase price of $1,000
per share, or an aggregate purchase price of $753,220. This financing represents the initial closing on a private placement of
up to $1,500,000 (the “Private Placement”). The Initial Purchasers in this tranche of the Private Placement consisted
of (i) Arnold S. Lippa, the Company’s Chairman, Chief Executive Officer and a member of the Company’s Board of Directors,
who had not previously owned common stock in the Company and who invested $250,000 for 250 shares of Series G Preferred Stock,
and (ii) new, non-affiliated, accredited investors. Neither the Series G Preferred Stock nor the underlying shares of common stock
have any registration rights.
The placement agents and
selected dealers in connection with the initial tranche of the Private Placement received cash fees totaling $3,955 as compensation
and warrants totaling approximately 5.6365% of the shares of common stock into which the Series G Preferred Stock may convert,
exercisable for five years at a fixed price of $0.00396, which is 120% of the conversion price at which the Series G Preferred
Stock may convert into the Company’s common stock. Aurora Capital LLC was one of the placement agents.
On April 17, 2014, the
Company entered into Securities Purchase Agreements with various accredited investors (together with the Initial Purchasers, the
“Purchasers”), pursuant to which the Company sold an aggregate of 175.28 shares of its Series G Preferred Stock, for
a purchase price of $1,000 per share, or an aggregate purchase price of $175,280. This was the second and final closing on the
Private Placement. The Purchasers in the second and final tranche of the Private Placement consisted of new, non-affiliated, accredited
investors and non-management investors who had also invested in the first closing. Neither the Series G Preferred Stock nor the
underlying shares of common stock have any registration rights.
The placement agents and
selected dealers in connection with the second tranche of the Private Placement received cash fees of $3,465 as compensation and
warrants totaling approximately 12% of the shares of common stock into which the Series G Preferred Stock may convert, exercisable
for five years at a fixed price of $0.00396, which is 120% of the conversion price at which the Series G Preferred Stock may convert
into the Company’s common stock. Aurora Capital LLC was one of the placement agents.
The stated value of the
Series G Preferred Stock is $1,000 per share, and the fixed conversion price is $0.0033. Accordingly, at the option of the holder,
each share of Series G Preferred Stock is convertible commencing on the date that is sixty calendar days after the date on which
the last share of Series G Preferred Stock is issued pursuant to a Purchase Agreement, into 303,030.3 shares of common stock.
The aggregate of 928.5 shares of Series G Preferred Stock sold in the Private Placement are convertible into a total of 281,363,634
shares of common stock. The Company had 144,041,556 shares of common stock, plus an additional 57,000,000 shares of common stock
issued to management on April 14, 2014, issued and outstanding immediately prior to the closing of the Private Placement of Series
G Preferred Stock described herein.
The warrants that the
placement agents and selected dealers received in connection with the Private Placement represent the right to acquire 19,251,271
shares of common stock exercisable for five years at a fixed price of $0.00396, which is 120% of the conversion price at which
the Series G Preferred Stock may convert into the Company’s common stock.
Purchasers in the Private
Placement of the Series G Preferred Stock have executed written consents in favor of (i) approving and adopting an amendment to
the Company’s certificate of incorporation that increases the number of authorized shares of the Company to 1,405,000,000,
1,400,000,000 of which are shares of common stock and 5,000,000 of which are shares of preferred stock, and (ii) approving and
adopting the Cortex Pharmaceuticals, Inc. 2014 Equity, Equity-Linked and Equity Derivative Incentive Plan.
The shares of Series G
Preferred Stock were offered and sold without registration under the Securities Act of 1933, as amended (the “Securities
Act”), in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as provided in Rule 506(b) of Regulation
D promulgated thereunder. The shares of Series G Preferred Stock and the Company’s common stock issuable upon conversion
of the shares of Series G Preferred Stock have not been registered under the Securities Act or any other applicable securities
laws, and unless so registered, may not be offered or sold in the United States except pursuant to an exemption from the registration
requirements of the Securities Act.
Capitalized terms in this
section that are not otherwise defined have the meanings ascribed to them in the Stock Purchase Agreements, the form of which
was previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 24, 2014.
Convertible Note and Warrant Financing
On November 5, 2014, the
Company entered into a Convertible Note and Warrant Purchase Agreement (the “Purchase Agreement”) with various accredited,
non-affiliated investors (each, a “Purchaser”), pursuant to which the Company sold an aggregate principal amount of
$238,500 of its (i) 10% Convertible Notes due September 15, 2015 (each a “Note”, and together, the “Notes”)
and (ii) Warrants to purchase shares of common stock (the “Warrants”) as described below. This financing represents
the initial closing on a private placement of up to $1,000,000, and the Company may close on one or more additional tranches of
this private placement in the near future. Unless otherwise provided for in the Notes, the outstanding principal balance of each
Note and all accrued and unpaid interest is due and payable in full on September 15, 2015. At any time, each Purchaser may
elect, at its option and in its sole discretion, to convert the outstanding principal amount into a fixed number of shares of
the Company’s common stock equal to the quotient obtained by dividing the outstanding principal amount by $0.035 (an aggregate
of 6,814,286 shares), plus any accrued and unpaid interest under the Note, which is treated in the same manner as the outstanding
principal amount. In the case of a Qualified Financing (as defined in the Purchase Agreement), the outstanding principal
amount and accrued and unpaid interest under the Notes automatically convert into common stock at a common stock equivalent price
of $0.035. In the case of an Acquisition (as defined in the Purchase Agreement), the Company may elect to either: (i)
convert the outstanding principal amount and all accrued and unpaid interest under the Notes into shares of common stock or (ii)
accelerate the maturity date of the Notes to the date of closing of the Acquisition. Each Warrant to purchase shares of common
stock shall be exercisable into a fixed number of shares of common stock of the Company calculated as each Purchaser’s investment
amount divided by $0.035 (an aggregate of 6,814,286 shares for the initial closing). The Warrants do not have any cashless
exercise provisions and are exercisable through September 15, 2015 at a fixed price of $0.035 per share. The shares of common
stock issuable upon conversion of the Notes and exercise of the Warrants are not subject to any registration rights.
On December 9, 2014, a
second closing for $46,000 was conducted under this financing. On December 31, 2014, a third closing for $85,000 was conducted
under this financing.
Placement agent fees,
brokerage commissions, finder’s fees and similar payments were made in the form of cash and warrants to qualified referral
sources in connection with the sale of the Notes and Warrants. In connection with the initial closing, fees of $16,695 were
paid in cash, based on 7% of the aggregate principal amount of the Notes issued to such referral sources, and the fees paid in
warrants (the “Placement Agent Warrants”) consisted of 477,000 warrants, reflecting warrants for that number of shares
equal to 7% of the number of shares of common stock into which the corresponding Notes are convertible. In connection with the
second closing, fees of $700 were paid in cash and 20,000 Placement Agent Warrants were issued. In connection with the third closing,
fees of $3,500 were paid in cash and 100,000 Placement Agent Warrants were issued. The Placement Agent Warrants have cashless
exercise provisions and are exercisable through September 15, 2015 at a fixed price of $0.035 per share. Aurora Capital LLC is
acting as the placement agent for this financing.
The Notes and Warrants
were offered and sold without registration under the Securities Act in reliance on the exemptions provided by Section 4(a)(2)
of the Securities Act as provided in Rule 506 of Regulation D promulgated thereunder. The Notes and Warrants and the shares of
common stock issuable upon conversion of the Notes and exercise of the Warrants have not been registered under the Securities
Act or any other applicable securities laws, and unless so registered, may not be offered or sold in the United States except
pursuant to an exemption from the registration requirements of the Securities Act.
Awards to Officers and Directors as Compensation
On April 14, 2014, the
Board of Directors of the Company awarded a total of 57,000,000 shares of common stock of the Company, including awards of 15,000,000
shares to each of the Company’s three executive officers, who were also the directors of the Company, and 4,000,000 shares
and 8,000,000 shares to two other individuals. The individual who received the 8,000,000 shares was an associated person of Aurora
Capital LLC. These awards were made to those individuals on that date as compensation for services rendered through March 31,
2014. None of the officers or directors of the Company had earned or received any cash compensation from the Company since joining
the Company in March and April 2013, and there were no prior compensation arrangements or agreements with such individuals. As
the initial closing of the Series G Preferred Stock was completed on March 18, 2014, and such closing represented approximately
81% of the total amount of such financing, the Company’s Board of Directors determined that it was appropriate at that time
to begin consideration with respect to compensation for such officers for the period since they joined the Company in March and
April 2013 through March 31, 2014. Such deliberations were concluded on April 14, 2014 with the issuance of the aforementioned
stock awards. Accordingly, as a result of these factors, the fair value of these stock awards will be charged to operations as
stock-based compensation effective as of March 18, 2014.
On July 17, 2014, the
Board of Directors of the Company awarded stock options to purchase a total of 15,000,000 shares of common stock of the Company,
consisting of options for 5,000,000 shares to each of the Company’s three executive officers, who are also directors of
the Company. The stock options were awarded as compensation for those individuals through December 31, 2014. The awarded stock
options vest in three equal installments on July 17, 2014 (at issuance), September 30, 2014, and December 31, 2014, and expire
on July 17, 2019. The exercise price of the stock options of $0.05 per share was in excess of the closing market price of a share
of the Company’s common stock on the date of issuance. The Company believes and intends that a portion of the stock options
awarded qualify as incentive stock options under the Internal Revenue Code of 1986, as amended. The issuance of incentive stock
awards is restricted as to amount as set forth in the Plan, and the form of award of the awarded stock options reflects this intention
and the limits under the Plan.
In connection with the
appointment of James Sapirstein and Kathryn MacFarlane as directors of the Company on September 3, 2014, the Board of Directors
awarded an aggregate of 4,000,000 shares of common stock of the Company to the new directors, consisting of 2,000,000 shares to
each new director, vesting 50% upon appointment to the Board of Directors, 25% on September 30, 2014 and 25% on December 31, 2014.
All of these awards were
made under the Company’s 2014 Equity, Equity-Linked and Equity Derivative Incentive Plan.
Debt Settlements
During the three months
ended March 31, 2014, the Company executed settlement agreements with four former executives that resulted in the settlement of
potential claims totaling approximately $1,336,000 for a total of approximately $118,000 in cash, plus the issuance of options
to purchase 4,300,000 shares of common stock exercisable at $0.04 per share for periods ranging from five to ten years. In addition
to other provisions, the settlement agreements included mutual releases.
During the three months
ended June 30, 2014, the Company also executed settlement agreements with certain former service providers that resulted in the
settlement of potential claims totaling approximately $591,000 for a cost of approximately $155,000 in cash, plus the issuance
of options to purchase 1,250,000 shares of common stock exercisable at $0.04 per share for a period of five years. In addition
to other provisions, the settlement agreements included mutual releases.
The aforementioned agreements
resulted in the settlement of potential claims totaling approximately $1,927,000 for a cost of approximately $273,000 in cash,
plus the issuance of options to purchase 5,550,000 shares of common stock exercisable at $0.04 per share for periods ranging from
five to ten years. The Company continues to explore ways to reduce its indebtedness, and might in the future enter additional
settlements of potential claims, including, without limitation, those by other former executives or third party creditors.
University of Illinois 2014 Exclusive License Agreement
On June 27, 2014, the
Company entered into an Exclusive License Agreement (the “2014 License Agreement”) with the University of Illinois,
the material terms of which were similar to the License Agreement between the parties that had been previously terminated on March
21, 2013. The 2014 License Agreement became effective on September 18, 2014, upon the completion of certain conditions set forth
in the 2014 License Agreement, including (i) the payment by the Company of a $25,000 licensing fee, (ii) the payment by the Company
of certain outstanding patent costs (not to exceed $16,000), and (iii) the assignment to the University of Illinois of certain
rights the Company holds in certain patent applications. In exchange for certain milestone and royalty payments, the 2014 License
Agreement granted the Company (i) exclusive rights to several issued and pending patents in numerous jurisdictions and (ii) the
non-exclusive right to certain technical information that is generated by the University of Illinois in connection with certain
clinical trials as specified in the 2014 License Agreement, all of which relate to the use of cannabinoids for the treatment of
sleep related breathing disorders. The Company is developing dronabinol (Δ9-tetrahydrocannabinol), a cannabinoid, for the
treatment of OSA, the most common form of sleep apnea.
Settlement with the Institute for the Study of Aging
On September 2, 2014,
the Company entered into a Release Agreement (the “Release Agreement”) with the Institute for the Study of Aging (the
“Institute”) to settle an outstanding promissory note, dated May 30, 2000, issued by the Company in favor of the Institute
for the principal amount of $247,300 (the “Note”), which was made pursuant to an Agreement to Accept Conditions of
Loan Support, also dated May 30, 2000 (the “Loan Support Agreement”). At August 31, 2014, the amount owed under the
Note, including accrued interest was approximately $337,000. Pursuant to the terms of the Release Agreement, the Institute received
1,000,000 restricted shares of the Company’s common stock as settlement of all obligations of the Company under the Note
and the Loan Support Agreement. Such common shares are “restricted securities” as defined under Rule 144 promulgated
under the Securities Act of 1933, as amended, and are not subject to any registration rights. The Release Agreement also includes
a mutual release between the Company and the Institute, releasing each party from all claims up until the date of the Release
Agreement.
Appointment of New Directors
On September 3, 2014,
James Sapirstein and Kathryn MacFarlane were appointed as new directors of the Company. These two new directors are considered
to be independent directors. In connection with those appointments and in conformity with its corporate policy of indemnifying
all directors and officers, the Board of Directors also agreed at that time to enter into indemnification agreements for all directors
and officers of the Company, namely, each existing director of the Company, Arnold S. Lippa, Jeff E. Margolis, and Robert N. Weingarten,
each of whom is also an officer of the Company, and with the two new directors. Pursuant to the indemnity agreements, the Company
will indemnify each director or officer when such individual is a party or threatened to become a party, by virtue of being a
director or officer of the Company, from the costs and expenses, fines and certain other amounts in connection with certain proceedings,
including proceedings in the right of the Company, so long as such director or officer acted in good faith and reasonably believed
that such actions were not opposed to the best interests of the Company.
Appointment of Chairman of the Company’s Scientific
Advisory Board
On September 18, 2014,
John Greer, Ph.D. was appointed to the position of Chairman of the Company’s Scientific Advisory Board, which is currently
being formed. Dr. Greer is the Director of the Neuroscience and Mental Health Institute at the University of Alberta. He holds
two grants regarding research into neuromuscular control of breathing and is the inventor on the use patents licensed by the Company
with respect to ampakines. Dr. Greer is expected to assist the Company in forming the rest of its Scientific Advisory Board.
In connection with the
appointment of Dr. Greer as Chairman of the Company’s Scientific Advisory Board on September 18, 2014, the Board of Directors
awarded 2,000,000 shares of common stock of the Company to Dr. Greer (through his wholly-owned consulting company, Progress Scientific,
Inc.), vesting 25% upon appointment, 25% on September 30, 2014, 25% on December 31, 2014, and 25% on March 31, 2015. This award
was made under the Company’s 2014 Equity, Equity-Linked and Equity Derivative Incentive Plan.
National Institute on Drug Abuse Grant
On September 18, 2014,
the Company entered into a contract with the National Institute on Drug Abuse, a division of the National Institutes of Health.
The funding under the contract is a Phase 1 award granted under the Small Business Innovation Research Funding Award Program.
The purpose of the project is to determine the most useful injectable route of administration for CX1942, the Company’s
proprietary, soluble ampakine molecule, a potential rescue medication for drug-induced respiratory depression and lethality. The
grant is entitled “Novel Treatment of Drug-Induced Respiratory Depression” and is valued at $148,583, which is to
be paid in increments over the expected six-month duration of the study which commenced in October 2014. The study will measure
the potency, latency to onset and duration of action of CX1942 administered to rats. The Company anticipates that the data obtained
from the study will be used to finalize preclinical studies in preparation for initiating Phase 1 clinical studies. The preclinical
studies will be performed in collaboration with Dr. David Fuller of the University of Florida and Dr. John Greer of the University
of Alberta.
Appointment of Senior Vice President
of Research and Development
Richard Purcell was appointed
as the Company’s Senior Vice President of Research and Development effective October 15, 2014. Mr. Purcell’s commitment
to the Company is for 30 hours per week in order to allow him to comply with his previous professional commitments. Mr. Purcell
provides his services to the Company through his consulting firm, DNA Healthlink, Inc., with which the Company has contracted
for his services.
Going Concern
The Company’s consolidated
financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business. The Company has incurred net losses of $1,201,457 and $7,572,244
for the fiscal years ended December 31, 2013 and 2012, respectively, negative operating cash flows of $182,435 and $1,861,870
for the fiscal years ended December 31, 2013 and 2012, respectively, and incurred additional net losses and negative operating
cash flows in the 2014 fiscal year. The Company expects to continue to incur net losses and negative operating cash flows for
several more years thereafter. As a result, management and the Company’s auditors believe that there is substantial doubt
about the Company’s ability to continue as a going concern.
The Company is currently,
and has for some time, been in significant financial distress. It has limited cash resources and current assets and has no ongoing
source of revenue. Beginning in late 2012, the Company’s business activities were reduced to minimal levels, and the prior
Board of Directors of the Company, which was removed by the written consent of stockholders holding a majority of the outstanding
shares on March 22, 2013, had retained bankruptcy counsel to assist the Company in preparations to file for liquidation under
Chapter 7 of the United States Bankruptcy Code. New management, which was appointed during March and April 2013, has evaluated
the status of numerous aspects of the Company’s existing business and obligations, including, without limitation, debt obligations,
financial requirements, intellectual property, licensing agreements, legal and patent matters and regulatory compliance, and has
raised new capital to fund its business activities.
From June 2013 through
March 2014, the Company’s Chairman and Chief Executive Officer advanced short-term loans to the Company aggregating $150,000
in order to meet its minimum operating needs. In March and April 2014, the Company completed a private placement by selling 928.5
shares of its Series G Preferred Stock for gross proceeds of $928,500 and repaid the aggregate advances. The Company’s Chairman
and Chief Executive Officer invested $250,000 in the Series G Preferred Stock private placement. During November and December
2014, the Company sold convertible notes (with warrants) in an aggregate principal amount of $369,500 to various accredited investors.
The Company intends to continue this financing until it has sold an aggregate principal amount of $1,000,000 of such notes, although
there can be no assurances that the Company will be successful in this regard.
The Company will need
to raise additional capital, either through the current financing or otherwise, or both, to be able to pay its liabilities and
fund its business activities going forward. As a result of the Company’s current financial situation, the Company has limited
access to external sources of debt and equity financing. Accordingly, there can be no assurances that the Company will be able
to secure additional financing in the amounts necessary to fully fund its operating and debt service requirements. If the Company
is unable to access sufficient cash resources, the Company may be forced to discontinue its operations entirely and liquidate.
Recent Accounting Pronouncements
In April 2014, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-08 (ASU 2014-08), Presentation
of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360). ASU 2014-08 amends the requirements for
reporting discontinued operations and requires additional disclosures about discontinued operations. Under ASU 2014-08, only disposals
representing a strategic shift in operations or that have a major effect on the Company’s operations and financial results
should be presented as discontinued operations. ASU 2014-08 is effective for annual periods beginning after December 15, 2014.
As the Company is engaged in research and development activities, the Company does not expect the adoption of this guidance to
have any impact on the Company’s financial statement presentation or disclosures.
In May 2014, the FASB
issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers. ASU 2014-09 will eliminate
transaction- and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principle based
approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of
transferred goods or services as they occur in the contract. ASU 2014-09 also will require additional disclosure about the nature,
amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and
changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for reporting
periods beginning after December 15, 2016, and early adoption is not permitted. Entities can transition to the standard either
retrospectively or as a cumulative-effect adjustment as of the date of adoption. As the Company does not expect to have any operating
revenues for the foreseeable future, the Company does not expect the adoption of this guidance to have any impact on the Company’s
financial statement presentation or disclosures.
In June 2014, the FASB
issued Accounting Standards Update No. 2014-10 (ASU 2014-10), Development Stage Entities (Topic 915): Elimination of Certain
Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation.
ASU 2014-10 eliminated the requirement to present inception-to-date information about income statement line items, cash flows,
and equity transactions, and clarifies how entities should disclosure the risks and uncertainties related to their activities.
ASU 2014-10 also eliminated an exception provided to development stage entities in Consolidations (ASC Topic 810) for determining
whether an entity is a variable interest entity on the basis of the amount of investment equity that is at risk. The presentation
and disclosure requirements in Topic 915 will no longer be required for interim and annual reporting periods beginning after December
15, 2014, and the revised consolidation standards will take effect in annual periods beginning after December 15, 2015. Early
adoption is permitted. The adoption of ASU 2014-10 is not expected to have any impact on the Company’s financial statement
presentation or disclosures.
In August 2014, the FASB
issued Accounting Standards Update No. 2014-15 (ASU 2014-15), Presentation of Financial Statements – Going Concern (Subtopic
205-10). ASU 2014-15 provides guidance as to management’s responsibility to evaluate whether there is substantial doubt
about an entity’s ability to continue as a going concern and to provide related footnote disclosures. In connection with
preparing financial statements for each annual and interim reporting period, an entity’s management should evaluate whether
there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to
continue as a going concern within one year after the date that the financial statements are issued (or within one year after
the date that the financial statements are available to be issued when applicable). Management’s evaluation should be based
on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued
(or at the date that the financial statements are available to be issued when applicable). Substantial doubt about an entity’s
ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that
it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the
financial statements are issued (or available to be issued). ASU 2014-15 is effective for the annual period ending after December
15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company is currently evaluating
the impact the adoption of ASU 2014-15 on the Company’s financial statement presentation and disclosures.
Management does not believe
that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact
on the Company’s financial statement presentation or disclosures.
Concentration of Risk
Financial instruments
that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and short-term
investments. The Company limits its exposure to credit risk by investing its cash with high credit quality financial institutions.
The Company’s research
and development efforts and potential products rely on licenses from research institutions and if the Company loses access to
these technologies or applications, its business could be substantially impaired.
Under the Company’s
agreements with The Regents of the University of California, the Company had exclusive rights to certain ampakine compounds for
all applications for which the University had patent rights, other than endocrine modulation. The license securing these rights
has since been terminated.
Under a patent license
agreement with The Governors of the University of Alberta, the Company has exclusive rights to the use of certain ampakine compounds
to prevent and treat respiratory depression induced by opiate analgesics, barbiturates and anesthetic and sedative agents.
On May 8, 2007, the Company
entered into a license agreement, as subsequently amended, with the University of Alberta granting the Company exclusive rights
to practice patents held by the University of Alberta claiming the use of ampakines for the treatment of various respiratory disorders.
The Company agreed to pay the University of Alberta a licensing fee and a patent issuance fee, which were paid, and prospective
payments consisting of a royalty on net sales, sublicense fee payments, maintenance payments and milestone payments. The prospective
maintenance payments commence on the enrollment of the first patient into the first Phase 2B clinical trial and increase upon
the successful completion of the Phase 2B clinical trial. As the Company does not at this time anticipate scheduling a Phase 2B
clinical trial, no maintenance payments are currently due and payable to the University of Alberta. In addition, no other prospective
payments are currently due and payable to the University of Alberta.
Through the merger with
Pier, the Company gained access to the License Agreement that Pier had entered into with the University of Illinois on October
10, 2007. The Pier License Agreement covered certain patents and patent applications in the United States and other countries
claiming the use of certain compounds referred to as cannabinoids for the treatment of sleep related breathing disorders (including
sleep apnea), of which dronabinol is a specific example of one type of cannabinoid. Dronabinol is a synthetic derivative of the
naturally occurring substance in the cannabis plant, otherwise known as Δ9-THC (Δ9-tetrahydrocannabinol). Dronabinol
is currently approved by the FDA and is sold generically for use in refractory chemotherapy-induced nausea and vomiting, as well
as for anorexia in patients with AIDS. Pier’s business plan was to determine whether dronabinol would significantly improve
subjective and objective clinical measures in patients with obstructive sleep apnea. In addition, Pier intended to evaluate the
feasibility and comparative efficacy of a proprietary formulation of dronabinol. The Pier License Agreement was terminated effective
March 21, 2013 due to the Company’s failure to make a required payment and on June 27, 2014, the Company entered into a
new license agreement with the University of Illinois, the material terms of which were similar to the Pier License Agreement
that had been terminated. If the Company is unable to comply with the terms of the new license agreement, such as required payments
thereunder, the Company risks the new license agreement being terminated.
Critical Accounting Policies and Estimates
The Company prepared its
consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.
The preparation of these consolidated financial statements requires the use of estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amount of revenues and expenses during the reporting period. Management periodically evaluates the estimates
and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed
to be reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions
or conditions.
The following critical
accounting policies affect the more significant judgments and estimates used in the preparation of the Company’s consolidated
financial statements.
License Agreement
The License Agreement
with the University of Illinois acquired in the Pier transaction was an acquired intangible asset recorded at cost of $3,411,157
(based on the fair value ascribed to the License Agreement in August 2012) and was being amortized on a straight-line basis over
the remaining life of its underlying patents of 172 months from the date of acquisition.
The Company performed
an impairment assessment of the carrying value of the License Agreement as of December 31, 2012 and determined that it had no
expected future value at that date. The Company made this determination because it was unable to make a $75,000 payment due under
the License Agreement at December 31, 2012, as a result of which the License Agreement was forfeited during the three months ended
March 31, 2013. The Company recorded an impairment charge to operations of $3,321,678 at December 31, 2012 to write-off the License
Agreement.
Research Grant Revenue
The Company records research
grant revenues when the expenses related to the grant projects are incurred. Amounts received under research grants are nonrefundable,
regardless of the success of the underlying research, to the extent that such amounts are expended in accordance with the approved
grant project.
Stock-Based Compensation
The Company periodically
issues common stock and stock options to officers, directors and consultants for services rendered. Such issuances vest and expire
according to terms established at the issuance date.
The Company accounts for
stock-based payments to officers and directors by measuring the cost of services received in exchange for equity awards based
on the grant date fair value of the awards, with the cost recognized as compensation expense on the straight-line basis in the
Company’s financial statements over the vesting period of the awards. The Company accounts for stock-based payments to consultants
by determining the value of the stock compensation based upon the measurement date at either (a) the date at which a performance
commitment is reached or (b) at the date at which the necessary performance to earn the equity instruments is complete.
Options granted to members
of the Company’s Scientific Advisory Board and to outside consultants are revalued each reporting period to determine the
amount to be recorded as an expense in the respective period. As the options vest, they are valued on each vesting date and an
adjustment is recorded for the difference between the value already recorded and the then current value on the date of vesting.
The fair value of stock
options is determined utilizing the Black-Scholes option-pricing model, and is affected by several variables, the most significant
of which are the life of the equity award, the exercise price of the security as compared to the fair market value of the common
stock on the grant date, and the estimated volatility of the common stock over the term of the equity award. Estimated volatility
is based on the historical volatility of the Company’s common stock. The risk-free interest rate is based on the U.S. Treasury
yield curve in effect at the time of grant. The fair value of common stock is determined by reference to the quoted market price
of the Company’s common stock.
The Company recognizes
the fair value of stock-based compensation in general and administrative costs and in research and development costs, as appropriate,
in the Company’s consolidated statements of operations.
The Company issues new
shares to satisfy stock option exercises.
Results of Operations
Years Ended December 31, 2013 and 2012
Revenues. The Company
had no revenues during the year ended December 31, 2013. Revenues for the year ended December 31, 2012 of $48,309 consisted of
grant revenues awarded by the Michael J. Fox Foundation for research on Parkinson’s Disease.
General and Administrative.
For the year ended December 31, 2013, general and administrative expenses were $932,973, a decrease of $1,013,624 or approximately
52%, as compared to $1,946,597 for the year ended December 31, 2012. The decrease in general and administrative expenses for the
year ended December 31, 2013, as compared to the year ended December 31, 2012, is primarily the result of cost reductions realized
during the period as a result of the Company’s efforts to reduce facility and personnel costs, which had begun in May 2012,
partially offset by accrued severance costs of $585,000 relating to the termination of certain corporate officers in March 2013
and the accrual of $85,000 for the reimbursement of legal fees incurred by Aurora Capital LLC in conjunction with the removal
of the Company’s former Board of Directors on March 22, 2013.
Through May 31, 2012,
the Company leased approximately 32,000 square feet of research laboratory, office and expansion space. Effective June 1, 2012,
the Company entered into a new operating lease agreement for approximately 5,000 square feet of office space at a monthly rate
of $9,204.
On June 15, 2012, each
of the Company’s executive officers at that time agreed to defer 50% of their base salary, effective June 1, 2012, until
the Company secured sufficient capital or certain corporate transactions occurred, in an effort to preserve the Company’s
financial resources.
Commencing in October
2012, the Company ceased payment of all salaries and consulting fees, and by March 31, 2013, all officers, management and employees
had either resigned or been terminated, and had been replaced by new management in March and April 2013. No compensation
arrangements were made with new management until 2014.
For the years ended December
31, 2013 and 2012, stock-based compensation costs included in general and administrative expenses were $0 and $170,805, respectively.
Stock-based compensation costs for the year ended December 31, 2012 includes $131,700 attributed to the value of options to acquire
2,195,000 common shares granted on August 3, 2012 to directors of the Company for past services.
Research and Development.
For the year ended December 31, 2013, research and development expenses were $206,911, a decrease of $619,791 or approximately
75%, as compared to $826,702 for the year ended December 31, 2012. The decrease in research and development expenses for the year
ended December 30, 2013, as compared to the year ended December 31, 2012, reflects the Company’s efforts to reduce facility
and personnel costs, and outside experts and consultants, which had begun in May 2012.
The research and development
costs incurred during the year ended December 31, 2013 consisted of costs related to the UCI license agreements and other patent
costs and patent legal fees.
For the years ended December
31, 2013 and 2012, stock-based compensation costs included in research and development expenses were $0 and $8,513, respectively.
Pier Merger-Related
Costs. During the year ended December 31, 2012, the Company incurred merger costs of $1,246,107 in connection with its acquisition
of Pier, including severance payments of $429,231 and the fair value of stock options to purchase 5,166,668 shares of the Company’s
common stock totaling $310,000 granted to two individuals whose employment was terminated pursuant to the terms of the merger
agreement. Merger costs also included $506,876 in legal and other merger related fees, including $250,000 to the Company’s
investment banker.
Impairment Loss from
Termination of License Agreement. The Company performed an impairment assessment of the carrying value of the License Agreement
as of December 31, 2012 and determined that it had no future value at such date. Accordingly, the Company recorded an impairment
charge to operations of $3,321,678 at December 31, 2012 to write off the License Agreement.
(Gain) Loss on Settlement
of Office Lease. During the three months ended December 31, 2012, the Company substantially vacated its operating facility
and abandoned its furniture, equipment and leasehold improvements. In May 2013, the Company received notice that it had been sued
in the Superior Court of California in a complaint filed by its former landlord, PPC Irvine Center Investment, LLC, seeking among
other things, $57,535 in past due rent, termination of the lease agreement, and reasonable attorneys’ fees. On May 23, 2013,
a settlement was reached with the landlord that provided for the Company to relinquish its security deposit in the amount of $29,545,
transfer title to its remaining furniture, equipment and leasehold improvements, and to pay an additional $26,000. The transfer
of the Company’s furniture, equipment and leasehold improvements resulted in a loss of $39,126, which was recorded at December
31, 2012. During the year ended December 31, 2013, the Company recorded a gain of $1,990 with respect to the final disposition
of this matter.
Interest Income.
Interest income was $0 for the year ended December 31, 2013, as compared to $92 for the year ended December 31, 2012.
Interest Expense.
During the year ended December 31, 2013, interest expense was $56,338 (including $48,688 to related parties), a decrease of $140,646,
as compared to $196,984 (including $187,843 to related parties) for the year ended December 31, 2012. The decrease resulted primarily
from the amortization of discount of $143,919 and the amortization of other financing costs of $21,370 on the Company’s
note payable to Samyang, which was funded on June 25, 2012 and fully-amortized as of December 25, 2012, partially offset by additional
accrued interest on the note.
Foreign Currency Transaction
Loss. Foreign currency transaction loss was $7,224 and $40,278 for the years ended December 31, 2013 and 2012, respectively,
reflecting the $399,774 loan from Samyang in June 2012 being denominated in South Korean currency.
Loss on Sale of Assets.
The Company realized a loss on sale of assets of $3,173 during the year ended December 31, 2012. There were no gains or losses
from the sale of assets during the year ended December 31, 2013.
Net Loss. For the
year ended December 31, 2013, the Company incurred a net loss of $1,201,457, as compared to a net loss of $7,572,244 for the year
ended December 31, 2012.
Liquidity and Capital Resources – December 31, 2013
The Company’s consolidated
financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business. The Company has incurred net losses of $1,201,457 and $7,572,244
for the fiscal years ended December 31, 2013 and 2012, respectively, negative operating cash flows of $182,435 and $1,861,870
for the fiscal years ended December 31, 2013 and 2012, respectively, and incurred additional net losses and negative operating
cash flows in the 2014 fiscal year. The Company expects to continue to incur net losses and negative operating cash flows for
several more years thereafter. As a result, management and the Company’s auditors believe that there is substantial doubt
about the Company’s ability to continue as a going concern.
At December 31, 2013,
the Company had a working capital deficit of $4,188,424, as compared to working capital deficit of $3,021,240 at December 31,
2012, a decrease in working capital of $1,167,184 for the year ended December 31, 2013. At December 31, 2013, the Company had
cash and money market funds aggregating $14,352, as compared to $152,179 at December 31, 2012, a decrease of $137,827 for the
year ended December 31, 2013. The decrease in working capital and cash during the year ended December 31, 2013 was the result
of cash utilized by the Company to fund its operating activities.
The Company is currently,
and has for some time, been in significant financial distress. It has limited cash resources and current assets and has no ongoing
source of revenue. Beginning in late 2012, the Company’s business activities were reduced to minimal levels, and the prior
Board of Directors of the Company, which was removed by the written consent of stockholders holding a majority of the outstanding
shares on March 22, 2013, had retained bankruptcy counsel to assist the Company in preparations to file for liquidation under
Chapter 7 of the United States Bankruptcy Code. New management, which was appointed during March and April 2013, has evaluated
the status of numerous aspects of the Company’s existing business and obligations, including, without limitation, debt obligations,
financial requirements, intellectual property, licensing agreements, legal and patent matters and regulatory compliance, and has
raised new capital to fund its business activities.
From June 2013 through
March 2014, the Company’s Chairman and Chief Executive Officer advanced short-term loans to the Company aggregating $150,000
in order to meet its minimum operating needs, of which a total of $75,000 had been advanced at December 31, 2013. In March and
April 2014, the Company completed a private placement by selling 928.5 shares of its Series G Preferred Stock for gross proceeds
of $928,500 and repaid the aggregate advances. The Company’s Chairman and Chief Executive Officer invested $250,000 in the
Series G Preferred Stock private placement. During November and December 2014, the Company sold convertible notes (with
warrants) in an aggregate principal amount of $369,500 to various accredited investors. The Company intends to continue this financing
until it has sold an aggregate principal amount of $1,000,000 of such Notes, although there can be no assurances that the Company
will be successful in this regard.
The Company will need
to raise additional capital to be able to pay its liabilities and fund its business activities going forward. As a result of the
Company’s current financial situation, the Company has limited access to external sources of debt and equity financing.
Accordingly, there can be no assurances that the Company will be able to secure additional financing in the amounts necessary
to fully fund its operating and debt service requirements. If the Company is unable to access sufficient cash resources, the Company
may be forced to discontinue its operations entirely and liquidate.
Operating Activities.
For the year ended December 31, 2013, operating activities utilized cash of $182,435, as compared to utilizing cash of $1,861,870
for the year ended December 31, 2012, to support the Company’s ongoing operations, including research and development activities.
Investing Activities.
There were no investing activities during the year ended December 31, 2013. For the year ended December 31, 2012, investing activities
generated cash of $24,700, consisting primarily of $23,208 of cash received in connection with the Pier merger.
Financing Activities.
For the year ended December 31, 2013, financing activities generated cash of $44,608 consisting of $75,000 in proceeds from notes
payable issued to the Company’s Chairman and $4,728 paid by Samyang, a related party, for short-swing trading profits, partially
offset by the payment of deferred financing costs of $35,120 relating to the issuance of Series G preferred stock which closed
in 2014. For the year ended December 31, 2012, financing activities generated cash of $378,404, consisting of the proceeds from
the note payable issued to Samyang in June 2012 of $399,774, partially offset by related financing costs of $21,370.
On June 25, 2012, the
Company borrowed 465,000,000 Won (the currency of South Korea, equivalent to approximately $400,000 US dollars) from and executed
a secured note payable to Samyang, an approximately 20% common stockholder of the Company at that time. The note accrues simple
interest at the rate of 12% per annum and had a maturity date of June 25, 2013, although Samyang was permitted to demand early
repayment of the promissory note on or after December 25, 2012. Samyang did not demand early repayment. The Company has not made
any payments on the promissory note. At June 30, 2013 and subsequently, the promissory note was outstanding and in technical default,
although Samyang has not issued a notice of default or a demand for repayment. The Company believes that Samyang is in default
of its obligations under its January 2012 license agreement, as amended, with the Company, but the Company has not yet issued
a notice of default. The Company anticipates entering into discussions with Samyang with a view toward a comprehensive resolution
of the aforementioned matters.
Principal Commitments
Lease Commitment
On May 14, 2012, the Company
executed a three-year lease for approximately 5,000 square feet of office space beginning June 1, 2012 at a monthly rate of $9,204.
During the three months ended December 31, 2012, the Company substantially vacated its operating facility prior to the scheduled
termination of the lease agreement in May 2015. In May 2013, a settlement with the landlord was reached and the lease was terminated.
University of California, Irvine License Agreements
The Company entered into
a series of license agreements in 1993 and 1998 with the University of California, Irvine (“UCI”) that granted the
Company proprietary rights to certain chemical compounds that acted as ampakines and their therapeutic uses. These agreements
granted the Company, among other provisions, exclusive rights: (i) to practice certain patents and patent applications, as defined
in the license agreement, that were then held by UCI; (ii) to identify, develop, make, have made, import, export, lease, sell,
have sold or offer for sale any related licensed products; and (iii) to grant sub-licenses of the rights granted in the license
agreements, subject to the provisions of the license agreements. The Company was required, among other terms and conditions, to
pay UCI a license fee, royalties, patent costs and certain additional payments.
Under such license agreements,
the Company was required to make minimum annual royalty payments of approximately $70,000. The Company was also required to spend
a minimum of $250,000 per year to advance the ampakine compounds until the Company began to market an ampakine compound. The commercialization
provisions in the agreements with UCI required the Company to file for regulatory approval of an ampakine compound before October
2012. In March 2011, UCI agreed to extend the required date for filing regulatory approval of an ampakine compound to October
2015. At December 31, 2012, the Company was not in compliance with its minimum annual payment obligations and believed that this
default constituted a termination of the license agreements.
On April 15, 2013, the
Company received a letter from UCI indicating that the license agreements between UCI and the Company had been terminated due
to the Company’s failure to make certain payments required to maintain the agreements. Since the patents covered in these
license agreements had begun to expire and the therapeutic uses described in these patents were no longer germane to the Company’s
new focus on respiratory disorders, the loss of these license agreements is not expected to have a material impact on the Company’s
current drug development programs. In the opinion of management, the Company has made adequate provision for any liability relating
to this matter in its financial statements at September 30, 2013.
University of Alberta License Agreement
On May 8, 2007, the Company
entered into a license agreement, as amended, with the University of Alberta granting the Company exclusive rights to practice
patents held by the University of Alberta claiming the use of ampakines for the treatment of various respiratory disorders. The
Company agreed to pay the University of Alberta a licensing fee and a patent issuance fee, which were paid, and prospective payments
consisting of a royalty on net sales, sublicense fee payments, maintenance payments and milestone payments. The prospective maintenance
payments commence on the enrollment of the first patient into the first Phase 2B clinical trial and increase upon the successful
completion of the Phase 2B clinical trial. As the Company does not at this time anticipate scheduling a Phase 2B clinical trial,
no maintenance payments are currently due and payable to the University of Alberta. In addition, no other prospective payments
are currently due and payable to the University of Alberta.
Off-Balance Sheet Arrangements
At December 31, 2013,
the Company did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk
Not applicable for smaller reporting companies.
Item 8. Financial Statements and Supplementary
Data
Our financial statements
and other information required by this item are set forth herein in a separate section beginning with the Index to Consolidated
Financial Statements on page F-1.
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that
information required to be disclosed in the reports that we file with the SEC under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, to allow for timely decisions
regarding required disclosures.
As
required by SEC Rule 15d-15(b), we carried out an evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer who were appointed to their positions in March and April
2013, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the most recent
fiscal year covered by this report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded
that our disclosure controls and procedures were not effective to ensure the information required to be disclosed in our reports
filed or submitted to the SEC under the Exchange Act was timely recorded, processed and reported within the time periods specified
in the SEC’s rules and forms. In particular, the Company failed to complete and file its Quarterly Report on Form 10-Q for
the periods ended March 31, 2013, June 30, 2013 and September 30, 2013, and its December 31, 2013 Annual Report on Form 10-K in
a timely manner because the Company’s accounting and financial staff had resigned by October 26, 2012 and its financial
and accounting systems had been shut-down at December 31, 2012.
Since
being appointed in March and April 2013, new management has taken steps to bring the Company’s periodic reporting current.
With the filing of this Annual Report on Form 10-K, the Company has now filed all periodic reports for periods ending on or before
December 31, 2013. The Company anticipates filing its outstanding periodic reports for periods ending in 2014 in the near future,
and currently expects to file timely its Annual Report on Form 10-K for the period ending December 31, 2014.
Management’s Annual Report on Internal Control over Financial
Reporting
Our management is responsible
for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act. Our internal control over financial reporting is designed to ensure that material information regarding
our operations is made available to management and the board of directors to provide them reasonable assurance that the published
financial statements are fairly presented. There are limitations inherent in any internal control, such as the possibility of
human error and the circumvention or overriding of controls. As a result, even effective internal controls can provide only reasonable
assurance with respect to financial statement preparation. As conditions change over time so too may the effectiveness of internal
controls.
Our management, consisting
of our Chief Executive Officer and our Chief Financial Officer, has evaluated our internal control over financial reporting as
of December 31, 2013 based on the framework in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations (“COSO”) of the Treadway Commission. Based on this assessment, our management has concluded
that material weaknesses in the Company’s internal control over financial reporting existed as of December 31, 2013 as a
result of a lack of personnel and non-functioning accounting systems. As a result of these material weaknesses, our internal control
over financial reporting was not effective at such date.
Prior management, which
had shut-down the Company and was preparing to cause it to file for liquidation under Chapter 7 of the United States Bankruptcy
Code, was replaced on March 22, 2013 in conjunction with the change in control of the Board of Directors on such date. Since that
date, new management has instituted a program to reestablish the Company’s accounting and financial staff functions, as
well as to install new accounting and internal control systems.
This annual report does
not include an attestation report of the Company’s independent registered public accounting firm regarding internal control
over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered
public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this
annual report.
Changes in Internal Control over Financial Reporting
As
described above, there were changes in our internal control over financial reporting during the fourth quarter of 2012 that have
materially affected, and are reasonably likely to continue to materially affect, our internal control over financial reporting
until we are current in our periodic reporting.
In response to such changes,
new management has retained accounting personnel, established accounting and internal control systems, addressed the preparation
of delinquent SEC financial filings, and has been diligently working to bring delinquent SEC filings current as promptly as reasonably
possible under the circumstances. However, as of the date of the filing of this Annual Report on Form 10-K, the Company had not
completed the process to reestablish adequate internal controls over financial reporting. The Company currently expects to reestablish
adequate internal controls over financial reporting in connection with the filing of its Annual Report on Form 10-K for the period
ending December 31, 2014, which it currently anticipates filing on time.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and
Corporate Governance
Directors
The names of each of the directors and certain
biographical information about them are set forth below:
Name |
|
Age |
|
Director
Since |
|
Principal
Occupation |
|
|
|
|
|
|
|
Arnold
S Lippa, Ph.D. |
|
67 |
|
2013 |
|
President, Chief Executive
Officer and Chairman of the Board of the Company |
|
|
|
|
|
|
|
Jeff
E. Margolis |
|
59 |
|
2013 |
|
President of Aurora Capital, LLC |
|
|
|
|
|
|
|
Robert N. Weingarten |
|
62 |
|
2013 |
|
Business and financial consultant and advisor |
Arnold S. Lippa, Ph.D.:
Dr. Lippa is a Senior Managing Director and founder of T Morgen Capital LLC through which he administers his family’s assets.
T Morgan Capital LLC is a significant equity owner and managing member of Aurora Capital LLC (“Aurora”), a boutique
investment bank and securities firm of which Mr. Margolis is the president and founder. As of December 31, 2013, Aurora owned
approximately 2.1% of the issued and outstanding shares of the Company. Dr. Lippa and Mr. Margolis jointly manage, since 2004,
Atypical BioCapital Management LLC and Atypical BioVentures Fund LLC, a life sciences fund management company and venture fund,
respectively. Since 2006, Dr. Lippa has also been the Executive Chairman of the board of Xintria Pharmaceutical Corporation, a
Delaware corporation, as well as a member of its board of directors. Dr. Lippa was co-founder of DOV Pharmaceutical, Inc., where
he served as Chairman of the Board and Chief Executive Officer from its inception in 1995 through 2005. Dr. Lippa stepped down
as a director of DOV Pharmaceuticals, Inc. in 2006.
We believe that Dr. Lippa’s
qualifications to serve on our Board include his position as the Company’s President and Chief Executive Officer, and his
experience working in management roles in other pharmaceutical companies as described above. Dr. Lippa provides the Board with
both technical and scientific expertise in drug discovery and drug development, research management, governmental regulations
and strategic planning expertise that is important to the advancement of our research platforms as well as to the overall success
of the Company. Dr. Lippa was appointed to our board of directors in March 2013.
Jeff E. Margolis:
Mr. Margolis is the president and founder of Aurora, and has been since its inception in 1994. Aurora Capital Corp., a corporation
wholly owned by Mr. Margolis, is a significant equity owner and managing member of Aurora. As of December 31, 2013, Aurora owned
approximately 2.1% of the issued and outstanding shares of the Company. Dr. Lippa and Mr. Margolis jointly manage, since 2004,
Atypical BioCapital Management LLC and Atypical BioVentures Fund LLC, a life sciences fund management company and venture fund,
respectively. Since 2006, Mr. Margolis has also been the Chief Financial Officer of Xintria Pharmaceutical Corporation, a Delaware
corporation, as well as a member of its board of directors.
We believe that Mr. Margolis’s
qualifications to serve on our Board include his significant experience in operational and management roles within pharmaceutical
companies as described above. He also has extensive prior experience working in business development and provides the Company
with extremely useful expertise in financing and capital markets, knowledge gained though his position as President of Aurora.
Mr. Margolis also provides broad financial expertise. Mr. Margolis was appointed to our board of directors in March 2013.
Robert N. Weingarten:
Mr. Weingarten is an experienced business consultant and advisor with an ongoing consulting practice. Since 1979 he has provided
financial consulting and advisory services to numerous public companies in various stages of development, operation or reorganization.
Mr. Weingarten received a B.A. Degree (Accounting) from the University of Washington in 1974, and an M.B.A. Degree (Finance) from
the University of Southern California in 1975. Mr. Weingarten is a Certified Public Accountant (inactive) in the State of California.
Mr. Weingarten was the Non-Executive Chairman of New Dawn Mining Corp. (“New Dawn”) from August 31, 2005 through September
30, 2010, and was named the Executive Chairman of New Dawn in October 2010. On July 8, 2010, Mr. Weingarten was appointed to the
board of directors of Central African Gold Limited (formerly known as Central African Gold Plc and listed on the Alternative Investment
Market of the London Stock Exchange at that time). Central African Gold Limited is an indirect, wholly-owned subsidiary of New
Dawn. Both New Dawn and Central African Gold Limited have ceased to be publicly traded reporting companies in their respective
jurisdictions.
We believe that Mr. Weingarten’s
qualifications to serve on our Board include his breadth of experience with public companies, especially those in the development
phase. He has also served in managements capacities at other public companies and as a result brings a wealth of experience on
financial matters. Mr. Weingarten was appointed to our board of directors in April 2013.
In addition to the directors
mentioned above, the Company notes that John F. Benedik, Charles J. Casamento, M. Ross Johnson, Ph.D. and Mark A. Varney, Ph.D.
served as directors until May, 2013. In addition, Moogak Hwang, Ph.D. served as a director from August 2012 to September 2013.
Executive Officers
Each executive officer
of the Company serves at the discretion of the Board of Directors. The names of the Company’s executive officers are set
forth below. At December 31, 2013, each of our executive officers was also a member of our board of directors, and their biographical
information appears above in the immediately prior section.
Name |
|
Position
with Company |
Arnold
S. Lippa, Ph.D. |
|
President, Chief Executive Officer and
Chairman of the Board |
Jeff
E. Margolis |
|
Vice President, Secretary and Treasurer |
Robert
N. Weingarten |
|
Vice President and Chief Financial Officer |
In addition to the officers
listed above, the Company notes that Mark A. Varney, Ph.D. served as President and Chief Executive Officer of the Company until
March 2013, and Steven A. Johnson, Ph.D. served as a Vice President, Preclinical Development of the Company until March 2013.
BOARD COMMITTEES
The board of directors
has historically maintained a standing Audit Committee, Compensation Committee, and Governance and Nominations Committee. As noted
above, since the changes in the composition of our board of directors on March 22, 2013, the functions of each of the committees
described below have been and are currently being addressed by the full board of directors.
Audit Committee.
Traditionally, the Audit Committee meets with the Company’s independent registered public accountants and management
to prepare for and to review the results of the annual audit and to discuss the annual and quarterly financial statements, earnings
releases and related matters. The Audit Committee, among other things, (i) selects and retains the independent registered public
accountants, (ii) reviews with the independent registered public accountants the scope and anticipated cost of their audit, and
their independence and performance, (iii) reviews accounting practices, financial structure and financial reporting, (iv) receives
and considers the independent registered public accountants’ comments as to controls, adequacy of staff and management performance
and procedures in connection with audit and financial controls, (v) reviews and pre-approves all audit and non-audit services
provided to the Company by the independent registered public accountants, and (vi) reviews and pre-approves all related-party
transactions. The Audit Committee does not itself prepare financial statements or perform audits, and its members are not auditors
or certifiers of the Company’s financial statements.
Charles J. Casamento and
M. Ross Johnson, Ph.D. began 2013 as members of the Audit Committee, but on March 22, 2013 were removed as members of the board
of directors of the Company. Since the change in composition of our board of directors in March 2013, the composition of an Audit
Committee has not been determined, nor has the current board of directors adopted an amended written charter. Company records
indicate that the Audit Committee previously operated under a written charter adopted by the previous board of directors. When
an Audit Committee is reestablished along with a written charter, such charter will be made available on the Company’s website
at www.cortexpharm.com.
Compensation Committee.
The traditional functions of the Compensation Committee include, without limitation, administering the Company’s
incentive ownership programs and approving the compensation to be paid to the Company’s directors and executive officers.
The Compensation Committee typically meets no less frequently than annually as circumstances dictate to discuss and determine
executive officer and director compensation. Historically, the Company’s Chief Executive Officer annually reviews the performance
of each executive officer (other than the Chief Executive Officer, whose performance is reviewed by the Compensation Committee).
The conclusions reached and recommendations based on these reviews, including with respect to salary adjustments and annual award
amounts, are presented to the Compensation Committee, who can exercise its discretion in modifying any recommended adjustments
or awards to executive officers. The Compensation Committee is entitled to, but generally does not, retain the services of any
compensation consultants. Based on Company records available to the current board of directors, neither the Compensation Committee
nor management has engaged a compensation consultant in the past fiscal year. The Compensation Committee has the power to form
and delegate authority to subcommittees when appropriate, provided that such subcommittees are composed entirely of directors
who would qualify for membership on the Compensation Committee.
The Company’s records
indicate that M. Ross Johnson, Ph.D. (chair), and Charles J. Casamento began 2013 as the members of the Compensation Committee,
but on March 22, 2013 were removed as members of the board of directors of the Company. Since the change in composition of our
board of directors in March 2013, the members of the board of directors have performed the functions of the Compensation Committee
and the composition of a Compensation Committee has not been determined nor has the current board of directors adopted a written
charter. Company records indicate that the Compensation Committee previously operated under a written charter adopted by the board
of directors. When a Compensation Committee is reestablished along with a written charter, such charter will be made available
on the Company’s website at www.cortexpharm.com.
Governance and Nominations
Committee. The traditional functions of the Governance and Nominations Committee include, without limitation, (i) identifying
individuals qualified to become members of the board of directors, (ii) recommending director nominees for the next annual meeting
of stockholders and to fill vacancies that may be created by the expansion of the number of directors serving on the board of
directors and by resignation, retirement or other termination of services of incumbent directors, (iii) developing and recommending
to the board of directors corporate governance guidelines and changes thereto, (iv) ensuring that the board of directors and the
Company’s Certificate of Incorporation and Bylaws are structured in a way that best serves the Company’s practices
and objectives, (v) leading the board of directors in its annual review of the board of directors’ performance; and (vi)
recommending to the board of directors nominees for each committee. Accordingly, the Governance and Nominations Committee annually
reviews the composition of the board of directors as a whole and makes recommendations, if deemed necessary, to enhance the composition
of the board of directors. The Governance and Nominations Committee first considers a candidate’s management experience
and then considers issues of judgment, background, conflicts of interest, integrity, ethics and commitment to the goal of maximizing
stockholder value when considering director candidates. The Governance and Nominations Committee also focuses on issues of diversity,
such as diversity of gender, race and national origin, education, professional experience and differences in viewpoints and skills.
The Governance and Nominations Committee does not have a formal policy with respect to diversity; however, the board of directors
and Governance and Nominations Committee believe that it is essential that the members of the board of directors represent diverse
viewpoints. In considering candidates for the board of directors, the Governance and Nominations Committee considers the entirety
of each candidate’s credentials in the context of these standards. With respect to the nomination of continuing directors
for re-election, the individual’s contributions to the board of directors are also considered.
The Company’s records
indicate that M. Ross Johnson, Ph.D. and John F. Benedik began 2013 as the members of the Governance and Nominations Committee,
but on March 22, 2013 were removed as members of the board of directors of the Company. Since the change in composition of our
board of directors in March 2013, the members of the board of directors have performed the functions of the Governance and Nominations
Committee and the composition of a Governance and Nominations Committee has not been determined nor has the current board of directors
adopted a written charter. When a Governance and Nominations Committee is reestablished along with a written charter, such charter
will be made available on the Company’s website at www.cortexpharm.com.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange
Act requires the Company’s executive officers and directors and persons who beneficially own more than 10% of the Company’s
outstanding common stock, whom the Company refers to collectively as the “reporting persons,” to file reports of ownership
and changes in ownership with the SEC, and to furnish the Company with copies of these reports.
Based solely on the Company’s
review of the copies of these reports received by it and written representations received from certain of the reporting persons
with respect to the filing of reports on Forms 3, 4 and 5, the Company believes that all such filings required to be made by the
reporting persons for the fiscal year ended December 31, 2013 were made on a timely basis.
Code of Ethics
We have previously adopted
a Code of Business Conduct and Ethics, which covers all of our directors and employees, including our principal executive and
financial officers. Any amendment to, or waiver from, any applicable provision (related to elements listed under Item 406(b) of
Regulation S-K) of our Code of Business Conduct and Ethics that applies to our directors or executive officers will be posted
on our website at www.cortexpharm.com or in a report filed with the SEC on a Current Report on Form 8-K. The Company is
in the process of updating its Code of Business Conduct and Ethics. Any amendment or waiver to its Code of Business Conduct and
Ethics that applies to its directors or executive officers will be posted on its website at www.cortexpharm.com and/or
filed in a report with the Securities and Exchange Commission on a Current Report on Form 8-K.
Item 11. Executive Compensation
Summary Compensation Table
The table below summarizes
the total compensation paid or earned by each of the named executive officers for the fiscal years ended December 31, 2013 and
2012. The information contained under the heading “All Other Compensation” for all named executive officers includes
the estimated value of equity awards using the Black-Scholes option-pricing model and does not reflect actual cash payments or
actual dollars awarded.
Name
and Principal Position | |
Year | | |
Salary
($) | | |
Bonus
($) | | |
All
Other
Compensation ($)(1) | | |
Total
($) | |
Arnold S Lippa, Ph.D. | |
| 2013 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
Chairman, President and Chief Executive Officer (2)
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Jeff E. Margolis | |
| 2013 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
Vice President, Secretary and Treasurer (2) | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Robert N. Weingarten | |
| 2013 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
Vice President, Chief Financial Officer (2) | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Mark A. Varney, Ph.D. | |
| 2013 | | |
$ | — | | |
| — | | |
$ | — | | |
$ | — | |
President and Chief Executive Officer | |
| 2012 | | |
$ | 190,601 | | |
| — | | |
$ | 144,639
( | 3) | |
$ | 335,240 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Steven A. Johnson, Ph.D. | |
| 2013 | | |
$ | — | | |
| — | | |
$ | — | | |
$ | — | |
Vice President of Preclinical Development | |
| 2012 | | |
$ | 118,217 | | |
| — | | |
$ | 107,126 ( | 3) | |
$ | 225,343 | |
(1) |
In accordance
with Securities and Exchange Commission rules, “Other Annual Compensation” in the form of perquisites and other
personal benefits has been omitted where the aggregate amount of such perquisites and other personal benefits was less than
$10,000. |
|
|
(2) |
Did not earn or receive
any compensation in 2013. In April 2014, the board of directors authorized the issuance of 15,000,000 shares of
the Company’s common stock valued, as calculated for the Company’s financial statements, at $600,000, based on
the closing price of the Company’s common stock on the effective transaction date, as compensation for his role as an
officer and director with the Company for the period since he joined the Company through March 31, 2014. The Company will
account for the issuance of these shares of common stock effective as of March 18, 2014. |
|
|
(3) |
This amount does not
include all amounts claimed by the individual in connection with his departure from the Company in 2013. The Company has recently
settled with this individual with respect to such claimed amounts. See “Employment and Consulting Agreements—Termination
or Change in Control”. |
Narrative to Summary Compensation Table
In June 2004, the board
of directors approved a performance-based incentive compensation program for named executive officers that included cash bonus
targets of 20% of respective annual base salaries. Actual bonus amounts may differ from the established targets based upon our
performance, as well as that of the individual named executive officer, as compared to established goals. No performance bonuses
were awarded to the named executive officers for the years ended December 31, 2013 or 2012.
The exercise price for
our stock options is no less than the fair market value of the stock on the date of the grant. Options generally vest at a rate
of 33 1/3% per year starting on the anniversary date of the option grant and the vesting of any unvested portion is contingent
upon the officer’s continued employment with the Company. Accordingly, the option will provide a return to the named executive
officer only if he or she remains in the Company’s employ and the market price of the Company’s common stock appreciates
over the option term. The vested portion of the option will provide a return to the named executive officer regardless of whether
he or she remains in our employee, but only if the market price of the our common stock appreciates over the option exercise price
during the term of the vested options. There were no stock options received by the named executive officers during the years ended
December 31, 2013 and 2012.
In connection with the
recent changes to our board membership and taking into account the Company’s current operating structure and business plans,
management is currently reevaluating the compensation policies of the Company and, as a result of that reassessment, and in light
of the Company’s current financial circumstances, will likely make substantial adjustments to such policies, including the
termination of such policies.
The Company does not have
any arrangements or agreements regarding compensation with its current executive officers and paid no compensation to any named
executive officer in 2013. No named executive officer received cash compensation in 2013. In April 2014, Arnold Lippa, Ph.D.,
Jeff E. Margolis and Robert N. Weingarten were each issued 15,000,000 shares of the Company’s common stock to compensate
those individuals for their efforts as officers and directors of the Company since joining the Company in March 2013, in the case
of Dr. Lippa and Mr. Margolis, and in April 2013, in the case of Mr. Weingarten. The Company will account for the issuance of
these shares of common stock effective as of March 18, 2014.
See also “Employment
and Consulting Agreements—Termination or Change in Control” for further discussion of compensation arrangements pursuant
to which the amounts listed under the Summary Compensation Table were paid or awarded and the criteria for such payment or award.
Outstanding Equity Awards at Fiscal Year-End
There were no outstanding
unvested stock awards as of December 31, 2013. There also were no outstanding option awards with current directors or officers
of the Company as of December 31, 2013. There were outstanding option awards as of December 31, 2013 with two former officers
of the Company:
| ● | On
July 17, 2012, pursuant to a severance agreement amended in connection with the merger
transaction with Pier, Roger G. Stoll, Ph.D. was issued fully-vested, ten-year options
to purchase a total of 3,083,334 shares of the Company’s common stock at an exercise
price of $0.06 per share, which was in excess of the closing price of the Company’s
common stock on the closing date of the merger. Dr. Stoll left the Company in August
2012. |
| ● | On
August 10, 2012, pursuant to a severance agreement amended in connection with the merger
transaction with Pier, James H. Coleman was issued fully-vested, ten-year options to
purchase a total of 2,083,334 shares of the Company’s common stock at an exercise
price of $0.06 per share, which was in excess of the closing price of the Company’s
common stock on the closing date of the merger. Mr. Coleman left the Company in August
2012. |
OPTION EXERCISES AND
STOCK VESTED FOR 2012
None of the Company’s
named executive officers exercised any options to purchase shares of the Company’s common stock or had any outstanding unvested
stock awards during the year ended December 31, 2013.
Employment and Consulting Agreements – Termination or
Change in Control
As of December 31, 2013,
two of the named executive officers listed above, Mark A. Varney, Ph.D. and Steven M. Johnson, Ph.D., had been removed as officers
by the new board of directors on March 22, 2013. Each of these officers had entered into employment agreements and/or severance
agreements governing payments upon termination or in the event the Company became subject to a change-in-control. Because each
of these executive officers listed in the summary compensation table for 2013 was removed in early 2013, the terms and conditions
related to the departure of those officers, under their respective employments agreements, as amended, are known. The details
of the contracts applicable to the departure for each officer are discussed below. The Company has recently entered into settlement
agreements with these officers regarding the amounts owed. Accordingly, the ultimate amounts paid in respect to the departures
of these officers were different than the contractual amounts described below. See Note 12 to our consolidated financial statements
for the years ended December 31, 2013 and 2012—Subsequent Events—Debt Settlements for details regarding these
matters.
The new officers appointed
by the board of directors, Arnold S. Lippa, Ph.D., Jeff E. Margolis and Robert N. Weingarten, have not entered into any compensation
arrangements or employment agreements with the Company. Upon entering into such arrangements or agreements, the Company will disclose
the information required regarding these agreements or agreements, consistent with applicable law.
With respect to named
executive officers who are no longer with the Company:
|
● |
Mr. Varney was removed
as an officer of the Company on March 22, 2013. As of December 31, 2012, his annual salary was $365,000. At the time of his
departure, Mr. Varney’s contract called for payments of $35,674 for paid time off, $108,965 for reduced or deferred
compensation in 2012, and $365,000 in severance for a total of $509,639. |
|
|
|
|
● |
Mr. Johnson was removed
as an officer of the Company on March 22, 2013. As of December 31, 2012, his annual salary was $220,000. At the time of his
departure, Mr. Johnson’s contract called for payments of $42,224 for paid time off, $64,902 for reduced or deferred
compensation in 2012, and $220,000 in severance for a total of $327,126. |
The Company has recently
executed settlement agreements with Messrs. Varney and Johnson that, together with similar agreements with other former officers
of the Company, resulted in the settlement of potential claims totaling approximately $1,336,000 for a total of approximately
$118,000 in cash, plus the issuance of options to purchase 4,300,000 shares of common
stock exercisable at $0.04 per share for periods ranging from five to ten years.
In addition to other provisions, the settlement agreements include mutual releases.
Director Compensation
The Compensation Committee
historically uses a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve
on the Board of Directors. In setting director compensation, the Compensation Committee considers the significant amount of time
that directors expend in fulfilling their duties to the Company, as well as the skill-level required by the Company of members
of the Board of Directors.
Director Summary Compensation Table
The following table shows
the compensation received by the non-employee members of our board of directors for the year ended December 31, 2013. Directors
who are also employees of the Company did not receive any additional compensation for services as a director.
Name | |
Fees
Earned or Paid in
Cash ($) | | |
Stock
Awards ($) | | |
Option
Awards ($)(1) | | |
Total
($) | |
John F. Benedik (1) | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
Charles J. Casamento (1) | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
Moogak Hwang, Ph.D. (2) | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
M. Ross Johnson (1) | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
(1) Removed from the board
of directors by written consent on March 22, 2013.
(2) Appointed to the board
of directors on August 3, 2012; resigned from the board of directors effective September 30, 2013.
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters
Beneficial Ownership of Common Stock
The following table sets
forth certain information regarding the beneficial ownership of the Company’s common stock as of December 31, 2013, by (i)
each person known by the Company to be the beneficial owner of more than 5% of the outstanding common stock, (ii) each of the
Company’s directors, (iii) each of the Company’s named executive officers, and (iv) all of the Company’s executive
officers and directors as a group. Except as indicated in the footnotes to this table, the Company believes that the persons named
in this table have sole voting and investment power with respect to the shares of common stock indicated. In computing the number
and percentage ownership of shares beneficially owned by a person, shares of common stock that a person has a right to acquire
within sixty (60) days of December 31, 2013 pursuant to options, warrants or other rights are considered as outstanding, while
these shares are not considered as outstanding for computing the percentage ownership of any other person or group.
Directors,
Officers and 5% Stockholders(1) | |
Number
of Shares of Beneficial
Ownership of Common Stock | | |
Percent
of Class(2) | |
Origin Ventures II, L.P. (and affiliates)(3) | |
| 24,200,507 | | |
| 16.80 | % |
| |
| | | |
| | |
SY Corporation Co., Ltd.(4) | |
| 20,422,464 | | |
| 13.80 | % |
| |
| | | |
| | |
Illinois Emerging Technology Fund, L.P. (and affiliates)(5) | |
| 20,334,546 | | |
| 14.12 | % |
| |
| | | |
| | |
Arnold S. Lippa, Ph.D.(6) | |
| 2,971,792 | | |
| 2.06 | % |
| |
| | | |
| | |
Jeff E. Margolis(6) | |
| 2,971,792 | | |
| 2.06 | % |
| |
| | | |
| | |
Robert N. Weingarten | |
| 0 | | |
| 0 | % |
| |
| | | |
| | |
All directors and officers as a group | |
| 2,971,792 | | |
| 2.06 | % |
(1) |
Except
as otherwise indicated, the address of such beneficial owner is c/o Cortex Pharmaceuticals, Inc., 126 Valley Road, Suite C,
Glen Rock, New Jersey 07452. |
|
|
(2) |
Based on 144,041,556
shares issued and outstanding as of December 31, 2013, plus, in the case of SY Corporation Co., Ltd., warrants then exercisable
to purchase up to 4,000,000 shares of common stock. |
|
|
(3) |
Pursuant to Schedule
13g filed with the SEC on June 16, 2013. These shares are held by Origin Ventures II, L.P., which holds voting and dispositive
control with respect to such shares. Origin Ventures II Management, LLC, the general partner of Origin Ventures II, L.P.,
and Bruce Barron and Steven N. Miller, the managing members of Origin Ventures II Management, LLC, may be deemed to beneficially
own such shares, and to share voting and dispositive control of the shares owned by Origin Ventures II, L.P. |
|
|
(4) |
Pursuant to Schedule
13D filed with the SEC on June 16, 2013. Consists of (i) 16,422,464 shares of Cortex Pharmaceuticals, Inc. common stock, and
(ii) a warrant to purchase up to 4,000,000 shares of common stock at an exercise price of $0.056 per share (which subsequently
expired unexercised). SY Corporation Co., Ltd. was formerly known as Samyang Optics Co. Ltd. |
|
|
(5) |
Pursuant
to Schedule 13G filed with the SEC on August 20, 2012, Illinois Emerging Technology Fund, LP owns 20,334,546 shares and holds
voting and dispositive control with respect to such shares. Illinois Ventures GP, LLC is the general partner of Illinois Emerging
Technology Fund, LP, and may be deemed to beneficially own such shares, and to share voting and dispositive control of the
shares. |
|
|
(6) |
Aurora Capital LLC
holds 2,971,792 shares of common stock. Aurora Capital Corp., a New York Corporation, and T Morgen Capital LLC, a New Jersey
LLC, are managing members of Aurora Capital LLC. Jeff Margolis is the Manager and President of Aurora Capital LLC, as well
as the sole shareholder and Director of Aurora Capital Corp. Arnold S. Lippa is a manager of T Morgen Capital LLC. By virtue
of their control of Aurora Capital LLC, Aurora Capital Corp., and T Morgen Capital LLC, Arnold S. Lippa and Jeff Margolis
may be deemed to share beneficial ownership of (and, with respect to Mr. Margolis, voting and dispositive power with respect
to) the shares of common stock beneficially owned by Aurora Capital LLC. |
The Company is not aware
of any arrangements that may at a subsequent date result in a change of control of the Company.
EQUITY COMPENSATION
PLAN INFORMATION
The following table sets
forth information regarding outstanding options, warrants and rights and shares reserved for future issuance under our existing
equity compensation plans as of December 31, 2013. Our stockholders approved the Company’s 2006 Stock Incentive Plan, as
amended. From October 2006 through December 31, 2013, all stock options granted and issued under stockholder approved plans were
issued from the 2006 Stock Incentive Plan. In March 2014, the Company’s stockholders approved, by written consent, the Cortex
Pharmaceuticals, Inc. 2014 Equity, Equity-Linked and Equity Derivative Incentive Plan, filed as exhibit 10.2 to the Company’s
Current Report on Form 8-K filed March 24, 2014.
Plan
Category | |
Number
of securities to be issued upon
exercise
of outstanding options, warrants and rights
(a) | | |
Weighted-average
exercise price of
outstanding options, warrants and rights
(b) | | |
Number
of securities remaining available for
issuance under equity
compensation plans (excluding securities
reflected in column
(a))
(c) | |
Equity compensation plans
approved by security holders | |
| — | | |
$ | — | | |
| 9,863,799 | |
| |
| | | |
| | | |
| | |
Equity compensation plans not approved
by security holders | |
| 5,166,668( | 1) | |
$ | 0.06 | | |
| — | |
| |
| | | |
| | | |
| | |
Total | |
| 5,166,668 | | |
$ | 0.06 | | |
| 9,863,799 | |
(1)
|
In July
and August 2012, pursuant to severance agreements amended in connection with the merger transaction with Pier, fully-vested,
ten year stock options to purchase a total of 5,166,668 shares of the Company’s common stock at an exercise price of
$0.06 per share, which was in excess of the closing price of the Company’s common stock on the closing date of the Pier
transaction, were granted to two of the Company’s officers, outside of the 2006 Stock Incentive Plan, and its predecessor,
the 1996 Stock Incentive Plan, which had also been approved by stockholders. |
Item 13. Certain Relationships and Related
Transactions, and Director Independence
Director Independence
As of December 31, 2013,
no member of the board of directors was an “independent director”, as that term is defined under Section 803 of the
NYSE Amex Company Guide. In September 2014, the board of directors added James Sapirstein, RPh., M.B.A. and Kathryn MacFarlane,
PharmD. as members of the board of directors, both of whom are independent directors. As noted above, as of December 31, 2013,
all of the functions of the Audit, Compensation and Governance and Nominations Committees were being performed by the full board
of directors.
Transactions with Related Persons
In 2013, the Company engaged
in certain transactions with Arnold S. Lippa, our Chairman, President and Chief Executive Officer, and certain of his affiliates.
These transactions have been previously disclosed and are discussed in Note 1 to our consolidated financial statements for the
years ended December 31, 2013 and 2012—Organization and Business Operations—Going Concern and Note 12 to our
consolidated financial statements for the years ended December 31, 2013 and 2012—Subsequent Events—Working Capital
Advances.
Item 14. Principal Accounting Fees and Services
Haskell & White
LLP, acted as our independent registered public accounting firm for the fiscal years ended December 31, 2012 and 2013 and for
the interim periods in such fiscal years. The following table shows the approximate fees that were incurred by us for audit and
other services provided by Haskell & White LLP in fiscal 2012 and 2013.
| |
| 2012 | | |
| 2013(1) | |
Audit Fees(2) | |
$ | 31,000 | | |
$ | — | |
Audit-Related Fees(3) | |
| — | | |
| — | |
Tax Fees(4) | |
| 11,000 | | |
| — | |
All Other Fees(5) | |
| — | | |
| — | |
Total | |
$ | 42,000 | | |
$ | — | |
|
(1) |
The
Company did not file its 2012 or 2013 Annual Reports on Form 10-K, or any of its 2013
Quarterly Reports on Form 10-Q, when required. These documents were prepared, and the
fees incurred in preparing them were generated, in 2014, as new management worked towards
bringing the Company current in its periodic reporting requirements. Accordingly, the
Company incurred no accounting fees in 2013. |
|
|
|
|
(2) |
Audit fees represent
fees for professional services provided in connection with the audit of our annual financial statements and the review of
our financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided in connection
with statutory or regulatory filings. |
|
|
|
|
(3) |
Audit-related fees
represent fees for assurance and related services that are reasonably related to the performance of the audit or review of
our financial statements and not reported above under “Audit Fees.” |
|
|
|
|
(4) |
Tax fees represent
fees for professional services related to tax compliance, tax advice and tax planning. |
|
|
|
|
(5) |
All other fees represent
fees related to Sarbanes-Oxley compliance work. |
All audit related services,
tax services and other services rendered by Haskell & White LLP were pre-approved by our Board of Directors. The Board
of Directors has adopted a pre-approval policy that provides for the pre-approval of all services performed for us by our independent
registered public accounting firm.
PART IV
Item 15. Exhibits and Financial Statement
Schedules
(a) | | List
of documents filed as part of this report: |
| | |
| | (1) Financial
Statements |
| | |
| | Reference
is made to the Index to Financial Statements on page F-1, where these documents are listed. |
| | |
| | (2) Financial
Statement Schedules |
| | |
| | The
financial statement schedules have been omitted because the required information is not
applicable, or not present in amounts sufficient to require submission of the schedules,
or because the information is included in the financial statements or notes thereto. |
| | |
| | (3) Exhibits |
| | |
| | See
(b) below. |
| | |
(b) | | Exhibits: |
| | |
| | A list
of exhibits required to be filed as part of this Annual Report on Form 10-K is set forth
in the Index to Exhibits, which is presented elsewhere in this document, and is incorporated
herein by reference. |
CORTEX
PHARMACEUTICALS, INC.
AND
SUBSIDIARY
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM)
Years
Ended December 31, 2013 and 2012
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Stockholders and Board of Directors
Cortex
Pharmaceuticals, Inc. and Subsidiary
We
have audited the accompanying consolidated balance sheets of Cortex Pharmaceuticals, Inc. and Subsidiary (the “Company”)
as of December 31, 2013 and 2012, and the related consolidated statements of operations, stockholders’ equity (deficiency)
and cash flows for each of the years in the two-year period ended December 31, 2013. Cortex Pharmaceuticals, Inc.’s management
is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based
on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Cortex Pharmaceuticals, Inc. as of December 31, 2013 and 2012, and the consolidated results of its operations
and its cash flows for each of the years in the two-year period ended December 31, 2013 in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 1 of the consolidated financial statements, the Company does not currently possess sufficient working capital
to fund its operations and commitments. This raises substantial doubt about the Company’s ability to continue as a going
concern. Management’s plans in regard to this matter are also described in Note 1. The consolidated financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
|
/s/
HASKELL & WHITE LLP |
|
|
Irvine, California |
|
January 5, 2015 |
|
CORTEX
PHARMACEUTICALS, INC.
AND
SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
| |
December
31, | |
| |
2013 | | |
2012 | |
| |
| | |
| |
ASSETS | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and
cash equivalents | |
$ | 14,352 | | |
$ | 152,179 | |
Deferred financing
costs | |
| 35,120 | | |
| — | |
Other
current assets | |
| 2,383 | | |
| 17,002 | |
| |
| | | |
| | |
Total current assets | |
| 51,855 | | |
| 169,181 | |
Other | |
| — | | |
| 29,545 | |
| |
| | | |
| | |
Total assets | |
$ | 51,855 | | |
$ | 198,726 | |
| |
| | | |
| | |
LIABILITIES AND
STOCKHOLDERS’ DEFICIENCY | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable and
accrued expenses | |
$ | 1,829,616 | | |
$ | 1,509,827 | |
Accrued compensation
and related expenses | |
| 1,480,264 | | |
| 885,180 | |
Notes payable to Chairman,
including accrued interest of $48 | |
| 75,048 | | |
| — | |
Note payable to related
party, including accrued interest of $73,979 and $25,340 at December 31, 2013 and 2012, respectively | |
| 521,255 | | |
| 465,392 | |
Project
advance, including accrued interest of $86,796 and $82,722 at December 31, 2013 and 2012, respectively | |
| 334,096 | | |
| 330,022 | |
| |
| | | |
| | |
Total current liabilities | |
| 4,240,279 | | |
| 3,190,421 | |
| |
| | | |
| | |
Commitments and contingencies (Note 11) | |
| | | |
| | |
| |
| | | |
| | |
Stockholders’ deficiency: | |
| | | |
| | |
Series B convertible
preferred stock, $0.001 par value; $0.6667 per share liquidation preference; aggregate liquidation preference $25,001; shares
authorized: 37,500; shares issued and outstanding: 37,500; common shares issuable upon conversion at 0.09812 per share: 3,679 | |
| 21,703 | | |
| 21,703 | |
Common stock, $0.001
par value; shares authorized: 205,000,000; shares issued and outstanding: 144,041,556 | |
| 144,041 | | |
| 144,041 | |
Additional paid-in
capital | |
| 125,188,620 | | |
| 125,183,892 | |
Accumulated
deficit | |
| (129,542,788 | ) | |
| (128,341,331 | ) |
| |
| | | |
| | |
Total stockholders’
deficiency | |
| (4,188,424 | ) | |
| (2,991,695 | ) |
| |
| | | |
| | |
Total liabilities
and stockholders’ deficiency | |
$ | 51,855 | | |
$ | 198,726 | |
See
accompanying notes to consolidated financial statements and
report
of independent registered public accounting firm.
CORTEX
PHARMACEUTICALS, INC.
AND
SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS
| |
Years
Ended December 31, | |
| |
2013 | | |
2012 | |
| |
| | |
| |
Grant revenues | |
$ | — | | |
$ | 48,309 | |
| |
| | | |
| | |
Operating expenses: | |
| | | |
| | |
General and administrative | |
| 932,973 | | |
| 1,946,597 | |
Research and development | |
| 206,911 | | |
| 826,702 | |
Pier merger-related costs (Note 3) | |
| — | | |
| 1,246,107 | |
Impairment loss from termination of license agreement (Note 4) | |
| — | | |
| 3,321,678 | |
(Gain) loss on settlement of office lease | |
| (1,990 | ) | |
| 39,126 | |
| |
| | | |
| | |
Total operating expenses | |
| 1,137,894 | | |
| 7,380,210 | |
| |
| | | |
| | |
Loss from operations | |
| (1,137,894 | ) | |
| (7,331,901 | ) |
| |
| | | |
| | |
Interest income | |
| — | | |
| 92 | |
Interest expense, including $48,688 and $187,843 to related parties for the years ended December
31, 2013 and 2012, respectively | |
| (56,339 | ) | |
| (196,984 | ) |
Foreign currency transaction loss | |
| (7,224 | ) | |
| (40,278 | ) |
Loss on sale of assets | |
| — | | |
| (3,173 | ) |
| |
| | | |
| | |
Net loss | |
$ | (1,201,457 | ) | |
$ | (7,572,244 | ) |
| |
| | | |
| | |
Net loss per common share - Basic and diluted | |
$ | (0.01 | ) | |
$ | (0.04 | ) |
| |
| | | |
| | |
Weighted average common shares outstanding - Basic and diluted | |
| 144,041,556 | | |
| 108,448,141 | |
See
accompanying notes to consolidated financial statements and
report
of independent registered public accounting firm.
CORTEX
PHARMACEUTICALS, INC.
AND
SUBSIDIARY
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY)
Years
Ended December 31, 2013 and 2012
| |
Series
B Convertible
Preferred Stock | | |
Common
Stock | | |
Additional | | |
| | |
Total
Stockholders’ | |
| |
Shares | | |
Dollar
Amount | | |
Shares | | |
Par
Value | | |
Paid-in
Capital | | |
Accumulated
Deficit | | |
Equity
(Deficiency) | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance, December 31, 2011 | |
| 37,500 | | |
$ | 21,703 | | |
| 85,623,663 | | |
$ | 85,624 | | |
$ | 121,337,670 | | |
$ | (120,769,087 | ) | |
$ | 675,910 | |
Issuance of shares of common stock in
connection with the acquisition of Pier Pharmaceuticals, Inc. (Note 3) | |
| — | | |
| — | | |
| 58,417,893 | | |
| 58,417 | | |
| 3,212,985 | | |
| — | | |
| 3,271,402 | |
Fair value of warrant issued in connection
with note payable | |
| — | | |
| — | | |
| — | | |
| — | | |
| 143,919 | | |
| — | | |
| 143,919 | |
Stock-based compensation expense | |
| — | | |
| — | | |
| — | | |
| — | | |
| 489,318 | | |
| — | | |
| 489,318 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (7,572,244 | ) | |
| (7,572,244 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, December 31, 2012 | |
| 37,500 | | |
| 21,703 | | |
| 144,041,556 | | |
| 144,041 | | |
| 125,183,892 | | |
| (128,341,331 | ) | |
| (2,991,695 | ) |
Related party short-swing trading profits
of $11,500, net of legal costs of $6,772 | |
| — | | |
| — | | |
| — | | |
| — | | |
| 4,728 | | |
| — | | |
| 4,728 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (1,201,457 | ) | |
| (1,201,457 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, December 31, 2013 | |
| 37,500 | | |
$ | 21,703 | | |
| 144,041,556 | | |
$ | 144,041 | | |
$ | 125,188,620 | | |
$ | (129,542,788 | ) | |
$ | (4,188,424 | ) |
See
accompanying notes to consolidated financial statements and
report
of independent registered public accounting firm.
CORTEX
PHARMACEUTICALS, INC.
AND
SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
| |
Years
Ended December 31, | |
| |
2013 | | |
2012 | |
Cash flows from operating activities: | |
| | | |
| | |
Net loss | |
$ | (1,201,457 | ) | |
$ | (7,572,244 | ) |
Adjustments to reconcile
net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation expense | |
| — | | |
| 26,383 | |
Amortization of license
agreement | |
| — | | |
| 89,479 | |
Impairment loss from
termination of license agreement | |
| — | | |
| 3,321,678 | |
(Gain) loss on settlement
of office lease | |
| (1,990 | ) | |
| 39,126 | |
Stock-based compensation
costs | |
| — | | |
| 179,318 | |
Pier merger-related
costs paid in common stock options | |
| — | | |
| 310,000 | |
Foreign currency transaction
loss | |
| 7,224 | | |
| 40,278 | |
Amortization of capitalized
financing costs | |
| — | | |
| 19,408 | |
Amortization of discount
on note payable | |
| — | | |
| 143,919 | |
Loss on sales of assets | |
| — | | |
| 3,173 | |
Changes in operating
assets and liabilities: | |
| | | |
| | |
(Increase) decrease
in - | |
| | | |
| | |
Restricted cash | |
| — | | |
| 48,309 | |
Other current assets | |
| 14,619 | | |
| 69,325 | |
Other non-current
assets | |
| 29,545 | | |
| (20,656 | ) |
Increase (decrease)
in - | |
| | | |
| | |
Accounts payable and
accrued expenses | |
| 321,779 | | |
| 871,908 | |
Accrued compensation
and related expenses | |
| 595,084 | | |
| 649,781 | |
Unearned revenue | |
| — | | |
| (48,309 | ) |
Deferred rent | |
| — | | |
| (64,329 | ) |
Accrued
interest payable | |
| 52,761 | | |
| 31,583 | |
| |
| | | |
| | |
Net
cash used in operating activities | |
| (182,435 | ) | |
| (1,861,870 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Cash acquired in connection
with acquisition of Pier Pharmaceuticals, Inc. | |
| — | | |
| 23,208 | |
Proceeds from sales
of equipment | |
| — | | |
| 6,785 | |
Purchases
of furniture and equipment | |
| — | | |
| (5,293 | ) |
| |
| | | |
| | |
Net
cash provided by investing activities | |
| — | | |
| 24,700 | |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Proceeds from related
party short-swing trading profits | |
| 4,728 | | |
| — | |
Deferred financing
costs related to Series G preferred stock | |
| (35,120 | ) | |
| — | |
Proceeds from issuance
of notes payable | |
| 75,000 | | |
| 399,774 | |
Financing
costs related to issuance of note payable | |
| — | | |
| (21,370 | ) |
| |
| | | |
| | |
Net
cash provided by financing activities | |
| 44,608 | | |
| 378,404 | |
| |
| | | |
| | |
Cash and cash equivalents: | |
| | | |
| | |
Net decrease | |
| (137,827 | ) | |
| (1,458,766 | ) |
Balance at beginning of period | |
| 152,179 | | |
| 1,610,945 | |
Balance end of period | |
$ | 14,352 | | |
$ | 152,179 | |
(Continued)
CORTEX
PHARMACEUTICALS, INC.
AND
SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Continued)
| |
Years
Ended December 31, | |
| |
2013 | | |
2012 | |
Supplemental disclosures of cash flow
information: | |
| | | |
| | |
Cash paid for - | |
| | | |
| | |
Interest | |
$ | — | | |
$ | — | |
Income taxes | |
$ | — | | |
$ | — | |
| |
| | | |
| | |
Non-cash investing and financing activities: | |
| | | |
| | |
Fair value
of common stock issued in connection with acquisition of Pier Pharmaceuticals, Inc. | |
$ | — | | |
$ | 3,271,402 | |
Fair value of warrant
issued in connection with note payable | |
$ | — | | |
$ | 143,919 | |
Write-off of fully-depreciated fixed
assets | |
$ | — | | |
$ | 834,016 | |
See
accompanying notes to consolidated financial statements and
report
of independent registered public accounting firm.
CORTEX
PHARMACEUTICALS, INC.
AND
SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
Ended December 31, 2013 and 2012
1. Organization
and Business Operations
Business
Cortex
Pharmaceuticals, Inc. (“Cortex” or the “Company”) was formed in 1987 to engage in the discovery, development
and commercialization of innovative pharmaceuticals for the treatment of neurological and psychiatric disorders. In 2011, prior
management conducted a re-evaluation of Cortex’s strategic focus and determined that clinical development in the area of
respiratory disorders, particularly respiratory depression and sleep apnea, provided the most cost-effective opportunities for
potential rapid development and commercialization of Cortex’s compounds. Accordingly, Cortex narrowed its clinical focus
at that time and abandoned other avenues of scientific inquiry. This re-evaluation provided the impetus for Cortex’s acquisition
of Pier Pharmaceuticals, Inc. (“Pier”) in August 2012 (see Note 3). Since new management’s appointment in March
2013, it has continued to implement this revised strategic focus, including seeking the capital to fund such efforts. As a result
of the Company’s scientific discoveries and the acquisition of strategic, exclusive license agreements (including a new
license agreement with the University of Illinois, as described at Note 12), management believes that the Company is now a leader
in the discovery and development of innovative pharmaceuticals for the treatment of respiratory disorders.
Since
its formation in 1987, Cortex has been engaged in the research and clinical development of a class of compounds referred to as
ampakines. By acting as positive allosteric modulators of AMPA glutamate receptors, ampakines increase the excitatory effects
of the neurotransmitter glutamate. Preclinical research suggested that these ampakines might have therapeutic potential for the
treatment of certain respiratory disorders, as well as cognitive disorders, depression, attention deficit disorder and schizophrenia.
In
its early stages, Cortex entered into a series of license agreements in 1993 and 1998 with the University of California, Irvine
(“UCI”) that granted Cortex proprietary rights to certain chemical compounds that acted as ampakines and their therapeutic
uses. These agreements granted Cortex, among other provisions, exclusive rights: (i) to practice certain patents and patent applications,
as defined in the license agreement, that were then held by UCI; (ii) to identify, develop, make, have made, import, export, lease,
sell, have sold or offer for sale any related licensed products; and (iii) to grant sub-licenses of the rights granted in the
license agreements, subject to the provisions of the license agreements. Cortex was required, among other terms and conditions,
to pay UCI a license fee, royalties, patent costs and certain additional payments.
At
December 31, 2012, the Company was not in compliance with its minimum annual payment obligations and believed that this default
constituted a termination of the license agreements. On April 15, 2013, UCI notified the Company that these license agreements
were terminated due to the Company’s failure to make its obligatory payments. Since the patents covered in these license
agreements had begun to expire and the therapeutic uses described in these patents were no longer germane to the Company’s
new focus on respiratory disorders, the loss of these license agreements is not expected to have a material impact on the Company’s
current or future drug development programs.
Cortex
also owns patents and patent applications for certain families of chemical compounds, including ampakines, which claim the chemical
structures and their use in the treatment of various disorders. These patents cover, among other compounds, Cortex’s lead
ampakines CX 1739 and CX1942, and extend through at least 2028.
On
May 8, 2007, Cortex entered into a license agreement, as subsequently amended, with the University of Alberta granting Cortex
exclusive rights to practice patents held by the University of Alberta claiming the use of ampakines for the treatment of various
respiratory disorders. These patents, along with Cortex’s own patents claiming chemical structures, comprise Cortex’s
principal intellectual property supporting Cortex’s research and clinical development program in the use of ampakines for
the treatment of respiratory disorders. Cortex has completed pre-clinical studies indicating that several of its ampakines, including
CX717, CX1739 and CX1942, were efficacious in treating drug induced respiratory depression caused by opiates or certain anesthetics
without offsetting the analgesic effects of the opiates or the anesthetic effects of the anesthetics. In two clinical Phase 2
studies, one of which was published in a peer-reviewed journal, CX717, a predecessor compound to CX1739 and CX1942, antagonized
the respiratory depression produced by fentanyl, a potent narcotic, without affecting the analgesia produced by this drug. In
addition, Cortex has conducted a Phase 2A clinical study in which patients with sleep apnea were administered CX1739, Cortex’s
lead clinical compound. Preliminary results suggested that CX1739 might have use for the treatment of central and mixed sleep
apnea, but not obstructive sleep apnea.
In
order to expand Cortex’s respiratory disorders program, the Company acquired 100% of the issued and outstanding equity securities
of Pier effective August 10, 2012 pursuant to an Agreement and Plan of Merger (see Note 3). Pier was formed in June 2007 (under
the name SteadySleep Rx Co.) as a clinical stage pharmaceutical company to develop a pharmacologic treatment for the respiratory
disorder known as obstructive sleep apnea and had been engaged in research and clinical development activities since formation.
Through
the merger, the Company gained access to an Exclusive License Agreement, as amended (the “License Agreement”), that
Pier had entered into with the University of Illinois on October 10, 2007. The License Agreement covered certain patents and patent
applications in the United States and other countries claiming the use of certain compounds referred to as cannabinoids, of which
dronabinol is a specific example, for the treatment of sleep related breathing disorders (including sleep apnea). Dronabinol is
a synthetic derivative of the naturally occurring substance in the cannabis plant, otherwise known as Δ9-THC (Δ9-tetrahydrocannabinol).
Pier’s business plan was to determine whether dronabinol would significantly improve subjective and objective clinical measures
in patients with obstructive sleep apnea. In addition, Pier intended to evaluate the feasibility and comparative efficacy of a
proprietary formulation of dronabinol.
The
License Agreement granted Pier, among other provisions, exclusive rights: (i) to practice certain patents and patent applications,
as defined in the License Agreement, that were then held by the University of Illinois; (ii) to identify, develop, make, have
made, import, export, lease, sell, have sold or offer for sale any related licensed products; and (iii) to grant sub-licenses
of the rights granted in the License Agreement, subject to the provisions of the License Agreement. Pier was required under the
License Agreement, among other terms and conditions, to pay the University of Illinois a license fee, royalties, patent costs
and certain milestone payments.
Prior
to the merger, Pier conducted a 21 day, randomized, double-blind, placebo-controlled dose escalation Phase 2 clinical study in
22 patients with obstructive sleep apnea (“OSA”), in which dronabinol produced a statistically significant reduction
in the Apnea-Hypopnea Index (“AHI”), the primary therapeutic end-point, and was observed to be safe and well tolerated.
Dronabinol is currently under investigation, at the University of Illinois and other centers, in a potentially pivotal 120 patient,
double-blind, placebo-controlled Phase 2B OSA clinical trial, fully funded by the National Institutes of Health.
Dronabinol
is a Schedule III, controlled generic drug with a relatively low abuse potential that is approved by the U.S. Food and Drug Administration
(“FDA”) for the treatment of AIDS-related anorexia and chemotherapy induced emesis. The use of dronabinol for the
treatment of OSA is a novel indication for an already approved drug and, as such, the Company believes that it would only require
approval by the FDA of a supplemental new drug application.
The
License Agreement was terminated effective March 21, 2013 due to the Company’s failure to make a required payment (see Note
4). New management subsequently opened negotiations with the University of Illinois and as a result, the Company ultimately entered
into a new license agreement with the University of Illinois on June 27, 2014, the material terms of which were similar to the
License Agreement that had been terminated on March 21, 2013 (see Note 12).
Going
Concern
The
Company’s consolidated financial statements have been presented on the basis that it is a going concern, which contemplates
the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred net losses
of $1,201,457 and $7,572,244 for the fiscal years ended December 31, 2013 and 2012, respectively, negative operating cash flows
of $182,435 and $1,861,870 for the fiscal years ended December 31, 2013 and 2012, respectively, and incurred additional net losses
and negative operating cash flows in the 2014 fiscal year. The Company expects to continue to incur net losses and negative operating
cash flows for several more years thereafter. As a result, management and the Company’s auditors believe that there is substantial
doubt about the Company’s ability to continue as a going concern.
The
Company is currently, and has for some time, been in significant financial distress. It has limited cash resources and current
assets and has no ongoing source of revenue. Beginning in late 2012, the Company’s business activities were reduced to minimal
levels, and the prior Board of Directors of the Company, which was removed by the written consent of stockholders holding a majority
of the outstanding shares on March 22, 2013, had retained bankruptcy counsel to assist the Company in preparations to file for
liquidation under Chapter 7 of the United States Bankruptcy Code. New management, which was appointed during March and April 2013,
has evaluated the status of numerous aspects of the Company’s existing business and obligations, including, without limitation,
debt obligations, financial requirements, intellectual property, licensing agreements, legal and patent matters and regulatory
compliance, and has raised new capital to fund its business activities.
From
June 2013 through March 2014, the Company’s Chairman and Chief Executive Officer advanced short-term loans to the Company
aggregating $150,000 in order to meet its minimum operating needs. In March and April 2014, the Company completed a private placement
by selling 928.5 shares of its Series G Preferred Stock for gross proceeds of $928,500 (see Note 12) and repaid the aggregate
advances. The Company’s Chairman and Chief Executive Officer invested $250,000 in the Series G Preferred Stock private placement.
During November and December 2014, the Company sold convertible notes (with warrants) in an aggregate principal amount of $369,500
to various accredited investors (see Note 12). The Company intends to continue this financing until it has sold an aggregate principal
amount of $1,000,000 of such notes, although there can be no assurances that the Company will be successful in this regard.
The
Company will need to raise additional capital, either through the current financing or otherwise, or both, to be able to pay its
liabilities and fund its business activities going forward. As a result of the Company’s current financial situation, the
Company has limited access to external sources of debt and equity financing. Accordingly, there can be no assurances that the
Company will be able to secure additional financing in the amounts necessary to fully fund its operating and debt service requirements.
If the Company is unable to access sufficient cash resources, the Company may be forced to discontinue its operations entirely
and liquidate.
2. Summary
of Significant Accounting Policies
Principles
of Consolidation
The
accompanying consolidated financial statements include the financial statements of Cortex and Pier, its wholly-owned subsidiary,
from its August 10, 2012 acquisition date. Intercompany balances and transactions have been eliminated in consolidation.
Cash
Concentrations
The
Company’s cash balances may periodically exceed federally insured limits. The Company has not experienced a loss in such
accounts to date. The Company maintains its accounts with financial institutions with high credit ratings.
Cash
Equivalents
The
Company considers all highly liquid short-term investments with maturities of less than three months when acquired to be cash
equivalents.
Concentrations
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents
and short-term investments. The Company limits its exposure to credit risk by investing its cash with high credit quality financial
institutions.
Fair
Value of Financial Instruments
The
authoritative guidance with respect to fair value established a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value into three levels, and requires that assets and liabilities carried at fair value be classified
and disclosed in one of three categories, as presented below. Disclosure as to transfers into and out of Levels 1 and 2, and activity
in Level 3 fair value measurements, is also required.
Level
1. Observable inputs such as quoted prices in active markets for an identical asset or liability that the Company has the ability
to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active-exchange traded
securities and exchange-based derivatives.
Level
2. Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly
observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include
fixed income securities, non-exchange based derivatives, mutual funds, and fair-value hedges.
Level
3. Unobservable inputs in which there is little or no market data for the asset or liability which requires the reporting entity
to develop its own assumptions. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded, non-exchange-based
derivatives and commingled investment funds, and are measured using present value pricing models.
The
Company determines the level in the fair value hierarchy within which each fair value measurement falls in its entirety, based
on the lowest level input that is significant to the fair value measurement in its entirety. In determining the appropriate levels,
the Company performs an analysis of the assets and liabilities at each reporting period end.
Deferred
and Capitalized Financing Costs
Costs
incurred in connection with ongoing financing activities, including legal and other professional fees, cash finders and placement
agent fees, and escrow agent fees, are deferred until the related financing is either completed or abandoned. Costs related to
abandoned financings are charged to operations.
Costs
related to completed debt financings are capitalized on the balance sheet and amortized over the term of the related debt agreements.
Amortization of these costs is calculated on the straight-line basis, which approximates the effective interest method, and is
charged to interest expense in the consolidated statements of operations. Costs related to completed equity financings are charged
directly to additional paid-in capital.
Deferred
financing costs included in the consolidated balance sheet at December 31, 2013 and 2012 were $35,120 and $0, respectively.
Furniture
and Equipment
Furniture
and equipment are recorded at cost and depreciated on a straight-line basis over the lesser of their estimated useful lives, ranging
from three to five years.
Long-Lived
Assets
The
Company reviews its long-lived assets, including intangible assets such as the License Agreement, for impairment whenever events
or changes in circumstances indicate that the total amount of an asset may not be recoverable, but at least annually, in conjunction
with the preparation of the Company’s fiscal year-end audited financial statements. An impairment loss is recognized when
estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than the asset’s
carrying amount. The Company does not have any goodwill.
License
Agreement
The
License Agreement with the University of Illinois acquired in the Pier transaction was an acquired intangible asset recorded at
cost of $3,411,157 (based on the fair value ascribed to the License Agreement in August 2012, as described in Note 3), and was
being amortized on a straight-line basis over the remaining life of its underlying patents of 172 months from the date of acquisition.
The
Company performed an impairment assessment of the carrying value of the License Agreement as of December 31, 2012 and determined
that it had no expected future value at that date. The Company made this determination because it was unable to make a $75,000
payment due under the License Agreement at December 31, 2012, as a result of which the License agreement was forfeited during
the three months ended March 31, 2013. The Company recorded an impairment charge to operations of $3,321,678 at December 31, 2012
to write off the License Agreement (see Note 4).
Research
Grant Revenues
The
Company records research grant revenues when the expenses related to the grant projects are incurred. Amounts received under research
grants are nonrefundable, regardless of the success of the underlying research, to the extent that such amounts are expended in
accordance with the approved grant project.
Stock-Based
Compensation
The
Company periodically issues common stock and stock options to officers, directors and consultants for services rendered. Such
issuances vest and expire according to terms established at the issuance date.
The
Company accounts for stock-based payments to officers and directors by measuring the cost of services received in exchange for
equity awards based on the grant date fair value of the awards, with the cost recognized as compensation expense on the straight-line
basis in the Company’s financial statements over the vesting period of the awards. The Company accounts for stock-based
payments to consultants by determining the value of the stock compensation based upon the measurement date at either (a) the date
at which a performance commitment is reached or (b) at the date at which the necessary performance to earn the equity instruments
is complete.
Options
granted to members of the Company’s Scientific Advisory Board and to outside consultants are revalued each reporting period
to determine the amount to be recorded as an expense in the respective period. As the options vest, they are valued on each vesting
date and an adjustment is recorded for the difference between the value already recorded and the then current value on the date
of vesting.
The
fair value of stock options is determined utilizing the Black-Scholes option-pricing model, and is affected by several variables,
the most significant of which are the life of the equity award, the exercise price of the security as compared to the fair market
value of the common stock on the grant date, and the estimated volatility of the common stock over the term of the equity award.
Estimated volatility is based on the historical volatility of the Company’s common stock. The risk-free interest rate is
based on the U.S. Treasury yield curve in effect at the time of grant. The fair value of common stock is determined by reference
to the quoted market price of the Company’s common stock.
The
Company recognizes the fair value of stock-based compensation in general and administrative costs and in research and development
costs, as appropriate, in the Company’s consolidated statements of operations.
The
Company issues new shares to satisfy stock option exercises.
There
were no stock options issued during the year ended December 31, 2013. For options granted during the year ended December 31, 2012,
the fair value of each option award was estimated using the Black-Scholes option-pricing model using the following input variables:
expected life – 10 years; expected volatility – 176%; expected dividend yield – 0%; risk-free interest rate
– 0.30%.
There
were no stock options exercised during the years ended December 31, 2013 and 2012.
Income
Taxes
The
Company accounts for income taxes under an asset and liability approach for financial accounting and reporting for income taxes.
Accordingly, the Company recognizes deferred tax assets and liabilities for the expected impact of differences between the financial
statements and the tax basis of assets and liabilities.
The
Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized.
In the event the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of
its recorded amount, an adjustment to the deferred tax assets would be credited to operations in the period such determination
was made. Likewise, should the Company determine that it would not be able to realize all or part of its deferred tax assets in
the future, an adjustment to the deferred tax assets would be charged to operations in the period such determination was made.
Pursuant
to Internal Revenue Code Sections 382 and 383, use of the Company’s net operating loss and credit carryforwards may be limited
if a cumulative change in ownership of more than 50% occurs within any three-year period since the last ownership change. The
Company may have had a change in control under these Sections. However, the Company does not anticipate performing a complete
analysis of the limitation on the annual use of the net operating loss and tax credit carryforwards until the time that it projects
it will be able to utilize these tax attributes.
As
of December 31, 2013, the Company did not have any unrecognized tax benefits related to various federal and state income tax matters.
The
Company is subject to U.S. federal income taxes and income taxes of various state tax jurisdictions. As the Company’s net
operating losses have yet to be utilized, all previous tax years remain open to examination by Federal authorities and other jurisdictions
in which the Company currently operates or has operated in the past. The Company had no unrecognized tax benefits as of December
31, 2013 and 2012 and does not anticipate any material amount of unrecognized tax benefits within the next 12 months.
The
Company is currently delinquent with respect to certain of its U.S. federal and applicable states income tax filings and no potential
penalties, interest or other charges have been provided for in the Company’s consolidated financial statements because no
income was generated during those periods.
Foreign
Currency Transactions
The
note payable to related party, which is denominated in a foreign currency (the South Korean Won), is translated into the Company’s
functional currency (the United States dollar) at the exchange rate on the balance sheet date. The foreign currency exchange gain
or loss resulting from translation is recognized in the related consolidated statements of operations.
Research
and Development Costs
Research
and development costs consist primarily of fees paid to consultants and outside service providers, patent fees and costs, and
other expenses relating to the acquisition, design, development and testing of the Company’s treatments and product candidates.
Research
and development costs are expensed as incurred over the life of the underlying contracts on the straight-line basis, unless the
achievement of milestones, the completion of contracted work, or other information indicates that a different expensing schedule
is more appropriate. Payments made pursuant to research and development contracts are initially recorded as advances on research
and development contract services in the Company’s balance sheet and then charged to research and development costs in the
Company’s statements of operations as those contract services are performed. Expenses incurred under research and development
contracts in excess of amounts advanced are recorded as research and development contract liabilities in the Company’s balance
sheet, with a corresponding charge to research and development costs in the Company’s statements of operations. The Company
reviews the status of its research and development contracts on a quarterly basis.
Comprehensive
Income (Loss)
Components
of comprehensive income or loss, including net income or loss, are reported in the financial statements in the period in which
they are recognized. Comprehensive income or loss is defined as the change in equity during a period from transactions and other
events and circumstances from non-owner sources. Net income (loss) and other comprehensive income (loss) are reported net of any
related tax effect to arrive at comprehensive income (loss). The Company did not have any items of comprehensive income (loss)
for the years ended December 31, 2013 and 2012.
Earnings
per Share
The
Company’s computation of earnings per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as
the income (loss) available to common stockholders divided by the weighted average common shares outstanding for the period. Diluted
EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., warrants and
options) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common
shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded
from the calculation of diluted EPS.
Loss
per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during
the respective periods. Basic and diluted loss per common share is the same for all periods presented because all warrants and
stock options outstanding are anti-dilutive.
At
December 31, 2013 and 2012, the Company excluded the outstanding securities summarized below, which entitle the holders thereof
to acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.
| |
December
31, | |
| |
2013 | | |
2012 | |
Convertible preferred stock | |
| 3,679 | | |
| 3,679 | |
Warrants | |
| 4,000,000 | | |
| 12,357,884 | |
Stock options | |
| 5,166,668 | | |
| 10,754,155 | |
Total | |
| 9,170,347 | | |
| 23,115,718 | |
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates
and assumptions affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts
may differ from those estimates.
Recent
Accounting Pronouncements
In
April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-08 (ASU
2014-08), Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360). ASU 2014-08 amends
the requirements for reporting discontinued operations and requires additional disclosures about discontinued operations. Under
ASU 2014-08, only disposals representing a strategic shift in operations or that have a major effect on the Company’s operations
and financial results should be presented as discontinued operations. ASU 2014-08 is effective for annual periods beginning after
December 15, 2014. As the Company is engaged in research and development activities, the Company does not expect the adoption
of this guidance to have any impact on the Company’s financial statement presentation or disclosures.
In
May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers.
ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance under current U.S. GAAP and replace
it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue
based on the value of transferred goods or services as they occur in the contract. ASU 2014-09 also will require additional disclosure
about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant
judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective
for reporting periods beginning after December 15, 2016, and early adoption is not permitted. Entities can transition to the standard
either retrospectively or as a cumulative-effect adjustment as of the date of adoption. As the Company does not expect to have
any operating revenues for the foreseeable future, the Company does not expect the adoption of this guidance to have any impact
on the Company’s financial statement presentation or disclosures.
In
June 2014, the FASB issued Accounting Standards Update No. 2014-10 (ASU 2014-10), Development Stage Entities (Topic 915): Elimination
of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation.
ASU 2014-10 eliminated the requirement to present inception-to-date information about income statement line items, cash flows,
and equity transactions, and clarifies how entities should disclosure the risks and uncertainties related to their activities.
ASU 2014-10 also eliminated an exception provided to development stage entities in Consolidations (ASC Topic 810) for determining
whether an entity is a variable interest entity on the basis of the amount of investment equity that is at risk. The presentation
and disclosure requirements in Topic 915 will no longer be required for interim and annual reporting periods beginning after December
15, 2014, and the revised consolidation standards will take effect in annual periods beginning after December 15, 2015. Early
adoption is permitted. The adoption of ASU 2014-10 is not expected to have any impact on the Company’s financial statement
presentation or disclosures.
In
August 2014, the FASB issued Accounting Standards Update No. 2014-15 (ASU 2014-15), Presentation of Financial Statements –
Going Concern (Subtopic 205-10). ASU 2014-15 provides guidance as to management’s responsibility to evaluate whether
there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures.
In connection with preparing financial statements for each annual and interim reporting period, an entity’s management should
evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s
ability to continue as a going concern within one year after the date that the financial statements are issued (or within one
year after the date that the financial statements are available to be issued when applicable). Management’s evaluation should
be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are
issued (or at the date that the financial statements are available to be issued when applicable). Substantial doubt about an entity’s
ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that
it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the
financial statements are issued (or available to be issued). ASU 2014-15 is effective for the annual period ending after December
15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company is currently evaluating
the impact the adoption of ASU 2014-15 on the Company’s financial statement presentation and disclosures.
Management
does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have
a material impact on the Company’s financial statement presentation or disclosures.
3. Merger
with Pier Pharmaceuticals, Inc.
On
August 10, 2012, pursuant to an Agreement and Plan of Merger by and among Pier, a privately-held corporation, Pier Acquisition
Corp., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of Cortex, and Cortex, Merger Sub merged
with and into Pier and Pier became a wholly-owned subsidiary of Cortex. Pier was formed in June 2007 (under the name SteadySleep
Rx Co.) as a clinical stage pharmaceutical company to develop a pharmacologic treatment for the respiratory disorder known as
obstructive sleep apnea and had been engaged in research and clinical development activities since formation. As a result, Cortex
acquired 100% of the issued and outstanding equity securities of Pier.
In
connection with the merger transaction with Pier, Cortex issued 58,417,893 newly issued shares of its common stock with an aggregate
fair value of $3,271,402 ($0.056 per share), based upon the closing price of Cortex’s common stock on August 10, 2012. The
shares of common stock were issued to stockholders, convertible note holders, warrant holders, option holders, and certain employees
and vendors of Pier in satisfaction of their interests and claims. The common stock issued by Cortex represented approximately
41% of the 144,041,556 common shares outstanding immediately following the closing of the transaction.
Pier
was formed on June 25, 2007 as a closely-held clinical stage pharmaceutical company to develop a pharmacologic treatment for the
respiratory disorder known as obstructive sleep apnea and has been engaged in research and early clinical development activities
since formation. Pier was a development stage company, as it had not commenced any revenue-generating operations, did not have
any cash flows from operations, and was dependent on debt and equity funding to finance its operations.
On
October 10, 2007, Pier obtained the basis for its research and clinical development activities by entering into a License Agreement
with the University of Illinois. The License Agreement covered certain patents and patent applications in the United States and
other countries claiming the use of certain compounds referred to as cannabinoids, of which dronabinol is a specific example,
for the treatment of breathing-related sleep disorders (including sleep apnea). Dronabinol is a synthetic derivative of the naturally
occurring substance in the cannabis plant, otherwise known as Δ9-THC (Δ9-tetrahydrocannabinol). Pier’s business
plan was to determine whether dronabinol administration to humans would significantly improve subjective and objective clinical
measures in patients with obstructive sleep apnea. In addition, Pier intended to evaluate the feasibility and comparative efficacy
of a proprietary formulation of dronabinol.
The
License Agreement granted Pier, among other provisions, exclusive rights: (i) to practice certain patents and patent applications,
as defined in the License Agreement, that were then held by the University of Illinois; (ii) to identify, develop, make, have
made, import, export, lease, sell, have sold or offer for sale any related licensed products; and (iii) to grant sub-licenses
of the rights granted in the License Agreement, subject to the provisions of the License Agreement. Pier was required under the
License Agreement to pay the University of Illinois a license fee, royalties, patent costs and certain milestone payments.
The
License Agreement was the basis for Pier’s research and development activities, and was Pier’s primary asset and its
only intellectual property asset. By providing Cortex with the means to expand its respiratory disorders program, the License
Agreement was the central reason that Cortex entered into the merger transaction with Pier in August 2012.
The
transaction brought together a series of unique drug products that in preclinical animal models and early clinical studies have
shown efficacy in preventing or reversing drug-induced respiratory depression and in reducing obstructive, central and mixed sleep
apneas. Phase 2 clinical assets include Cortex’s CX1739, a compound targeting opiate-induced respiratory depression and
central sleep apnea, and Pier’s dronabinol, a compound that was, at the time, about to begin a Phase 2B study in obstructive
sleep apnea patients that was funded entirely by a National Institutes of Health grant of nearly $5 million. Subsequent to the
closing of the transaction, the Company intended to focus entirely on treatments for breathing disorders, and expected to have
multiple opportunities for value-generating clinical milestones with dronabinol and CX1739.
Pursuant
to the terms of the transaction, Cortex agreed to issue contingent consideration, consisting of up to approximately 18,300,000
additional shares of common stock, to Pier’s former security holders and certain other creditors and service providers (the
“Pier Stock Recipients”) that received the Company’s common stock as part of the Pier transaction if certain
of the Company’s stock options and warrants outstanding immediately prior to the closing of the merger were subsequently
exercised. In the event that such contingent shares were issued, the ownership percentage of the Pier Stock Recipients, following
their receipt of such additional shares, could not exceed their ownership percentage as of the initial transaction date.
The
stock options and warrants outstanding at June 30, 2012 were all out-of-the-money on August 10, 2012. During late July and early
August 2012, the Company issued options to officers and directors at that time to purchase a total of 7,361,668 shares of common
stock exercisable for ten years at $0.06 per share (see Note 8). By October 1, 2012, these options were also out-of-the-money
and continued to be out-of-the-money through December 31, 2013. All of the aforementioned options and warrants became increasingly
out-of-the-money as December 31, 2012 approached (with most options and warrants being out of the money by multiples of the exercise
price at such date), reflecting the fact that the Company’s prospects were very negative. The Company was unable to raise
operating capital subsequent to its acquisition of Pier, had run out of working capital and essentially ceased business operations
during the fourth quarter of 2012, had not filed its September 30, 2012 Form 10-Q Quarterly Report with the U.S. Securities and
Exchange Commission due on November 14, 2012, had accepted the resignations of most of its officers and directors, and had prepared
to shut-down and liquidate. There were no stock options or warrants exercised from August 10, 2012 through December 31, 2013,
and all of these stock options and warrants were out-of-the-money at December 31, 2013. As of December 31, 2013, approximately
2,100,000 contingent shares of common stock remained issuable under the Pier merger agreement due to forfeitures and expirations
of stock options and warrants occurring since August 10, 2012.
The
Company concluded that the issuance of any of the contingent shares to the Pier Stock Recipients was remote, given the large spread
between exercise prices of these stock options and warrants as compared to the common stock trading range, the expiration of most
of the lower priced option and warrants within two years, the Company’s distressed financial condition and capital requirements,
and that these stock options and warrants have remained and have become increasingly out-of-the-money through December 31, 2013,
and have continued to expire, as time passes. Accordingly, the Company considered the fair value of the contingent consideration
to be immaterial and therefore did not ascribe any value to such contingent consideration; if any such shares are ultimately issued
to the former Pier stockholders, the Company will recognize the fair value of such shares as a charge to operations.
The
Company agreed to file a registration statement on Form S-1 under the Securities Act of 1933, as amended, with the SEC within
ninety days after the closing of the transaction covering the shares of common stock issued to the former Pier stockholders, as
well as the contingent shares, and to take certain other actions to maintain the effectiveness of such registration statement
for a period not exceeding three years. The Company has not filed this registration statement. The Agreement and Plan of Merger
did not provide for any financial penalties in the event that the Company failed to comply with the registration statement filing
requirements.
The
Company accounted for the Pier transaction pursuant to ASC Topic 805, Business Combinations. The Company identified and evaluated
the fair value of the assets acquired. Based on the particular facts and circumstances surrounding the history and status of Pier,
including its business and intellectual property at the time of the merger transaction, the Company determined that the identifiable
intangible assets were comprised solely of a contract-based intangible asset, and that there was no measurable goodwill.
The
intangible asset acquired in the Pier transaction consisted of the License Agreement. Unless terminated earlier, the License Agreement
would terminate upon expiration or termination of all patent rights. The License Agreement defined patent rights as all of the
University of Illinois’ rights in the patents and patent applications, and (b) all of the University of Illinois’
rights in all divisions, continuations, continuation-in-part applications, reissues, renewals, re-examinations, foreign counterparts,
substitutions or extensions thereof. Based upon the expiration date of the underlying patents, the License Agreement would be
amortized on a straight-line basis over the remaining life of the underlying patents of 172 months from the date of acquisition.
The
following table summarizes the fair value of the assets acquired and liabilities assumed by the Company at the closing of the
Pier transaction on August 10, 2012.
Fair value of assets acquired: | |
| | |
Cash | |
$ | 23,208 | |
Other current assets | |
| 698 | |
Equipment | |
| 3,463 | |
License agreement | |
| 3,411,157 | |
Total assets acquired | |
$ | 3,438,526 | |
| |
| | |
Consideration transferred by the Company: | |
| | |
Fair value of common shares issued | |
$ | 3,271,402 | |
Liabilities assumed | |
| 167,124 | |
Total consideration paid | |
$ | 3,438,526 | |
The
following pro forma operating data presents the results of operations for the year ended December 31, 2012, as if the merger had
occurred on the first day of the period presented. The pro forma results are not necessarily indicative of the financial results
that might have occurred had the merger transaction actually taken place on the first day of the period presented, or of future
results of operations. Pro forma information for the year ended December 31, 2012 is summarized as follows:
Total revenues | |
$ | 48,309 | |
Net loss | |
$ | (6,679,370 | ) |
Net loss per common share - Basic and diluted | |
$ | (0.05 | ) |
Weighted average common shares outstanding - Basic and diluted | |
| 144,041,556 | |
As
a condition of the Pier transaction, positions for two of Cortex’s executive officers were eliminated and thus the severance
agreements for such executive officers were amended. As amended, the severance agreements provided for the grant of fully vested,
ten-year options to purchase up to a total of 5,166,668 shares of the Company’s common stock at an exercise price of $0.06
per share, which was in excess of the closing price of the Company’s common stock on the closing date of the Pier acquisition.
The fair value of these options, as calculated pursuant to the Black-Scholes option-pricing model was determined to be $310,000
($0.06 per share) and was charged to merger costs on August 10, 2012. The Black-Scholes option-pricing model utilized the following
inputs: exercise price per share-$0.06; stock price per share – $0.056; expected dividend yield – 0.00%; expected
volatility – 176%; average risk-free interest rate – 0.31%; expected life – 10 years. As amended, the severance
agreements also required the payment of $429,231 for various other amounts due the two executive officers. As of August 10, 2012,
these amounts were accrued and charged to merger costs. As a result of the management change that occurred on March 22, 2013,
these officers asserted claims against the Company (see Note 12).
Pier
merger-related costs for the year ended December 31, 2012 are summarized as follows:
Direct merger costs | |
$ | 506,876 | |
Merger-related severance and termination costs | |
| 739,231 | |
Total | |
$ | 1,246,107 | |
The
License Agreement was terminated effective March 21, 2013 due to the Company’s failure to make a required payment (see Note
4). New management subsequently opened negotiations with the University of Illinois and as a result, the Company ultimately entered
into a new license agreement with the University of Illinois on June 27, 2014, the material terms of which were similar to the
License Agreement that had been terminated on March 21, 2013 (see Note 12).
4. Impairment
and Termination of University of Illinois License Agreement
At
December 31, 2012, the Company was obligated to pay a $75,000 milestone fee to the University of Illinois under the License Agreement
(see Note 3). At such date, due to the Company’s distressed financial condition, lack of working capital and inability to
raise additional operating capital, the Company was unable to make such payment on a timely basis, or within the 30-day cure period.
At
December 31, 2012, the Company determined that the License Agreement would be forfeited during the first quarter of the 2013 fiscal
year. Accordingly, the License Agreement had no expected future value and was therefore impaired at December 31, 2012, as a result
of which the Company recorded a charge to operations of $3,321,678 at December 31, 2012 (reflecting the remaining unamortized
carrying value of the License Agreement at December 31, 2012).
Subsequently,
on February 19, 2013, the University of Illinois notified the Company that it had defaulted under the License Agreement due to
non-payment of the $75,000 milestone fee due December 31, 2012. On March 22, 2013, the University of Illinois notified the Company
that the License Agreement had been terminated effective March 21, 2013 due to the Company’s failure to make the required
$75,000 payment.
5. Notes
Payable
Note
Payable to Related Party
On
June 25, 2012, the Company borrowed 465,000,000 Won (the currency of South Korea, equivalent to approximately $400,000 US dollars)
from and executed a secured note payable to SY Corporation Co., Ltd., formerly known as Samyang Optics Co. Ltd. (“Samyang”),
an approximately 20% common stockholder of the Company at that time. The note accrues simple interest at the rate of 12% per annum
and has a maturity date of June 25, 2013, although Samyang was permitted to demand early repayment of the promissory note on or
after December 25, 2012. Samyang did not demand early repayment. The Company has not made any payments on the promissory note.
At June 30, 2013 and subsequently, the promissory note was outstanding and in technical default, although Samyang has not issued
a notice of default or a demand for repayment. The Company believes that Samyang is in default of its obligations under its January
2012 license agreement, as amended, with the Company, but the Company has not yet issued a notice of default. The Company anticipates
entering into discussions with Samyang with a view toward a comprehensive resolution of the aforementioned matters.
Pursuant
to the terms of this borrowing arrangement, Samyang was granted the right to designate a representative to serve on the Company’s
Board of Directors, pursuant to which Samyang designated Moogak Hwang, Ph.D. as its representative.
In this regard, the Company elected Dr. Hwang to its Board of Directors on August 3, 2012. Dr. Hwang resigned from the Company’s
Board of Directors effective September 30, 2013.
The
promissory note is secured by collateral that represents a lien on certain patents owned by the Company, including composition
of matter patents for certain of the Company’s high impact ampakine compounds and the low impact ampakine compounds CX2007
and CX2076, and other related compounds. The security interest does not extend to the Company’s patents for its ampakine
compounds CX1739 and CX1942, or to the patent for the use of ampakine compounds for the treatment of respiratory depression.
In
connection with this financing, the Company issued to Samyang two-year detachable warrants to purchase 4,000,000 shares of the
Company’s common stock at a fixed exercise price of $0.056 per share. The warrants have a call right for consideration of
$0.001 per share, in favor of the Company, to the extent that the weighted average closing price of the Company’s common
stock exceeds $0.084 per share for each of ten consecutive trading days, subject to certain circumstances. Additionally, an existing
license agreement with Samyang was expanded to include rights to ampakine CX1739 in South Korea for the treatment of sleep apnea
and respiratory depression. The unexercised warrants expired on June 25, 2014.
The
Company used the Black-Scholes option-pricing model to estimate the fair value of the two-year detachable warrants to purchase
4,000,000 shares of the Company’s common stock at a fixed exercise price of $0.056 per share. The Company applied the relative
fair value method to allocate the proceeds from the borrowing to the note payable and the detachable warrants. The Company did
not consider the expansion of the existing license agreement with Samyang to have any significant value. Consequently, approximately
64% of the proceeds of the borrowing were attributed to the debt instrument.
The
36% value attributed to the warrant was being amortized as additional interest expense over the life of the note. Additionally,
financing costs aggregating $21,370 incurred in connection with the transaction were also amortized over the expected life of
the note. In that repayment could be demanded after six months, that period was used as the expected life of the note payable
for amortization purposes.
Note
payable to Samyang consists of the following at December 31, 2013 and 2012:
| |
2013 | | |
2012 | |
Principal amount of note payable | |
$ | 399,774 | | |
$ | 399,774 | |
Accrued interest payable | |
| 73,979 | | |
| 25,340 | |
Foreign currency transaction adjustment | |
| 47,502 | | |
| 40,278 | |
| |
$ | 521,255 | | |
$ | 465,392 | |
Notes
Payable to Chairman
On
June 25, 2013, the Arnold Lippa Family Trust, an affiliate of Dr. Lippa, the Company’s Chairman and Chief Executive Officer,
began advancing funds to the Company in order to meet minimum operating needs. At December 31, 2013, Dr. Lippa had advanced a
total of $75,000 to the Company. Such advances reached a maximum of $150,000 on March 3, 2014 and were due on demand with interest
at a rate per annum equal to the “Blended Annual Rate”, as published by the U.S. Internal Revenue Service of approximately
0.22% for the period outstanding. In March 2014, the Company repaid the working capital advances, including accrued interest of
$102, with the proceeds from the private placement of its Series G Preferred Stock (see Note 12).
6. Furniture,
Equipment and Leasehold Improvements
During
the year ended December 31, 2012, in connection with the downsizing of the Company’s operations, the Company disposed of
furniture, equipment and leasehold improvements costing a total of $1,170,849.
On
May 14, 2012, the Company executed a three-year lease for approximately 5,000 square feet of office space beginning June 1, 2012
at a monthly rate of $9,204. During the three months ended December 31, 2012, the Company substantially vacated its operating
facility and abandoned its furniture, equipment and leasehold improvements. In May 2013, the Company received notice that it had
been sued in the Superior Court of California in a complaint filed on March 28, 2013 by its former landlord, PPC Irvine Center
Investment, LLC, seeking among other things, $57,535 in past due rent, termination of the lease agreement, and reasonable attorney’s
fees. On May 23, 2013, a settlement was reached with the landlord that provided for the Company to relinquish its security deposit
in the amount of $29,545, transfer title to its remaining furniture, equipment and leasehold improvements, and pay an additional
$26,000. The transfer of the Company’s furniture, equipment and leasehold improvements resulted in a loss of $39,126, which
was recorded at December 31, 2012. During the year ended December 31, 2013, the Company recorded a gain of $1,990 with respect
to the final resolution of this matter.
In
order to estimate the fair value of the liability to be accrued with respect to the Company’s potential liability under
the abandoned lease at December 31, 2012, the Company considered various factors, including the current lease rates for similar
office space in Irvine, California, the desirability of the area to businesses, and the estimated time that it would take to find
a new tenant for the office space. Taking these factors into account, the Company concluded that the potential rental income from
a sublease of its operating facility would equal or exceed the Company’s remaining lease obligation. The Company also considered
the negotiations with the landlord during May 2013, which indicated that a settlement for substantially less than the remaining
payments under the lease was more likely than not to be successful.
7. Project
Advance
In
June 2000, the Company received $247,300 from the Institute for the Study of Aging (the “Institute”) to fund testing
of CX516, the Company’s ampakine in patients with mild cognitive impairment (“MCI”). Patients with MCI represent
the earliest clinically-defined group with memory impairment beyond that expected for normal individuals of the same age and education,
but such patients do not meet the clinical criteria for Alzheimer’s disease. During 2002 and 2003, the Company conducted
a double-blind, placebo-controlled clinical study with 175 elderly patients displaying MCI and issued a final report on June 21,
2004. CX516 did not improve the memory impairments observed in these patients.
Pursuant
to the funding agreement, if the Company complied with certain conditions, including the completion of the MCI clinical trial,
the Company would not be required to make any repayments unless and until the Company enters one of its ampakine compounds into
a Phase 3 clinical trials for Alzheimer’s disease. Upon initiation of such clinical trials, repayment would include the
principal amount plus accrued interest computed at a rate equal to one-half of the prime lending rate. In the event of repayment,
the Institute could elect to receive the outstanding principal balance and any accrued interest thereon in shares of the Company’s
common stock. The conversion price for such form of repayment was fixed at $4.50 per share and was subject to adjustment if the
Company paid a dividend or distribution in shares of common stock, effected a stock split or reverse stock split, effected a reorganization
or reclassification of its capital stock, or effected a consolidation or merger with or into another corporation or entity. Included
in the consolidated balance sheets is principal and accrued interest with respect to this funding agreement in the amount of $334,096
and $330,022 at December 31, 2013 and 2012, respectively.
The
Company entered into an agreement with the Institute on September 2, 2014 to settle this obligation by issuing 1,000,000 shares
of the Company’s restricted common stock (see Note 12). The note payable, including accrued interest, had an approximate
balance of $337,000 on such date.
8. Stockholders’
Equity
Preferred
Stock
The
Company has authorized a total of 5,000,000 shares of preferred stock, par value $0.001 per share. As of December 31, 2013 and
2012, 1,250,000 shares were designated as 9% Cumulative Convertible Preferred Stock (non-voting, “9% Preferred”);
37,500 shares were designated as Series B Convertible Preferred Stock (non-voting, “Series B Preferred”); 205,000
were designated as Series A Junior Participating Preferred Stock (non-voting, “Series A Junior Participating”) and
3,507,500 shares were undesignated and may be issued with such rights and powers as the Board of Directors may designate.
None
of the 9% Preferred shares or the Series A Junior Participating shares were outstanding as of December 31, 2013 or 2012.
Series
B Preferred shares outstanding as of December 31, 2013 and 2012 consisted of 37,500 shares issued in a May 1991 private placement.
Each share of Series B Preferred is convertible into approximately 0.09812 shares of common stock at an effective conversion price
of $6.795 per share of common stock, which is subject to adjustment under certain circumstances. As of December 31, 2013 and 2012,
these shares of Series B Preferred outstanding are convertible into 3,679 shares of common stock. The Company may redeem the Series
B Preferred for $25,001, equivalent to $0.6667 per share, an amount equal to its liquidation preference, at any time upon 30 days
prior notice.
On
March 14, 2014, the Company designated 1,700 shares of the previously undesignated shares of preferred stock as Series G Preferred
Stock (see Note 12).
Common
Stock and Common Stock Purchase Warrants
Under
the terms of the Company’s registered direct offering with several institutional investors in January 2007, the Company
sold an aggregate of 5,021,427 shares of its common stock and warrants to purchase 3,263,927 shares of its common stock. The warrants
had an exercise price of $1.66 per share and were exercisable on or before January 21, 2012. During the year ended December 31,
2007, the Company received approximately $443,000 from the partial exercise of such warrants. None of the remaining warrants to
purchase 2,996,927 shares of the Company’s common stock were exercised, and consequently, those unexercised warrants expired
in January 2012.
Under
the terms of the Company’s registered direct offering with several institutional investors in August 2007, the Company sold
an aggregate of 7,075,000 shares of its common stock and warrants to purchase 2,830,000 shares of its common stock. The warrants
had an exercise price of $2.64 per share and were exercisable on or before August 28, 2012. In addition, the Company issued warrants
to purchase an aggregate of 176,875 shares of its common stock to the placement agents in that offering. The placement agent warrants
had an exercise price of $3.96 per share and were also exercisable on or before August 28, 2012. None of those investor or placement
agent warrants were exercised, and consequently, those unexercised warrants to purchase 3,006,875 shares of the Company’s
common stock expired in August 2012.
In
connection with the registered direct offering of the Company’s 0% Series E Convertible Preferred Stock in April 2009, the
Company issued warrants to purchase an aggregate of 6,941,176 shares of its common stock to a single institutional investor. The
warrants had an exercise price of $0.3401 per share and were exercisable on or before October 17, 2012. In February 2010, the
exercise price of these warrants was reduced to $0.2721 in exchange for the investor’s consent and waiver with respect to
the Company’s completed financing transaction with Samyang in January 2010. The warrants were also subject to a call provision
in favor of the Company. The Company also issued warrants to purchase an additional 433,824 shares of the Company’s common
stock to the placement agent for that transaction. These warrants had an exercise price of $0.26 per share and were subject to
the same exercisability term as the warrants issued to the investor. None of those investor or placement agent warrants were exercised,
and consequently, those unexercised warrants to purchase 7,375,000 shares of the Company’s common stock expired in August
2012.
In
connection with the private placement of the Company’s Series F Convertible Preferred Stock in July 2009, the Company issued
warrants to purchase an aggregate of 6,060,470 shares of its common stock to a single institutional investor. The warrants had
an exercise price of $0.2699 per share and were exercisable on or before January 31, 2013. The Company also issued warrants to
purchase an additional 606,047 shares of the Company’s common stock to the placement agent for that transaction. These warrants
had an exercise price of $0.3656 per share and were subject to the same exercisability term as the warrants issued to the investor.
The warrants issued to the investor and the placement agent were subject to a call provision in favor of the Company. None of
those investor or placement agent warrants were exercised, and consequently, those unexercised warrants to purchase 6,666,517
shares of the Company’s common stock expired in January 2013.
In
connection with the conversion of a promissory note issued to Samyang in June 2010, the Company issued to Samyang two-year warrants
to purchase 4,081,633 shares of the Company’s common stock at an exercise price of $0.206 per share. None of those warrants
were exercised, and consequently, those unexercised warrants to purchase 4,081,633 shares of the Company’s common stock
expired in June 2012.
In
October 2011, the Company completed a private placement of $500,000 in securities with Samyang Value Partners Co., Ltd., a wholly-owned
subsidiary of Samyang. The transaction included the issuance of 6,765,466 shares of the Company’s common stock and two-year
warrants to purchase an additional 1,691,367 shares of its common stock. The warrants had an exercise price of $0.1035 per share
and a call right in favor of the Company. None of those warrants were exercised, and consequently, those unexercised warrants
to purchase 1,691,367 shares of the Company’s common stock expired in October 2013. Related to this private placement, the
Company and Samyang entered into a non-binding memorandum of understanding (“MOU”) regarding a potential license agreement
for rights to the ampakine CX1739 for the treatment of neurodegenerative diseases in South Korea. The MOU also provided Samyang
with rights of negotiation to expand its territory into other South East Asian countries, excluding Japan, Taiwan and China, and
to include rights to the high impact ampakine CX1846 for the potential treatment of neurodegenerative diseases. The related license
agreement was subsequently completed in January 2012.
In
connection with a private placement of debt on June 25, 2012, the Company issued to Samyang two-year detachable warrants to purchase
4,000,000 shares of the Company’s common stock at a fixed exercise price of $0.056 per share (see Note 5). The warrants
had a call right for consideration of $0.001 per share, in favor of the Company, to the extent that the weighted average closing
price of the Company’s common stock exceeded $0.084 per share for each of ten consecutive trading days, subject to certain
circumstances. The unexercised warrants expired in June 2014.
A
summary of warrant activity for the years ended December 31, 2013 and 2012 is presented below.
| | |
Number
of Shares | | |
Weighted
Average
Exercise Price | | |
Weighted
Average
Remaining Contractual
Life (in Years) | |
Warrants
outstanding at December 31, 2011 | | |
| 25,818,319 | | |
$ | 0.700 | | |
| | |
Issued | | |
| 4,000,000 | | |
| 0.056 | | |
| | |
Exercised | | |
| — | | |
| — | | |
| | |
Expired | | |
| (17,460,435 | ) | |
| 0.587 | | |
| | |
Warrants outstanding
at December 31, 2012 | | |
| 12,357,884 | | |
| 0.182 | | |
| | |
Issued | | |
| — | | |
| — | | |
| | |
Exercised | | |
| — | | |
| — | | |
| | |
Expired | | |
| (8,357,884 | ) | |
| 0.243 | | |
| | |
Warrants
outstanding at December 31, 2013 | | |
| 4,000,000 | | |
$ | 0.056 | | |
| 0.48 | |
| | |
| | | |
| | | |
| | |
Warrants
exercisable at December 31, 2012 | | |
| 12,357,884 | | |
$ | 0.182 | | |
| | |
Warrants
exercisable at December 31, 2013 | | |
| 4,000,000 | | |
$ | 0.056 | | |
| 0.48 | |
The
exercise prices of common stock warrants outstanding and exercisable are as follows at December 31, 2013:
Exercise Price | | |
Warrants
Outstanding
(Shares) | | |
Warrants
Exercisable
(Shares) | | |
Expiration
Date |
$ | 0.056 | | |
| 4,000,000 | | |
| 4,000,000 | | |
June 25, 2014 |
Based
on a fair market value of $0.03 per share on December 31, 2013, there were no exercisable in-the-money stock warrants as of December
31, 2013.
Stock
Option and Stock Purchase Plan
The
Company’s 1996 Stock Incentive Plan (the “1996 Plan”), which terminated pursuant to its terms on October 25,
2006, provided for the granting of options and rights to purchase up to an aggregate of 10,213,474 shares of the Company’s
authorized but unissued common stock to qualified employees, officers, directors, consultants and other service providers. Options
granted under the 1996 Plan generally vested over a three-year period, although some options granted to officers included more
accelerated vesting. Options previously granted under the 1996 Plan generally expired ten years from the date of grant, but some
options granted to consultants expired five years from the date of grant. Pursuant to the 1996 Plan, options are generally forfeited
three months from the date of termination of an optionee’s continuous service if such termination occurs for any reason
other than permanent disability or death.
On
March 30, 2006, the Company’s Board of Directors approved the 2006 Stock Incentive Plan (the “2006 Plan”), which
subsequently was approved by the Company’s stockholders on May 10, 2006. Upon the approval of the 2006 Plan, no further
options were granted under the 1996 Plan. The 2006 Plan provides for the granting of options and rights to purchase up to an aggregate
of 9,863,799 shares of the Company’s authorized but unissued common stock (subject to adjustment under certain circumstances,
such as stock splits, recapitalizations and reorganization) to qualified employees, officers, directors, consultants and other
service providers.
Under
the 2006 Plan, the Company may issue a variety of equity vehicles to provide flexibility in implementing equity awards, including
incentive stock options, nonqualified stock options, restricted stock grants, stock appreciation rights, stock payment awards,
restricted stock units and dividend equivalents. The exercise price of stock options offered under the 2006 Plan must be at least
100% of the fair market value of the common stock on the date of grant. If the person to whom an incentive stock option is granted
is a 10% stockholder of the Company on the date of grant, the exercise price per share shall not be less than 110% of the fair
market value on the date of grant. Vesting and expiration provisions for options granted under the 2006 Plan are similar to those
under the 1996 Plan. Pursuant to the 2006 Plan, options are generally forfeited ninety days from the date of termination of an
optionee’s continuous service if such termination occurs for any reason other than permanent disability or death.
Subject
to any restrictions under federal or securities laws, the Chief Executive Officer may award stock options to new non-executive
officer employees and consultants, with a market value at the time of hire equivalent to up to 100% of the employee’s annual
salary or the consultant’s anticipated annual consulting fees. The Chief Executive Officer shall have the discretion to
increase or decrease such awards based on market and recruiting factors subject to a limit per person in each case of options
to purchase 50,000 shares. Additionally, on an annual basis, the Chief Executive Officer may grant continuing employees and consultants,
based upon performance and subject to meeting objectives, a stock option for that number of shares up to 40% of the employee’s
annual salary or the consultant’s annual fees, but not to exceed 50,000 shares per person per year. Any option grant exceeding
50,000 shares per person per year requires approval by the Compensation Committee of the Board of Directors or the full Board
of Directors. These options shall be granted with an exercise price equal to the fair market value of the Company’s common
stock on the date of issuance, have a ten-year term, vest annually over a three-year period from the dates of grant and have other
terms consistent with the 2006 Plan.
On
August 3, 2012, fully vested, ten-year options to purchase a total of 2,195,000 shares of the Company’s common stock at
an exercise price of $0.06 per share, representing the closing price of the Company’s common stock on the date of issue,
were granted to directors of the Company for past services. The fair value of these options, as calculated pursuant to the Black-Scholes
option-pricing model, was determined to be $131,700 ($0.06 per share), which was charged to general and administrative expense
on that date.
In
July and August 2012, pursuant to severance agreements amended in connection with the merger transaction with Pier, fully-vested,
ten-year options to purchase a total of 5,166,668 shares of the Company’s common stock at an exercise price of $0.06 per
share, which was in excess of the closing price of the Company’s common stock on the closing date of the merger, were granted
to two of the Company’s former executive officers. The fair value of these options, as calculated pursuant to the Black-Scholes
option-pricing model, was determined to be $310,000 ($0.06 per share), which was charged to merger-related costs on the dates
of grant.
The
Company is no longer making awards under the 2006 Plan and has adopted, with stockholder approval, the 2014 Equity, Equity-Linked
and Equity Derivative Incentive Plan (see Note 12).
As
of December 31, 2013, options to purchase an aggregate of 5,166,668 shares of common stock were exercisable under the Company’s
stock option plans. During the year ended December 31, 2013, the Company did not issue any options to purchase shares of common
stock.
A
summary of stock option activity for the years ended December 31, 2013 and 2012 is presented below.
| | |
Number
of
Shares |
| |
Weighted
Average
Exercise Price | | |
Weighted
Average
Remaining Contractual Life
(in Years) | |
Options
outstanding at December 31, 2011 | | |
$ | 10,800,856 |
| |
$ | 1.380 | | |
| | |
Granted | | |
| 7,361,668 |
| |
| 0.060 | | |
| | |
Expired | | |
| (992,500 |
) | |
| 0.899 | | |
| | |
Forfeited | | |
| (6,415,869 |
) | |
| 1.314 | | |
| | |
Options outstanding
at December 31, 2012 | | |
| 10,754,155 |
| |
| 0.557 | | |
| | |
Granted | | |
| — |
| |
| — | | |
| | |
Expired | | |
| — |
| |
| — | | |
| | |
Forfeited | | |
| (5,587,487 |
) | |
| 1.018 | | |
| | |
Options
outstanding at December 31, 2013 | | |
| 5,166,668 |
| |
$ | 0.060 | | |
| 8.61 | |
| | |
| |
| |
| | | |
| | |
Options
exercisable at December 31, 2012 | | |
| 10,754,155 |
| |
$ | 0.557 | | |
| | |
Options
exercisable at December 31, 2013 | | |
| 5,166,668 |
| |
$ | 0.060 | | |
| 8.61 | |
As
all stock options outstanding were fully vested at December 31, 2013, there is no compensation expense to be recognized in future
periods with respect to such options.
The
exercise prices of common stock options outstanding and exercisable were as follows at December 31, 2013:
Exercise
Price | | |
Options
Outstanding
(Shares) | | |
Options
Exercisable
(Shares) | | |
Expiration
Date |
$ | 0.060 | | |
| 3,083,334 | | |
| 3,083,334 | | |
July 17, 2022 |
$ | 0.060 | | |
| 2,083,334 | | |
| 2,083,334 | | |
August 10, 2022 |
| | | |
| | | |
| | | |
|
| | | |
| 5,166,668 | | |
| 5,166,668 | | |
|
Based
on a fair market value of $0.03 per share on December 31, 2013, there were no exercisable in-the-money stock options as of December
31, 2013.
For
the years ended December 31, 2013 and 2012, stock-based compensation costs included in the statements of operations consisted
of general and administrative expenses of $0 and $170,805, respectively, and research and development expenses of $0 and $8,513,
respectively.
As
of December 31, 2013, the Company had reserved an aggregate of 3,679 shares for issuance upon conversion of the Series B Preferred;
4,000,000 shares for issuance upon exercise of warrants; 5,166,668 shares for issuance upon exercise of outstanding stock options;
9,863,799 shares for issuance upon exercise of stock options available for future grant pursuant to the 2006 Plan; and 2,111,445
shares issuable as contingent shares pursuant to the Pier merger (see Note 3). The Company expects to satisfy such stock obligations
through the issuance of authorized but unissued shares of common stock.
Stockholder
Rights Plan
On
February 5, 2002, the Company’s Board of Directors approved the adoption of a Stockholder Rights Plan to protect stockholder
interests against takeover strategies that may not provide maximum stockholder value. A dividend of one Right (each, a “Right”
and, collectively, the “Rights”) for each outstanding share of the Company’s common stock was distributed to
stockholders of record on February 15, 2002. The Stockholder Rights Plan terminated and the related Rights expired by their terms
on February 15, 2012.
9. Related
Party Transactions
In
2012, Aurora Capital LLC provided investment banking services to Pier, a company that the Company acquired by merger on August
10, 2012 (see Note 3). For those services, on August 10, 2012 Aurora Capital LLC received 2,971,792 shares of the Company’s
common stock in payment of its fee of $194,950. Both Arnold Lippa and Jeff Margolis, officers and directors of the Company since
March 22, 2013, have indirect ownership interests in Aurora Capital LLC through interests held in its members.
On
March 31, 2013, the Company accrued $85,000 as reimbursement for legal fees incurred by Aurora Capital LLC in conjunction with
the removal of the Company’s prior Board of Directors on March 22, 2013 (see Note 2).
During
the three months ended September 30, 2013, the Company received a payment from Samyang, a related party (see Note 5), for $4,728,
representing short-swing trading profits of $11,500, less legal costs of $6,772, which was recorded as a credit to additional
paid-in capital.
See
Notes 5 and 8 for a description of transactions with Samyang, a significant stockholder of the Company and a lender to the Company.
10. Income
Taxes
Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets
as of December 31, 2013 and 2012 are summarized below.
| |
December
31, | |
| |
2013 | | |
2012 | |
Capitalized research and development costs | |
$ | 148,000 | | |
$ | 317,000 | |
Research and development credits | |
| 3,239,000 | | |
| 3,239,000 | |
Stock-based compensation | |
| 126,000 | | |
| 980,000 | |
Net operating loss carryforwards | |
| 35,450,000 | | |
| 35,072,000 | |
Accrued compensation | |
| 603,000 | | |
| 361,000 | |
Accrued interest due to related party | |
| 89,000 | | |
| 69,000 | |
Other, net | |
| 38,000 | | |
| 42,000 | |
Total deferred tax assets | |
| 39,693,000 | | |
| 40,080,000 | |
Valuation allowance | |
| (39,693,000 | ) | |
| (40,080,000 | ) |
Net deferred tax assets | |
$ | — | | |
$ | — | |
In
assessing the potential realization of deferred tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon
the Company attaining future taxable income during the periods in which those temporary differences become deductible. As of December
31, 2013 and 2012, management was unable to determine that it was more likely than not that the Company’s deferred tax assets
will be realized, and has therefore recorded an appropriate valuation allowance against deferred tax assets at such dates.
No
federal tax provision has been provided for the years ended December 31, 2013 and 2012 due to the losses incurred during such
periods. The Company’s effective tax rate is different from the federal statutory rate of 35% due primarily to net losses
that receive no tax benefit as a result of a valuation allowance recorded for such losses.
Reconciled
below is the difference between the income tax rate computed by applying the U.S. federal statutory rate and the effective tax
rate for the years ended December 31, 2013 and 2012.
| |
Years
Ended December 31, | |
| |
2013 | | |
2012 | |
| |
| | |
| |
U. S. federal statutory tax rate | |
| (35.0 | )% | |
| (35.0 | )% |
Non-deductible merger-related costs | |
| —
| % | |
| 1.8 | % |
Non-deductible amortization and loss from termination of license | |
| —
| % | |
| 15.8 | % |
Adjustment to deferred tax asset for expirations and forfeitures related to stock-based compensation | |
| 61.0 | % | |
| 17.2 | % |
Other adjustments to deferred tax asset | |
| —
| % | |
| (0.3 | )% |
Change in valuation allowance | |
| (26.3 | )% | |
| 0.1 | % |
Other | |
| 0.3 | % | |
| 0.4 | % |
Effective tax rate | |
| 0.0 | % | |
| 0.0 | % |
As
of December 31, 2013, the Company had federal and California tax net operating loss carryforwards of approximately $86,228,000
and $91,940,000, respectively. The difference between the federal and California tax loss carryforwards was primarily attributable
to the capitalization of research and development expenses for California franchise tax purposes. The federal and California net
operating loss carryforwards will expire at various dates from 2013 through 2033. The Company also had federal and California
research and development tax credit carryforwards that totaled approximately $2,093,000 and $1,146,000, respectively, at December
31, 2013. The federal research and development tax credit carryforwards will expire at various dates from 2013 through 2031. The
California research and development tax credit carryforward does not expire and will carryforward indefinitely until utilized.
While
the Company has not performed a formal analysis of the availability of its net operating loss carryforwards under Internal Revenue
Code Sections 382 and 383, management expects that the Company’s ability to use its net operating loss carryforwards will
be limited in future periods.
11. Commitments
and Contingencies
Pending
or Threatened Legal Actions and Claims
The
Company is periodically the subject of various pending and threatened legal actions and claims. In the opinion of management of
the Company, adequate provision has been made in the Company’s financial statements with respect to such matters.
The
Company’s former Vice President and Chief Financial Officer has asserted certain claims for compensation against the Company
through the date of her resignation from the Company on October 26, 2012. The Company is engaged in negotiations with this former
officer to resolve this matter in its entirety to avoid litigation, but there can be no assurances that the Company will be successful
in such endeavor. To the extent that the former officer files a formal complaint or other legal claim against the Company, the
Company intends to defend itself through the appropriate legal process and will consider all available options, including filing
legal counter-claims. In the opinion of management, the Company has made adequate provision for any liability relating to this
matter in its financial statements at December 31, 2013 and 2012.
A
former director of the Company, who joined the Company’s Board of Directors on August 10, 2012 in conjunction with the Pier
transaction and who resigned from the Company’s Board of Directors on September 28, 2012, has asserted certain claims for
consulting compensation against the Company. In the opinion of management, the Company has made adequate provision for any liability
relating to this matter in its financial statements at December 31, 2013 and 2012.
Lease
Commitment
On
May 14, 2012, the Company executed a three-year lease for approximately 5,000 square feet of office space beginning June 1, 2012
at a monthly rate of $9,204. During the three months ended December 31, 2013, the Company substantially vacated its operating
facility prior to the scheduled termination of the lease agreement in May 2015. In May 2013, a settlement with the landlord was
reached and the lease was terminated (see Note 6).
University
of California, Irvine License Agreements
The
Company entered into a series of license agreements in 1993 and 1998 with UCI that granted the Company proprietary rights to certain
chemical compounds that acted as ampakines and their therapeutic uses. These agreements granted the Company, among other provisions,
exclusive rights: (i) to practice certain patents and patent applications, as defined in the license agreement, that were then
held by UCI; (ii) to identify, develop, make, have made, import, export, lease, sell, have sold or offer for sale any related
licensed products; and (iii) to grant sub-licenses of the rights granted in the license agreements, subject to the provisions
of the license agreements. The Company was required, among other terms and conditions, to pay UCI a license fee, royalties, patent
costs and certain additional payments.
Under
such license agreements, the Company was required to make minimum annual royalty payments of approximately $70,000. The Company
was also required to spend a minimum of $250,000 per year to advance the ampakine compounds until the Company began to market
an ampakine compound. The commercialization provisions in the agreements with UCI required the Company to file for regulatory
approval of an ampakine compound before October 2012. In March 2011, UCI agreed to extend the required date for filing regulatory
approval of an ampakine compound to October 2015. At December 31, 2012, the Company was not in compliance with its minimum annual
payment obligations and believed that this default constituted a termination of the license agreements.
On
April 15, 2013, the Company received a letter from UCI indicating that the license agreements between UCI and the Company had
been terminated due to the Company’s failure to make certain payments required to maintain the agreements. Since the patents
covered in these license agreements had begun to expire and the therapeutic uses described in these patents were no longer germane
to the Company’s new focus on respiratory disorders, the loss of these license agreements is not expected to have a material
impact on the Company’s current drug development programs. In the opinion of management, the Company has made adequate provision
for any liability relating to this matter in its consolidated financial statements at December 31, 2013 [and 2012].
University
of Alberta License Agreement
On
May 8, 2007, the Company entered into a license agreement, as amended, with the University of Alberta granting the Company exclusive
rights to practice patents held by the University of Alberta claiming the use of ampakines for the treatment of various respiratory
disorders. The Company agreed to pay the University of Alberta a licensing fee and a patent issuance fee, which were paid, and
prospective payments consisting of a royalty on net sales, sublicense fee payments, maintenance payments and milestone payments.
The prospective maintenance payments commence on the enrollment of the first patient into the first Phase 2B clinical trial and
increase upon the successful completion of the Phase 2B clinical trial. As the Company does not at this time anticipate scheduling
a Phase 2B clinical trial, no maintenance payments are currently due and payable to the University of Alberta. In addition, no
other prospective payments are currently due and payable to the University of Alberta.
12. Subsequent
Events
Series
G Preferred Stock Placement
On
March 14, 2014, the Company filed a Certificate of Designation, Preferences, Rights and Limitations, (the “Certificate of
Designation”) of its Series G Preferred Stock (“Series G Preferred Stock”) with the Secretary of State of the
State of Delaware to amend the Company’s certificate of incorporation. The number of shares designated as Series G Preferred
Stock is 1,700 (which shall not be subject to increase without the written consent of a majority of the holders of the Series
G Preferred Stock or as otherwise set forth in the Certificate of Designation). The Stated Value of each share of Series G Preferred
Stock is $1,000.
The
Company shall pay a stated dividend on the Series G Preferred Stock at a rate per share (as a percentage of the Stated Value per
share) of 1.5% per annum, payable quarterly within 15 calendar days of the end of each fiscal quarter of the Company, in duly
authorized, validly issued, fully paid and non-assessable shares of Series G Preferred Stock, which may include fractional shares
of Series G Preferred Stock.
The
Series G Preferred Stock shall be convertible, beginning 60 days after the last share of Series G Preferred Stock is issued in
the Private Placement, at the option of the holder, into common stock at the applicable conversion price, at a rate determined
by dividing the Stated Value of the shares of Series G Preferred Stock to be converted by the conversion price, subject to adjustments
for stock dividends, splits, combinations and similar events as described in the form of Certificate of Designation. The stated
value of the Series G Preferred Stock is $1,000 per share, and the fixed conversion price is $0.0033. Accordingly, at the option
of the holder, each share of Series G Preferred Stock is convertible commencing on the date that is 60 calendar days after the
date on which the last share of Series G Preferred Stock is issued pursuant to a Purchase Agreement, into 303,030.3 shares of
common stock. In addition, the Company has the right to require the holders of the Series G Preferred Stock to convert such shares
into common stock under certain enumerated circumstances as set forth in the Certificate of Designation.
Upon
either (i) a Qualified Public Offering (as defined in the Certificate of Designation) or (ii) the affirmative vote of the holders
of a majority of the Stated Value of the Series G Preferred Stock issued and outstanding, all outstanding shares of Series G Preferred
Stock, plus all accrued or declared, but unpaid, dividends thereon, shall mandatorily be converted into such number of shares
of common stock determined by dividing the Stated Value of such Series G Preferred Stock (together with the amount of any accrued
or declared, but unpaid, dividends thereon) by the Conversion Price (as defined in the Certificate of Designation). If not earlier
converted, the Series G Preferred Stock shall be redeemed by conversion on the two year anniversary of the date the last share
of Series G Preferred Stock is issued in the Private Placement at the Conversion Price.
Except
as described in the Certificate of Designation, holders of the Series G Preferred Stock will vote together with holders of the
Company common stock on all matters, on an as-converted to common stock basis, and not as a separate class or series (subject
to limited exceptions).
In
the event of any liquidation or winding up of the Company prior to and in preference to any Junior Securities (including common
stock), the holders of the Series G Preferred Stock will be entitled to receive in preference to the holders of the Company common
stock a per share amount equal to the Stated Value, plus any accrued and unpaid dividends thereon.
On
March 18, 2014, the Company entered into Securities Purchase Agreements with various accredited investors (the “Initial
Purchasers”), pursuant to which the Company sold an aggregate of 753.22 shares of its Series G Preferred Stock for a purchase
price of $1,000 per share, or an aggregate purchase price of $753,220. This financing represents the initial closing on a private
placement of up to $1,500,000 (the “Private Placement”). The Initial Purchasers in this tranche of the Private Placement
consisted of (i) Arnold S. Lippa, the Company’s Chairman, Chief Executive Officer and a member of the Company’s Board
of Directors, who invested $250,000 for 250 shares of Series G Preferred Stock, and (ii) new, non-affiliated, accredited investors.
Neither the Series G Preferred Stock nor the underlying shares of common stock have any registration rights.
The
placement agents and selected dealers in connection with the initial tranche of the Private Placement received cash fees totaling
$3,955 as compensation and warrants totaling approximately 5.6365% of the shares of common stock into which the Series G Preferred
Stock may convert, exercisable for five years at a fixed price of $0.00396, which is 120% of the conversion price at which the
Series G Preferred Stock may convert into the Company’s common stock. Aurora Capital LLC was one of the placement agents.
On
April 17, 2014, the Company entered into Securities Purchase Agreements with various accredited investors (together with the Initial
Purchasers, the “Purchasers”), pursuant to which the Company sold an aggregate of 175.28 shares of its Series G Preferred
Stock, for a purchase price of $1,000 per share, or an aggregate purchase price of $175,280. This was the second and final closing
on the Private Placement. The Purchasers in the second and final tranche of the Private Placement consisted of new, non-affiliated,
accredited investors and non-management investors who had also invested in the first closing. One of the investors in this second
and final closing was an affiliate of an associated person of Aurora Capital LLC. Neither the Series G Preferred Stock nor the
underlying shares of common stock have any registration rights.
The
placement agents and selected dealers in connection with the second tranche of the Private Placement received cash fees of $3,465
as compensation and warrants totaling approximately 12% of the shares of common stock into which the Series G Preferred Stock
may convert, exercisable for five years at a fixed price of $0.00396, which is 120% of the conversion price at which the Series
G Preferred Stock may convert into the Company’s common stock. Aurora Capital LLC was one of the placement agents.
The
stated value of the Series G Preferred Stock is $1,000 per share, and the fixed conversion price is $0.0033. Accordingly, at the
option of the holder, each share of Series G Preferred Stock is convertible commencing on the date that is sixty calendar days
after the date on which the last share of Series G Preferred Stock is issued pursuant to a Purchase Agreement, into 303,030.3
shares of common stock. The aggregate of 928.5 shares of Series G Preferred Stock sold in the Private Placement are convertible
into a total of 281,363,634 shares of common stock. The Company had 144,041,556 shares of common stock, plus an additional 57,000,000
shares of common stock issued to management on April 14, 2014, issued and outstanding immediately prior to the closing of the
Private Placement of Series G Preferred Stock described herein.
The
warrants that the placement agents and selected dealers received in connection with the Private Placement represent the right
to acquire 19,251,271 shares of common stock exercisable for five years at a fixed price of $0.00396, which is 120% of the conversion
price at which the Series G Preferred Stock may convert into the Company’s common stock.
Purchasers
in the Private Placement of the Series G Preferred Stock have executed written consents in favor of (i) approving and adopting
an amendment to the Company’s certificate of incorporation that increases the number of authorized shares of the Company
to 1,405,000,000, 1,400,000,000 of which are shares of common stock and 5,000,000 of which are shares of preferred stock, and
(ii) approving and adopting the Cortex Pharmaceuticals, Inc. 2014 Equity, Equity-Linked and Equity Derivative Incentive Plan.
The
shares of Series G Preferred Stock were offered and sold without registration under the Securities Act of 1933, as amended (the
“Securities Act”), in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as provided in
Rule 506(b) of Regulation D promulgated thereunder. The shares of Series G Preferred Stock and the Company’s common stock
issuable upon conversion of the shares of Series G Preferred Stock have not been registered under the Securities Act or any other
applicable securities laws, and unless so registered, may not be offered or sold in the United States except pursuant to an exemption
from the registration requirements of the Securities Act.
Convertible
Note and Warrant Financing
On
November 5, 2014, the Company entered into a Convertible Note and Warrant Purchase Agreement (the “Purchase Agreement”)
with various accredited, non-affiliated investors (each, a “Purchaser”), pursuant to which the Company sold an aggregate
principal amount of $238,500 of its (i) 10% Convertible Notes due September 15, 2015 (each a “Note”, and together,
the “Notes”) and (ii) Warrants to purchase shares of common stock (the “Warrants”) as described below.
This financing represents the initial closing on a private placement of up to $1,000,000, and the Company may close on one or
more additional tranches of this private placement in the near future. Unless otherwise provided for in the Notes, the outstanding
principal balance of each Note and all accrued and unpaid interest is due and payable in full on September 15, 2015. At any time,
each Purchaser may elect, at its option and in its sole discretion, to convert the outstanding principal amount into a fixed number
of shares of the Company’s common stock equal to the quotient obtained by dividing the outstanding principal amount by $0.035
(an aggregate of 6,814,286 shares), plus any accrued and unpaid interest, which is treated in the same manner as the outstanding
principal amount. In the case of a Qualified Financing (as defined in the Purchase Agreement), the outstanding principal amount
and accrued and unpaid interest under the Notes automatically convert into common stock at a common stock equivalent price of
$0.035. In the case of an Acquisition (as defined in the Purchase Agreement), the Company may elect to either: (i) convert the
outstanding principal amount and all accrued and unpaid interest under the Notes into shares of common stock or (ii) accelerate
the maturity date of the Notes to the date of closing of the Acquisition. Each Warrant to purchase shares of common stock shall
be exercisable into a fixed number of shares of common stock of the Company calculated as each Purchaser’s investment amount
divided by $0.035 (an aggregate of 6,814,286 shares for the initial closing). The Warrants do not have any cashless exercise provisions
and are exercisable through September 15, 2015 at a fixed price of $0.035 per share. The shares of common stock issuable
upon conversion of the Notes and exercise of the Warrants are not subject to any registration rights.
On
December 9, 2014, a second closing for $46,000 was conducted under this financing. On December 31, 2014, a third closing for $85,000
was conducted under this financing.
Placement
agent fees, brokerage commissions, finder’s fees and similar payments were made in the form of cash and warrants to qualified
referral sources in connection with the sale of the Notes and Warrants. In connection with the initial closing, fees of $16,695
were paid in cash, based on 7% of the aggregate principal amount of the Notes issued to such referral sources, and the fees paid
in warrants (the “Placement Agent Warrants”) consisted of 477,000 warrants, reflecting warrants for that number of
shares equal to 7% of the number of shares of common stock into which the corresponding Notes are convertible. In connection with
the second closing, fees of $700 were paid in cash and 20,000 Placement Agent Warrants were issued. In connection with the third
closing, fees of $3,500 were paid in cash and 100,000 Placement Agent Warrants were issued. The Placement Agent Warrants have
cashless exercise provisions and are exercisable through September 15, 2015 at a fixed price of $0.035 per share. Aurora Capital
LLC is acting as the placement agent for this financing.
The
Notes and Warrants were offered and sold without registration under the Securities Act in reliance on the exemptions provided
by Section 4(a)(2) of the Securities Act as provided in Rule 506 of Regulation D promulgated thereunder. The Notes and Warrants
and the shares of common stock issuable upon conversion of the Notes and exercise of the Warrants have not been registered under
the Securities Act or any other applicable securities laws, and unless so registered, may not be offered or sold in the United
States except pursuant to an exemption from the registration requirements of the Securities Act.
Conversion
of Series G Preferred Stock
Effective
December 16, 2014, 66.68888 shares of Series G Preferred Stock, including 0.68888 dividend shares, were converted into 20,208,752
shares of common stock on a cashless basis.
Exercise
of Placement Agent and Selected Dealer Warrants
Effective
August 25, 2014, a warrant issued on April 17, 2014 in conjunction with the Private Placement of the Series G Preferred Stock,
representing the right to acquire a total of 2,112,879 shares of common stock, was exercised in full on a cashless basis, resulting
in the net issuance of 1,942,124 shares of common stock.
Effective
September 5, 2014, a warrant issued on April 17, 2014 in conjunction with the Private Placement of the Series G Preferred Stock,
representing the right to acquire a total of 2,412,878 shares of common stock, was exercised in part (50%) on a cashless basis,
resulting in the net issuance of 1,126,814 shares of common stock.
Effective
September 26, 2014, a warrant issued on April 17, 2014 in conjunction with the Private Placement of the Series G Preferred Stock,
representing the right to acquire a total of 1,400,000 shares of common stock, was exercised in full on a cashless basis, resulting
in the net issuance of 1,326,080 shares of common stock.
Increase
in Authorized Common Shares
The
holders of the Series G Preferred Stock approved and adopted an amendment to increase the number of authorized shares of the Company
to 1,405,000,000, 1,400,000,000 of which are shares of common stock and 5,000,000 of which are shares of preferred stock. The
Company also sought, and on April 17, 2014 obtained by written consent, sufficient votes of the holders of its common stock, voting
as a separate class, to effect the amendment. A certificate of Amendment to the Company’s Certificate of Incorporation to
effect the increase in the authorized shares was filed with the Secretary of State of the State of Delaware on April 17, 2014.
2014
Equity, Equity-Linked and Equity Derivative Incentive Plan
In
connection with the Private Placement, effective March 18, 2014, the stockholders of the Company holding a majority of the votes
to be cast on the issue approved the adoption of the Company’s 2014 Equity, Equity-Linked and Equity Derivative Incentive
Plan (the “Plan”), which had been previously adopted by the Board of Directors of the Company, subject to stockholder
approval. The Plan permits the grant of options and restricted stock with respect to up to 105,633,002 shares of common stock,
in addition to stock appreciation rights and phantom stock, to directors, officers, employees, consultants and other service providers
of the Company.
Awards
to Officers and Directors as Compensation
On
April 14, 2014, the Board of Directors of the Company awarded a total of 57,000,000 shares of common stock of the Company, including
awards of 15,000,000 shares to each of the Company’s three executive officers, who were also the directors of the Company,
and 4,000,000 shares and 8,000,000 shares to two other individuals. The individual who received the 8,000,000 shares was an associated
person of Aurora Capital LLC. These awards were made to those individuals on that date as compensation for services rendered through
March 31, 2014. None of the officers or directors of the Company had earned or received any cash compensation from the Company
since joining the Company in March and April 2013, and there were no prior compensation arrangements or agreements with such individuals.
As the initial closing of the Series G Preferred Stock was completed on March 18, 2014, and such closing represented approximately
81% of the total amount of such financing, the Company’s Board of Directors determined that it was appropriate at that time
to begin consideration with respect to compensation for such officers for the period since they joined the Company in March and
April 2013 through March 31, 2014. Such deliberations were concluded on April 14, 2014 with the issuance of the aforementioned
stock awards. Accordingly, as a result of these factors, the fair value of these stock awards will be charged to operations as
stock-based compensation effective as of March 18, 2014.
On
July 17, 2014, the Board of Directors of the Company awarded stock options to purchase a total of 15,000,000 shares of common
stock of the Company, consisting of options for 5,000,000 shares to each of the Company’s three executive officers, who
are also directors of the Company. The stock options were awarded as compensation for those individuals through December 31, 2014.
The awarded stock options vest in three equal installments on July 17, 2014 (at issuance), September 30, 2014, and December 31,
2014, and expire on July 17, 2019. The exercise price of the stock options of $0.05 per share was in excess of the closing market
price of a share of the Company’s common stock on the date of issuance. The Company believes and intends that a portion
of the stock options awarded qualify as incentive stock options under the Internal Revenue Code of 1986, as amended. The issuance
of incentive stock awards is restricted as to amount as set forth in the Plan, and the form of award of the awarded stock options
reflects this intention and the limits under the Plan.
In
connection with the appointment of James Sapirstein and Kathryn MacFarlane as directors of the Company on September 3, 2014, the
Board of Directors awarded an aggregate of 4,000,000 shares of common stock of the Company to the new directors, consisting of
2,000,000 shares to each new director, vesting 50% upon appointment to the Board of Directors, 25% on September 30, 2014 and 25%
on December 31, 2014.
All
of these awards were made under the Company’s 2014 Equity, Equity-Linked and Equity Derivative Incentive Plan.
Debt
Settlements
During
the three months ended March 31, 2014, the Company executed settlement agreements with four former executives that resulted in
the settlement of potential claims totaling approximately $1,336,000 for a total of approximately $118,000 in cash, plus the issuance
of options to purchase 4,300,000 shares of common stock exercisable at $0.04 per share for periods ranging from five to ten years.
In addition to other provisions, the settlement agreements included mutual releases.
During
the three months ended June 30, 2014, the Company also executed settlement agreements with certain former service providers that
resulted in the settlement of potential claims totaling approximately $591,000 for a cost of approximately $155,000 in cash, plus
the issuance of options to purchase 1,250,000 shares of common stock exercisable at $0.04 per share for a period of five years.
In addition to other provisions, the settlement agreements included mutual releases.
The
aforementioned agreements resulted in the settlement of potential claims totaling approximately $1,927,000 for a cost of approximately
$273,000 in cash, plus the issuance of options to purchase 5,550,000 shares of common stock exercisable at $0.04 per share for
periods ranging from five to ten years. The Company continues to explore ways to reduce its indebtedness, and might in the future
enter additional settlements of potential claims, including, without limitation, those by other former executives or third party
creditors
University
of Illinois 2014 Exclusive License Agreement
On
June 27, 2014, the Company entered into an Exclusive License Agreement (the “2014 License Agreement”) with the University
of Illinois, the material terms of which were similar to the License Agreement between the parties that had been previously terminated
on March 21, 2013. The 2014 License Agreement became effective on September 18, 2014, upon the completion of certain conditions
set forth in the 2014 License Agreement, including (i) the payment by the Company of a $25,000 licensing fee, (ii) the payment
by the Company of certain outstanding patent costs (not to exceed $16,000), and (iii) the assignment to the University of Illinois
of certain rights the Company holds in certain patent applications. In exchange for certain milestone and royalty payments, the
2014 License Agreement granted the Company (i) exclusive rights to several issued and pending patents in numerous jurisdictions
and (ii) the non-exclusive right to certain technical information that is generated by the University of Illinois in connection
with certain clinical trials as specified in the 2014 License Agreement, all of which relate to the use of cannabinoids for the
treatment of sleep related breathing disorders. The Company is developing dronabinol (Δ9-tetrahydrocannabinol), a cannabinoid,
for the treatment of OSA, the most common form of sleep apnea.
Settlement
with the Institute for the Study of Aging
On
September 2, 2014, the Company entered into a Release Agreement (the “Release Agreement”) with the Institute for the
Study of Aging (the “Institute”) to settle an outstanding promissory note, dated May 30, 2000, issued by the Company
in favor of the Institute for an initial principal amount of $247,300 (the “Note”), which was made pursuant to an
Agreement to Accept Conditions of Loan Support, also dated May 30, 2000 (the “Loan Support Agreement”). At August
31, 2014, the amount owed under the Note, including accrued interest was approximately $337,000. Pursuant to the terms of the
Release Agreement, the Institute received 1,000,000 restricted shares of the Company’s common stock as settlement of all
obligations of the Company under the Note and the Loan Support Agreement. Such common shares are “restricted securities”
as defined under Rule 144 promulgated under the Securities Act of 1933, as amended, and are not subject to any registration rights.
The Release Agreement also includes a mutual release between the Company and the Institute, releasing each party from all claims
up until the date of the Release Agreement.
Appointment
of New Directors
On
September 3, 2014, James Sapirstein and Kathryn MacFarlane were appointed as new directors of the Company. These two new directors
are considered to be independent directors. In connection with those appointments and in conformity with its corporate policy
of indemnifying all directors and officers, the Board of Directors also agreed at that time to enter into indemnification agreements
for all directors and officers of the Company, namely, each existing director of the Company, Arnold S. Lippa, Jeff E. Margolis,
and Robert N. Weingarten, each of whom is also an officer of the Company, and with the two new directors. Pursuant to the indemnity
agreements, the Company will indemnify each director or officer when such individual is a party or threatened to become a party,
by virtue of being a director or officer of the Company, from the costs and expenses, fines and certain other amounts in connection
with certain proceedings, including proceedings in the right of the Company, so long as such director or officer acted in good
faith and reasonably believed that such actions were not in the best interests of the Company.
Appointment
of Chairman of the Company’s Scientific Advisory Board
On
September 18, 2014, John Greer, Ph.D. was appointed to the position of Chairman of the Company’s Scientific Advisory Board,
which is currently being formed. Dr. Greer is the Director of the Neuroscience and Mental Health Institute at the University of
Alberta. He holds two grants regarding research into neuromuscular control of breathing and is the inventor on the use patents
licensed by the Company with respect to ampakines. Dr. Greer is expected to assist the Company in forming the rest of its Scientific
Advisory Board.
In
connection with the appointment of Dr. Greer as Chairman of the Company’s Scientific Advisory Board on September 18, 2014,
the Board of Directors awarded 2,000,000 shares of common stock of the Company to Dr. Greer (through his wholly-owned consulting
company, Progress Scientific, Inc.), vesting 25% upon appointment, 25% on September 30, 2014, 25% on December 31, 2014, and 25%
on March 31, 2015. This award was made under the Company’s 2014 Equity, Equity-Linked and Equity Derivative Incentive Plan.
National
Institute on Drug Abuse Grant
On
September 18, 2014, the Company entered into a contract with the National Institute on Drug Abuse, a division of the National
Institutes of Health. The funding under the contract is a Phase 1 award granted under the Small Business Innovation Research Funding
Award Program. The purpose of the project is to determine the most useful injectable route of administration for CX1942, the Company’s
proprietary, soluble ampakine molecule, a potential rescue medication for drug-induced respiratory depression and lethality. The
grant is entitled “Novel Treatment of Drug-Induced Respiratory Depression” and is valued at $148,583, which is to
be paid in increments over the expected six-month duration of the study which commenced in October 2014. The study will measure
the potency, latency to onset and duration of action of CX1942 administered to rats. The Company anticipates that the data obtained
from the study will be used to finalize preclinical studies in preparation for initiating Phase 1 clinical studies. The preclinical
studies will be performed in collaboration with Dr. David Fuller of the University of Florida and Dr. John Greer of the University
of Alberta.
Appointment
of Senior Vice President of Research and Development
Richard
Purcell was appointed as the Company’s Senior Vice President of Research and Development effective October 15, 2014. Mr.
Purcell’s commitment to the Company is for 30 hours per week in order to allow him to comply with his previous professional
commitments. Mr. Purcell provides his services to the Company through his consulting firm, DNA Healthlink, Inc., with which the
Company has contracted for his services.
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.
|
CORTEX
PHARMACEUTICALS, INC. |
|
|
|
Date:
January 5, 2015 |
By: |
/s/
Arnold S. Lippa, Ph.D. |
|
|
Arnold S. Lippa,
Ph.D. |
|
|
President and
Chief Executive Officer |
We,
the undersigned directors and officers of Cortex Pharmaceuticals, Inc., do hereby constitute and appoint each of Arnold S. Lippa,
Ph.D., Jeff E. Margolis. and Robert N. Weingarten as our true and lawful attorneys-in-fact and agents with power of substitution,
to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any and all
instruments for us and in our names in the capacities indicated below, which said attorneys-in-fact and agents, or either of them,
may deem necessary or advisable to enable said corporation to comply with the Securities and Exchange Act of 1934, as amended,
and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Annual Report on
Form 10-K, including specifically but without limitation, power and authority to sign for us or any of us in our names in the
capacities indicated below, any and all amendments (including post-effective amendments) hereto; and we do hereby ratify and confirm
all that said attorney-in-fact and agent, shall do or cause to be done by virtue hereof.
In
accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature |
|
Title |
|
Date |
|
|
|
/s/
Arnold S. Lippa, Ph.D. |
|
President,
Chief Executive Officer |
|
January
5, 2015 |
Arnold
S. Lippa, Ph.D. |
|
(Principal Executive
Officer), Director and Chairman of the Board |
|
|
|
|
|
/s/
Robert N. Weingarten |
|
Vice
President, Chief Financial Officer |
|
January
5, 2015 |
Robert
N. Weingarten |
|
(Principal Financial
and Accounting Officer) and Director |
|
|
|
|
|
/s/
Jeff E. Margolis |
|
Vice
President, Treasurer, Secretary and Director |
|
January
5, 2015 |
Jeff
E. Margolis |
|
|
|
|
|
|
|
/s/
James E. Sapirstein |
|
Director |
|
January
5, 2015 |
James
E. Sapirstein |
|
|
|
|
|
|
|
/s/
Kathryn MacFarlane |
|
Director |
|
January
5, 2015 |
Kathryn
MacFarlane |
|
|
|
|
Cortex
Pharmaceuticals, Inc.
Annual
Report on Form 10-K
Year
Ended December 31, 2013
Exhibit
Index
Exhibit
Number |
|
Description |
|
|
|
2.1 |
|
Agreement
and Plan of Merger, dated as of August 10, 2012, by and among Cortex Pharmaceuticals, Inc., Pier Acquisition Corp. and Pier
Pharmaceuticals, Inc., incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on
August 16, 2012. |
|
|
|
3.1 |
|
Second
Restated Certificate of Incorporation dated May 19, 2010, incorporated by reference to the same numbered Exhibit to the Company’s
Current Report on Form 8-K filed May 24, 2010. |
|
|
|
3.2 |
|
By-Laws
of the Company, as adopted March 4, 1987, and amended on October 8, 1996, incorporated by reference to the same numbered Exhibit
to the Company’s Annual Report on Form 10-KSB filed October 15, 1996. |
|
|
|
3.3 |
|
Certificate
of Designation, Preferences, Rights and Limitations of Series G 1.5% Convertible Preferred Stock, incorporated by reference
to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 24, 2014. |
|
|
|
3.4 |
|
Certificate
of Amendment of the Certificate of Incorporation of Cortex Pharmaceuticals, Inc., incorporated by reference to Exhibit 3.2
to the Company’s Current Report on Form 8-K filed on April 18, 2014. |
|
|
|
3.5 |
|
Certificate
of Amendment of By-Laws of the Company, incorporated by reference to the same numbered Exhibit to the Company’s Report
on Form 8-K filed November 15, 2007. |
|
|
|
4.3 |
|
Placement
Agency Agreement, dated August 24, 2007, by and between Cortex Pharmaceuticals, Inc. and JMP Securities LLC and Rodman and
Renshaw, LLC, Form of Subscription Agreement and Form of Common Stock Purchase Warrant issued by Cortex Pharmaceuticals, Inc.,
incorporated by reference to Exhibits 1.1, 1.2 and 4.1, respectively, to the Company’s Report on Form 8-K filed August
27, 2007. |
|
|
|
4.4 |
|
Placement
Agency Agreement, dated April 13, 2009, by and between the Company and Rodman & Renshaw, LLC, Form of Securities Purchase
Agreement and Form of Common Stock Purchase Warrant issued by the Company, incorporated by reference to Exhibits 1.1, 1.2
and 4.1, respectively, to the Company’s Current Report on Form 8-K filed April 17, 2009. |
|
|
|
10.1 |
|
License
Agreement dated March 27, 1991 between the Company and the Regents of the University of California, incorporated by reference
to the same numbered Exhibit to the Company’s Amendment on Form 8 filed November 27, 1991 to the Company’s Annual
Report on Form 10-K filed September 30, 1991. (Portions of this Exhibit are omitted and were filed separately with the Secretary
of the Commission pursuant to the Company’s application requesting confidential treatment under Rule 24b-2 under the
Securities Exchange Act of 1934). |
|
|
|
10.2 |
|
License
Agreement dated June 25, 1993, as amended, between the Company and the Regents of the University of California, incorporated
by reference to the same numbered Exhibit to the Company’s Quarterly Report on Form 10-Q filed February 12, 2004. (Portions
of this exhibit are omitted and were filed separately with the Secretary of the Commission pursuant to the Company’s
application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934). |
10.3 |
|
Amended
and Restated 1996 Stock Incentive Plan, incorporated by reference to the same numbered Exhibit to the Company’s Quarterly
Report on Form 10-Q as filed on November 14, 2002.* |
|
|
|
10.4 |
|
Employment
agreement dated May 17, 2000, between the Company and James H. Coleman, incorporated by reference to Exhibit 10.69 to the
Company’s Report on Form 10-QSB filed February 12, 2001.* |
|
|
|
10.5 |
|
Severance
agreement dated October 26, 2000, between the Company and Maria S. Messinger, incorporated by reference to Exhibit 10.70 to
the Company’s Quarterly Report on Form 10-QSB filed February 12, 2001.* |
|
|
|
10.6 |
|
Employment
agreement dated October 29, 2002 between the Company and Roger G. Stoll, Ph.D., incorporated by reference to Exhibit 10.74
to the Company’s Quarterly Report on Form 10-Q, as filed on November 14, 2002.* |
|
|
|
10.7 |
|
First
Amendment dated August 8, 2003 to the employment agreement between the Company and Roger G. Stoll, Ph.D., incorporated by
reference to Exhibit 10.76 to the Company’s Annual Report on Form 10-K filed September 19, 2003.* |
|
|
|
10.8 |
|
Form
of Incentive/Nonqualified Stock Option Agreement under the Company’s Amended and Restated 1996 Stock Incentive Plan,
incorporated by reference to Exhibit 10.80 to the Company’s Annual Report on Form 10-K filed on September 27, 2004.* |
|
|
|
10.9 |
|
Form
of Restricted Stock Award under the Company’s Amended and Restated 1996 Stock Incentive Plan, incorporated by reference
to Exhibit 10.81 to the Company’s Annual Report on Form 10-K filed on September 27, 2004.* |
|
|
|
10.10 |
|
Amendment
dated January 1, 2004 to the employment agreement dated May 17, 2000 between the Company and James H. Coleman, incorporated
by reference to Exhibit 10.82 to the Company’s Annual Report on Form 10-K filed on September 27, 2004.* |
|
|
|
10.11 |
|
Second
Amendment dated November 10, 2004 to the employment agreement dated October 29, 2002 between the Company and Roger G. Stoll,
Ph.D., incorporated by reference to Exhibit 10.86 to the Company’s Quarterly Report on Form 10-Q filed on November 15,
2004.* |
|
|
|
10.12 |
|
Form
of Notice of Grant of Stock Options and Stock Option Agreement under the Company’s Amended and Restated 1996 Stock
Incentive Plan, incorporated by reference to Exhibit 10.88 to the Company’s Annual Report on Form 10-K filed March
21, 2005.* |
|
|
|
10.13 |
|
Stock
Ownership Policy for the Company’s Directors and Executive Officers as adopted by the Company’s Board of Directors
on December 16, 2004, incorporated by reference to Exhibit 10.89 to the Company’s Annual Report on Form 10-K filed March
21, 2005.* |
|
|
|
10.14 |
|
Third
Amendment dated August 13, 2005 to the employment agreement dated October 29, 2002 between the Company and Roger G. Stoll,
Ph.D, incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 8-K filed August 17, 2005.* |
|
|
|
10.15 |
|
Employment
letter of agreement dated January 9, 2006 between the Company and Mark Varney, Ph.D., incorporated by reference to Exhibit
10.92 to the Company’s Annual Report on Form 10-K filed March 16, 2006.* |
|
|
|
10.16 |
|
Non-qualified
Stock Option Agreement dated January 30, 2006 between the Company and Mark Varney, Ph.D., incorporated by reference to Exhibit
10.93 to the Company’s Quarterly Report on Form 10-Q filed May 9, 2006.* |
10.17 |
|
Cortex
Pharmaceuticals, Inc. 2006 Stock Incentive Plan, incorporated by reference to Exhibit 10.94 to the Company’s Report
on Form 8-K filed May 11, 2006.* |
|
|
|
10.18 |
|
Form
of Notice of Grant of Stock Options and Stock Option Agreement under the Company’s 2006 Stock Incentive Plan, incorporated
by reference to Exhibit 10.96 to the Company’s Quarterly Report on Form 10-Q filed August 8, 2006.* |
|
|
|
10.19 |
|
Form
of Incentive/Non-qualified Stock Option Agreement under the Company’s 2006 Stock Plan, incorporated by reference to
Exhibit 10.97 to the Company’s Quarterly Report on Form 10-Q filed August 8, 2006.* |
|
|
|
10.20 |
|
Negative
Equity Agreement dated February 1, 2007 between the Company and Mark A. Varney, Ph.D., incorporated by reference to Exhibit
10.100 to the Company’s Quarterly Report on Form 10-Q filed May 10, 2007.* |
|
|
|
10.21 |
|
Amendment
No. 1 to the Company’s 2006 Stock Incentive Plan, incorporated by reference to Exhibit 10.101 to the Company’s
Current Report on Form 8-K filed May 15, 2007.* |
|
|
|
10.22 |
|
Amendment
to the Exclusive License Agreement between the Company and The Regents of the University of California, dated as of June 1,
2007, incorporated by reference to Exhibit 10.102 to the Company’s Current Report on Form 8-K filed June 7, 2007. |
|
|
|
10.23 |
|
Patent
License Agreement between the Company and the University of Alberta, dated as of May 9, 2007, incorporated by reference to
Exhibit 10.105 to the Company’s Annual Report on Form 10-K filed March 17, 2008. (Portions of this Exhibit are omitted
and were filed separately with the Secretary of the Commission pursuant to the Company’s application requesting confidential
treatment under Rule 24b-2 under the Securities Exchange Act of 1934). |
|
|
|
10.24 |
|
Severance
Agreement dated May 2, 2008, between the Company and Steven A. Johnson, Ph.D., incorporated by reference to Exhibit 10.107
to the Company’s Quarterly Report on Form 10-Q filed May 8, 2008.* |
|
|
|
10.25 |
|
Fourth
Amendment, dated July 11, 2008, to the employment agreement dated October 29, 2002 between the Company and Roger G. Stoll,
Ph.D., incorporated by reference to Exhibit 10.109 to the Company’s Report on Form 8-K filed July 17, 2008.* |
|
|
|
10.26 |
|
Amendment
No. 2 to Employment Agreement, dated as of December 22, 2008, between the Company and James H. Coleman, incorporated by reference
to Exhibit 10.110 to the Company’s Report on Form 8-K filed December 23, 2008.* |
|
|
|
10.27 |
|
Amendment
No. 1 Severance Agreement, dated as of December 22, 2008, between the Company and Maria S. Messinger, incorporated by reference
to Exhibit 10.111 to the Company’s Report on Form 8-K filed December 23, 2008.* |
|
|
|
10.28 |
|
Employment
Agreement, dated as of December 19, 2008, between the Company and Mark A. Varney, Ph.D., incorporated by reference Exhibit
10.112 to the Company’s Report on Form 8-K filed December 23, 2008.* |
|
|
|
10.29 |
|
Form
of Retention Bonus Agreement, dated March 13, 2009, between the Company and each of its executive officers, incorporated by
reference to Exhibit 10.113 to the Company’s Current Report on Form 8-K filed March 19, 2009.* |
10.30 |
|
Securities
Purchase Agreement, dated July 29, 2009, by and between the Company and the Investor, including a form of Registration Rights
Agreement attached as Exhibit B thereto and a form of Common Stock Purchase Warrant attached as Exhibit C thereto, incorporated
by reference to Exhibit 10.114 to the Company’s Current Report on Form 8-K filed July 30, 2009. |
|
|
|
10.31 |
|
Amendment
No. 2 to the Company’s 2006 Stock Incentive Plan, effective as of June 5, 2009, incorporated by reference Exhibit 10.115
to the Company’s Quarterly Report on Form 10-Q filed August 14, 2009.* |
|
|
|
10.32 |
|
Amendment
No. 3 to the Company’s 2006 Stock Incentive Plan, incorporated by reference to Exhibit 10.118 to the Company’s
Current Report on Form 8-K filed May 24, 2010.* |
|
|
|
10.33 |
|
Sixth
Amendment dated August 12, 2010 to the employment agreement dated October 29, 2002 between the Company and Roger G. Stoll,
incorporated by reference to Exhibit 10.119 to the Company’s Report on Form 8-K filed August 18, 2010.* |
|
|
|
10.34 |
|
Amendment
to the License Agreement between the Company and The Regents of the University of California, dated as of August 24, 2010,
incorporated by reference to Exhibit 10.120 to the Company’s Report on Form 8-K filed August 30, 2010 |
|
|
|
10.35 |
|
Fifth
Amendment to the License Agreement between the Company and The Regents of the University of California, dated as of March
15, 2011, incorporated by reference to Exhibit 10.121 to the Company’s Current Report on Form 8-K filed March 21, 2011. |
|
|
|
10.36 |
|
Asset
Purchase Agreement dated March 15, 2011 by and between the Company and Biovail Laboratories SRL, incorporated by reference
to Exhibit 10.122 to the Company’s Quarterly Report on Form 10-Q filed May 23, 2011. (Portions of this exhibit are omitted
and were filed separately with the Secretary of the Commission pursuant to the Company’s application requesting confidential
treatment under Rule 24b-2 of the Securities Exchange Act of 1934). |
|
|
|
10.37 |
|
First
Amendment dated August 2, 2011 to the Employment Agreement dated December 19, 2008 between the Company and Mark A. Varney,
Ph.D., incorporated by Exhibit 10.123 to the Company’s Current Report on Form 8-K filed August 8, 2011.* |
|
|
|
10.38 |
|
Seventh
Amendment dated August 2, 2011 to the Employment Agreement dated October 29, 2002 between the Company and Roger G. Stoll,
Ph.D., incorporated by reference to Exhibit 10.124 to the Company’s Current Report on Form 8-K filed August 8, 2011.* |
|
|
|
10.39 |
|
Patent
Assignment and Option and Amended and Restated Agreement dated June 10, 2011 between the Company and Les Laboratoires Servier,
incorporated by reference to Exhibit 10.125 to the Company’s Quarterly Report on Form 10-Q filed August 18, 2011. (Portions
of this exhibit are omitted and were filed separately with the Secretary of the Commission pursuant to the Company’s
application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934. |
|
|
|
10.40 |
|
Securities
Purchase Agreement, dated January 15, 2010, by and between the Company and Samyang Optics Co. Ltd., including a form of Promissory
Note attached as Exhibit A thereto and a form of Common Stock Purchase Warrant attached as Exhibit B thereto, incorporated
by reference to Exhibit 10.116 to the Company’s Current Report on Form 8-K filed January 21, 2010. |
|
|
|
10.41 |
|
Securities
Purchase Agreement, dated October 20, 2011, by and between the Company and Samyang Value Partners Co., Ltd., including a form
of Common Stock Purchase Warrant attached as Exhibit C thereto, incorporated by reference to Exhibit 10.127 to the Company’s
Annual Report on Form 10-K filed March 30, 2012. |
10.42 |
|
Lease
Agreement, dated May 17, 2012, for the Company’s facilities in Irvine, California, incorporated by reference to Exhibit
10.128 to the Company’s Quarterly Report on Form 10-Q filed on August 16, 2012. |
|
|
|
10.43 |
|
Securities
Purchase Agreement, dated June 25, 2012, by and between the Company and Samyang Optics Co. Ltd., including a form of Promissory
Note attached as Exhibit A thereto, a form of Common Stock Purchase Warrant attached as Exhibit B thereto, and a form of Security
Agreement attached as Exhibit C thereto, incorporated by reference to Exhibit 10.129 to the Company’s Quarterly Report
on Form 10-Q filed on August 16, 2012. |
|
|
|
10.44 |
|
Form
of Securities Purchase Agreement, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form
8-K filed on March 24, 2014. |
|
|
|
10.45 |
|
Cortex
Pharmaceuticals, Inc. 2014 Equity, Equity-Linked and Equity Derivative Incentive Plan, incorporated by reference to Exhibit
10.2 to the Company’s Current Report on Form 8-K filed on March 24, 2014.* |
|
|
|
10.46 |
|
Exclusive
License Agreement, dated as of June 27, 2014, by and between the Board of Trustees of the University of Illinois, a body corporate
and politic of the State of Illinois, and Cortex Pharmaceuticals, Inc., incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on July 1, 2014. |
|
|
|
10.47 |
|
Form
of Non-Statutory Stock Option Award Agreement, incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed on July 23, 2014.* |
|
|
|
10.48 |
|
Form
of Incentive Stock Option Award Agreement, incorporated by reference to Exhibit 10.2 to the Company’s Current Report
on Form 8-K filed on July 23, 2014.* |
|
|
|
10.49 |
|
Form
of Restricted Stock Award Agreement, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form
8-K filed on July 23, 2014.* |
|
|
|
10.50 |
|
Release
Agreement, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September
5, 2014. |
|
|
|
21** |
|
Subsidiaries
of the Registrant. |
|
|
|
23.1** |
|
Consent
of Haskell & White LLP, Independent Registered Public Accounting Firm. |
|
|
|
24** |
|
Power
of Attorney (included as part of the signature page of this Annual Report on Form 10-K). |
|
|
|
31.1** |
|
Certification
of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934. |
|
|
|
31.2** |
|
Certification
of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934. |
|
|
|
32** |
|
Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act
of 1934 and 18 U.S.C. Section 1350. |
|
|
|
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. |
* Each of
these Exhibits constitutes a management contract, compensatory plan or arrangement.
** Filed
herewith.
EXHIBIT 21
Subsidiaries of the
Registrant
Pier Pharmaceuticals, Inc. incorporated in the
state of Delaware
Cortex UK Limited, incorporated in the United
Kingdom
Orchid Acquisition Corp. (inactive), incorporated
in the state of Delaware
Rose Acquisition Corp. (inactive), incorporated
in the state of Delaware
EXHIBIT
23.1
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the incorporation by reference in the Registration Statements (No. 333-161143, No. 333-155749, No. 333-138844,
No. 333-122026, No. 333-112043, and No. 333-108948) on Form S-3 of Cortex Pharmaceuticals, Inc. and in the related
Prospectuses and in the Registration Statements (No. 333-143374, No. 333-134490, No. 333-102042, No. 333-82477,
and No. 333-20777) on Form S-8 and pertaining to the 2006 and 1996 Stock Incentive Plans, the Mark A. Varney Non-Qualified
Stock Option Agreement dated January 30, 2006 and the Leslie Street Non-Qualified Stock Option Agreement dated March 5,
2007, the 1989 Incentive Stock Option, Nonqualified Stock Option and Stock Purchase Plan, the 1989 Special Nonqualified Stock
Option and Stock Purchase Plan, and the Executive Stock Plan, of Cortex Pharmaceuticals, Inc. of our report dated January 5, 2015,
with respect to the consolidated financial statements of Cortex Pharmaceuticals, Inc. included in its Annual Report on Form 10-K
for the year ended December 31, 2013, and to the reference to us under the heading “Experts” in the Prospectuses,
which is part of the Registration Statements on Form S-3 referred to above.
|
/s/
HASKELL & WHITE LLP |
|
|
Irvine,
California |
|
January
5, 2015 |
|
EXHIBIT 31.1
CERTIFICATION
I, Arnold S. Lippa, Ph.D., certify that:
1. |
I have
reviewed this annual report on Form 10-K of Cortex Pharmaceuticals, Inc.; |
2. |
Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report; |
3. |
Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
4. |
The registrant’s
other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and |
|
(d) |
Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and |
5. |
The registrant’s
other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions): |
|
(a) |
All significant
deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and |
|
(b) |
Any fraud,
whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
Date:
January 5, 2015 |
/s/
Arnold S. Lippa, Ph.D. |
|
Arnold S. Lippa, Ph.D. |
|
President, Chief Executive Officer and
Chairman of the Board |
EXHIBIT 31.2
CERTIFICATION
I, Robert N. Weingarten, certify that:
1. |
I have
reviewed this annual report on Form 10-K of Cortex Pharmaceuticals, Inc.; |
2. |
Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report; |
3. |
Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
4. |
The registrant’s
other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed
such internal control over financial reporting or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. |
|
(c) |
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and |
|
(d) |
Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and |
5. |
The registrant’s
other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions): |
|
(a) |
All significant
deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and |
|
(b) |
Any fraud,
whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
Date:
January 5, 2015 |
/s/
Robert N. Weingarten |
|
Robert N. Weingarten |
|
Vice President and Chief Financial Officer |
EXHIBIT 32
CERTIFICATION
Arnold S. Lippa, Ph.D., President, Chief Executive
Officer and Chairman of the Board of Cortex Pharmaceuticals, Inc. (the “Company”), and Robert N. Weingarten, Chief
Financial Officer of the Company, each hereby certifies, pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange
Act of 1934, 18 U.S.C. Section 1350, that:
(1) |
the Annual
Report on Form 10-K of the Company for the year ended December 31, 2013 (the “Report”) fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
the information
contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company. |
Dated:
January 5, 2015 |
/s/
Arnold S. Lippa, Ph.D. |
|
Arnold S. Lippa, Ph.D. |
|
President, Chief Executive Officer and
Chairman of the Board |
|
|
Dated: January 5,
2015 |
/s/
Robert N. Weingarten |
|
Robert N. Weingarten |
|
Vice President and Chief Financial Officer |
This certification accompanies the Annual
Report pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 and shall
not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934.
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