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Document and Entity Information

v2.4.0.8
Document and Entity Information
9 Months Ended
Sep. 30, 2012
Document And Entity Information  
Entity Registrant Name CORTEX PHARMACEUTICALS INC/DE/
Entity Central Index Key 0000849636
Document Type 10-Q
Document Period End Date Sep. 30, 2012
Amendment Flag false
Current Fiscal Year End Date --12-31
Is Entity's Reporting Status Current? Yes
Entity Filer Category Smaller Reporting Company
Entity Common Stock, Shares Outstanding 144,041,558
Document Fiscal Period Focus Q3
Document Fiscal Year Focus 2012

Condensed Consolidated Balance Sheets

v2.4.0.8
Condensed Consolidated Balance Sheets (USD $)
Sep. 30, 2012
Dec. 31, 2011
Current assets:    
Cash and cash equivalents $ 224,257 $ 1,610,945
Restricted cash    48,309
Capitalized financing costs, net 9,092   
Other current assets 1,545 85,630
Total current assets 234,894 1,744,884
Furniture, equipment and leasehold improvements, net 45,569 66,882
License agreement, net 3,381,331   
Other 29,545 8,889
Total assets 3,691,339 1,820,655
Current liabilities:    
Accounts payable and accrued expenses 1,304,695 472,756
Accrued compensation and related expenses 814,276 235,399
Note payable to related party, including accrued interest of $13,080, net of unamortized discount of $67,162 361,942   
Unearned revenue    48,309
Project advance, including accrued interest of $81,695 and $76,479 at September 30, 2012 and December 31, 2011, respectively 328,995 323,779
Deferred rent 172 64,502
Total current liabilities 2,810,080 1,144,745
Commitments and contingencies (Note 10)      
Stockholders' equity:    
Common stock, $0.001 par value; shares authorized: 205,000,000; shares issued and outstanding: 144,041,558 and 85,623,663 at September 30, 2012 and December 31, 2011, respectively 144,041 85,624
Additional paid-in capital 125,183,892 121,337,670
Accumulated deficit (124,468,377) (120,769,087)
Total stockholders' equity 881,259 675,910
Total liabilities and stockholders' equity 3,691,339 1,820,655
Series B Convertible Preferred Stock [Member]
   
Stockholders' equity:    
Preferred stock value $ 21,703 $ 21,703

Condensed Consolidated Balance Sheets (Parenthetical)

v2.4.0.8
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
Sep. 30, 2012
Dec. 31, 2011
Accrued interest $ 13,080  
Unamortized discount net 67,162  
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, shares authorized 5,000,000 5,000,000
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 205,000,000 205,000,000
Common stock, shares issued 144,041,558 85,623,663
Common stock, shares outstanding 144,041,558 85,623,663
Series B Convertible Preferred Stock [Member]
   
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, liquidation preferrence per share $ 0.6667 $ 0.6667
Preferred stock, shares issued 37,500 37,500
Preferred stock, shares outstanding 37,500 37,500
Preferred stock shares issuable upon conversion, Per share $ 0.09812 $ 0.09812
Preferred stock shares issuable upon conversion 3,679 3,679
Project Advance [Member]
   
Accrued interest $ 81,695 $ 76,479

Condensed Consolidated Statements of Operations (Unaudited)

v2.4.0.8
Condensed Consolidated Statements of Operations (Unaudited) (USD $)
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Revenues:        
License revenue          $ 1,000,000
Grant revenue    2,139 48,309 112,466
Total revenues    2,139 48,309 1,112,466
Operating expenses:        
General and administrative 389,398 729,951 1,715,236 2,474,547
Research and development 191,874 444,478 659,483 1,733,588
Merger-related costs (Note 4) 1,084,860    1,246,107   
Total operating expenses 1,666,132 1,174,429 3,620,826 4,208,135
Loss from operations (1,666,132) (1,172,290) (3,572,517) (3,095,669)
Interest income    68 91 1,820
Interest expense, including $84,219 and $-0- to related parties for the three months ended September 30, 2012 and 2011, respectively, and $89,837 and $-0- for the nine months ended September 30, 2012 and 2011, respectively (98,552) (1,005) (107,442) (3,014)
Foreign currency loss (5,829)    (16,249)   
Gain (loss) from asset dispositions    (1,608) (3,173) 9,541
Net loss $ (1,770,513) $ (1,174,835) $ (3,699,290) $ (3,087,322)
Net loss per common share - Basic and diluted $ (0.02) $ (0.01) $ (0.04) $ (0.04)
Weighted average common shares outstanding - Basic and diluted 118,007,496 78,858,197 96,497,067 78,858,197

Condensed Consolidated Statements of Operations (Parenthetical)

v2.4.0.8
Condensed Consolidated Statements of Operations (Parenthetical) (USD $)
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Income Statement [Abstract]        
Interest expense to related parties $ 84,219 $ 0 $ 89,837 $ 0

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)

v2.4.0.8
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) (USD $)
Series B Convertible Preferred Stock [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Deficit [Member]
Total
Balance at Dec. 31, 2010 $ 21,703 $ 78,858 $ 120,816,472 $ (118,513,767) $ 2,403,266
Balance, shares at Dec. 31, 2010    78,858,197      
Issuance of shares of common stock in connection with private placement   6,766 471,036   477,802
Issuance of shares of common stock in connection with private placement, Shares   6,765,466      
Fair value of stock-based payments made to consultants and other service providers     1,161   1,161
Stock-based compensation expense     49,001   49,001
Net loss       (2,255,320) (2,255,320)
Balance at Dec. 31, 2011 21,703 85,624 121,337,670 (120,769,087) 675,910
Balance, shares at Dec. 31, 2011    85,623,663      
Issuance of shares of common stock in connection with the acquisition of Pier Pharmaceuticals, Inc.   58,417 3,212,985   3,271,402
Issuance of shares of common stock in connection with the acquisition of Pier Pharmaceuticals, Inc, Shares   58,417,895      
Fair value of warrants issued in connection with note payable     143,919   143,919
Stock-based compensation expense     489,318   489,318
Net loss       (3,699,290) (3,699,290)
Balance at Sep. 30, 2012 $ 21,703 $ 144,041 $ 125,183,892 $ (124,468,377) $ 881,259
Balance, shares at Sep. 30, 2012    144,041,558      

Condensed Consolidated Statements of Cash Flows (Unaudited)

v2.4.0.8
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Cash flows from operating activities:    
Net loss $ (3,699,290) $ (3,087,322)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation expense 20,113 98,412
Amortization of license agreement 29,826   
Adjustment to fair value of furniture and equipment    43,643
Stock-based compensation included in general and administrative expenses 170,805 38,248
Stock-based compensation included in research and development expenses 8,513   
Merger-related costs paid in common stock 310,000   
Foreign currency loss 16,250   
Amortization of capitalized financing costs 10,316   
Amortization of discount on note payable 76,757   
Loss on sales of equipment 3,173   
(Increase) decrease in -    
Restricted cash 48,309 105,288
Accrued interest on marketable securities    2,992
Other current assets 84,782 42,227
Other non-current assets (20,656)   
Increase (decrease) in -    
Accounts payable and accrued expenses 666,776 214,111
Accrued compensation and related expenses 578,877 54,693
Unearned revenue (48,309) (105,288)
Deferred rent (64,330) (6,451)
Accrued interest payable 18,296 (6,526)
Net cash used in operating activities (1,789,792) (2,605,973)
Cash flows from investing activities:    
Proceeds from sales and maturities of marketable securities    1,990,000
Cash acquired in connection with the acquisition of Pier Pharmaceuticals, Inc. 23,208   
Proceeds from sales of equipment 6,785 16,805
Purchases of furniture and equipment (5,293)   
Net cash provided by investing activities 24,700 2,006,805
Cash flows from financing activities:    
Proceeds from issuance of note payable 399,774   
Financing costs related to issuance of note payable (21,370)   
Net cash provided by financing activities 378,404 0
Cash and cash equivalents:    
Net decrease (1,386,688) (599,168)
Balance at beginning of period 1,610,945 1,037,549
Balance end of period 224,257 438,391
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 warrants issued in connection with note payable 143,919   
Accumulated depreciation with respect to disposed furniture, equipment and leasehold improvements $ 894,067   

Basis of Presentation

v2.4.0.8
Basis of Presentation
9 Months Ended
Sep. 30, 2012
Basis Of Presentation  
Basis of Presentation

1. Basis of Presentation

 

The condensed consolidated financial statements of Cortex Pharmaceuticals, Inc. (“Cortex”) and its wholly-owned subsidiary, Pier Pharmaceuticals, Inc. (“Pier”) (collectively referred to herein as the “Company”, unless the context indicates otherwise), at September 30, 2012 and for the three months and nine months ended September 30, 2012 and 2011, are unaudited. In the opinion of management, all adjustments (including normal recurring adjustments) have been made that are necessary to present fairly the financial position of the Company as of September 30, 2012, the results of its operations for the three months and nine months ended September 30, 2012 and 2011, and its cash flows for the nine months ended September 30, 2012 and 2011. Operating results for the interim periods presented are not necessarily indicative of the results to be expected for a full fiscal year. The condensed balance sheet at December 31, 2011 has been derived from the Company’s audited financial statements.

 

The statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the financial statements and other information included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, as filed with the SEC.

 

Certain comparative figures in 2011 have been reclassified to conform to the current year’s presentation.

Organization and Business Operations

v2.4.0.8
Organization and Business Operations
9 Months Ended
Sep. 30, 2012
Organization And Business Operations  
Organization and Business Operations

2. Organization and Business Operations

 

Business

 

The Company was formed to engage in the discovery, development and commercialization of innovative pharmaceuticals for the treatment of neurological and psychiatric disorders. Since its formation in 1987, 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. Preclinical research suggested that these ampakines might have therapeutic potential for the treatment of memory and cognitive disorders, depression, attention deficit disorder and schizophrenia.

 

In its early stages, the Company entered into a series of license agreements in 1993 and 1998 with the University of California Irvine 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 the University of California Irvine; (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. In exchange, the Company was required, among other terms and conditions, to pay the University of California Irvine a license fee, royalties, patent costs and certain additional payments. Since the patents covered in the license agreements have begun to expire and the therapeutic uses described in these patents are no longer germane to the Company’s new focus on respiratory disorders, the license agreements have been terminated.

 

The Company also 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 CX 1739 and CX1942 and extend through at least 2028.

 

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. 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 reported pre-clinical studies that indicated 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, the Company has conducted a Phase 2A clinical study in which patients with sleep apnea were administered CX1739, the Company's lead compound. Preliminary results suggest 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, 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 (the “Merger”) 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.

 

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 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 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. In exchange, 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.

 

The 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 similar, but not identical, to the License Agreement that had been terminated (see Note 11).

 

Going Concern

 

The Company’s unaudited condensed consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred operating losses and negative operating cash flows since the 2011 fiscal year, including approximately $3,699,000 and $1,790,000, respectively, for the nine months ended September 30, 2012, and incurred additional operating losses and negative operating cash flows in the 2012 and 2013 fiscal years. Furthermore, the Company expects to continue to incur operating losses and negative operating cash flows for several more years thereafter. As a result, management believes 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. 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. Since late 2012, the Company’s business activities have been reduced to minimal levels, and the prior management of the Company, which was removed by an action of shareholders on March 22, 2013, had retained bankruptcy counsel to assist it 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, is currently in the process of evaluating 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.

 

The Company does not expect to be able to pay its liabilities and fund its business activities going forward without raising additional capital. As a result of the Company’s current financial situation, the Company believes that is has very limited access to external sources of debt and equity financing. Accordingly, there can be no assurances that the Company will be able to secure the additional financing required 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. 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 sold 928.5 shares of its Series G Preferred Stock for gross proceeds of $928,500 (see Note 11).

Summary of Significant Accounting Policies

v2.4.0.8
Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2012
Summary Of Significant Accounting Policies  
Summary of Significant Accounting Policies

3. Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The accompanying condensed 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.

 

Marketable Securities

 

Marketable securities are carried at fair value, with unrealized gains and losses, net of any tax, reported as a separate component of stockholders’ equity. The Company utilizes observable inputs based on quoted prices in active markets for identical assets to record the fair value of its marketable securities. Authoritative guidance that establishes a framework for fair value for GAAP deems observable inputs for identical assets as Level 1 inputs, the most reliable in the hierarchy of inputs for determining fair value measurements.

 

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses and declines in value judged to be other-than-temporary on short-term investments are included in interest income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income.

 

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.

 

Furniture, Equipment and Leasehold Improvements

 

Furniture, equipment and leasehold improvements are recorded at cost and depreciated on a straight-line basis over the lesser of their estimated useful lives, ranging from five to ten years, or the life of the lease, as appropriate.

 

License Agreement

 

The License Agreement with the University of Illinois has been presented at cost (based on the fair value ascribed to the License Agreement in August 2012 as described in Note 4) and is being amortized on a straight-line basis over the remaining life of its underlying patents of 172 months from the date of acquisition of August 10, 2012.

 

The carrying value of the License Agreement is assessed for impairment at least annually. The Company performs an impairment assessment at its year end or whenever events or circumstances indicate impairment may have occurred. The value of the License Agreement was impaired at December 31, 2012 and the Company recorded a charge to operations of $3,321,678 at such date (see Note 11), which will be reflected in the Company’s financial statements for the year ended December 31, 2012.

 

Long-Lived Assets

 

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the total amount of an asset may not be recoverable. 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 did not recognize any significant impairment losses during any of the periods presented.

 

Revenue Recognition

 

The Company recognizes revenue when all four of the following criteria are met: (i) pervasive evidence that an arrangement exists; (ii) delivery of the products and/or services has occurred; (iii) the amounts earned can be readily determined; and (iv) collectability of the amounts earned is reasonably assured. Amounts received for upfront technology license fees under multiple-element arrangements are deferred and recognized over the period of committed services or performance, if such arrangements require the Company’s on-going services or performance.

 

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.

 

Employee Stock Options and Stock-Based Compensation

 

All share-based payments to employees, including grants of employee stock options, are recognized in the financial statements based on their fair values. For options granted during the nine months ended September 30, 2012 and 2011, the fair value of each option award was estimated using the Black-Scholes option-pricing model and the following assumptions:

 

    Nine Months Ended
September 30,
 
    2012     2011  
Risk-free interest rate     0.30 %     2.80 %
Expected dividend yield     0 %     0 %
Expected volatility     176 %     107 %
Expected life     10 years       7 years  

 

Expected volatility is based on the historical volatility of the Company’s stock. The Company also uses historical data to estimate the expected term of options granted and employee termination rates. The risk-free rate for periods within the expected useful life of the options is based on the U.S. Treasury yield curve in effect at the time of grant.

 

Stock options and warrants issued to non-employees as compensation for services to be provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair value of the option or warrant, whichever can be more clearly determined. The Company recognizes this expense over the period in which the services are provided.

 

The Company issues new shares to satisfy stock option and warrant exercises. There were no options exercised during the three months and nine months ended September 30, 2012 and 2011.

 

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. As of December 31, 2011, the Company had federal and California tax net operating loss carryforwards of approximately $82,886,000 and $83,513,000, 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 2012 through 2031. 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, 2011. The federal research and development tax credit carryforwards will expire at various dates from 2012 through 2031. The California research and development tax credit carryforward does not expire and will carryforward indefinitely until utilized.

 

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.

 

The Company’s effective tax rate is different from the federal statutory rate of 35% due primarily to operating losses that receive no tax benefit as a result of a valuation allowance recorded for such losses.

 

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, 2011, 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 tax as well as income tax of multiple state tax jurisdictions. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ending December 31, 2010 through 2013. The Company and its subsidiary’s state income tax returns (prior to the Pier merger) are open to audit under the statute of limitations for the years ended December 31, 2009 through 2013. The Company does not anticipate any material amount of unrecognized tax benefits within the next 12 months.

 

The Company is currently delinquent with respect to its U.S. federal and applicable states income tax filings for the year ended December 31, 2012, and no potential penalties, interest or other charges have been provided for in the Company’s financial statements because no income was generated during those periods.

 

Research and Development Costs

 

Costs related to research and development activities are charged to operations in the period incurred.

 

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), including unrealized gains and losses on investments, 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 nine months ended September 30, 2012 or 2011.

 

Net Loss 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 shareholders 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 September 30, 2012 and 2011, 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.

 

    September 30, 2012     September 30, 2011  
Convertible preferred stock     3,679       3,679  
Warrants     22,739,759       25,818,319  
Stock options     17,425,024       11,586,891  
Total     40,168,462       37,408,889  

 

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 May 2011, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This guidance was issued to achieve common fair value measurement and disclosure requirements between GAAP and International Financial Reporting Standards. This new guidance amends current fair value measurement and disclosure guidance to include increased transparency around valuation inputs and investment categorization. The Company adopted the ASU effective January 1, 2012. The adoption of this new guidance did not have any impact on the Company’s fair value measurements or the Company’s financial statement presentation or disclosures.

 

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This guidance requires companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. It eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The guidance does not change the items, which must be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income. In addition, in December 2011, the FASB issued an amendment which defers the requirement to present components of reclassifications of other comprehensive income on the face of the income statement. The Company adopted the ASU effective January 1, 2012. Because this guidance impacts presentation only, it did not have any impact on the Company’s consolidated financial statements.

 

In September 2011, the FASB issued ASU No. 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment. This guidance simplifies how entities test goodwill for impairment and permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The Company adopted the ASU effective January 1, 2012. The adoption of this new guidance did not have any impact on the Company’s financial statement presentation or disclosures.

 

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. This guidance requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The guidance will be applied retrospectively and is effective for annual and interim reporting periods beginning on or after January 1, 2013. The Company does not expect adoption of this guidance to have any impact on its consolidated financial statement presentation or disclosures.

 

In July 2012, the FASB issued ASU No. 2012-02, Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. This guidance allows entities the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. If the qualitative assessment indicates that it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, the quantitative impairment test is required. Otherwise, no testing is required. The guidance is effective for the Company in the period beginning January 1, 2013. The Company does not expect the adoption of this guidance to have any impact on its consolidated financial statement presentation or 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.

Merger with Pier Pharmaceuticals Inc

v2.4.0.8
Merger with Pier Pharmaceuticals Inc
9 Months Ended
Sep. 30, 2012
Business Combinations [Abstract]  
Merger with Pier Pharmaceuticals, Inc

4. Merger with Pier Pharmaceuticals, Inc.

 

The Company acquired 100% of the issued and outstanding equity securities of Pier Pharmaceuticals, Inc. (“Pier”) effective August 10, 2012 pursuant to an Agreement and Plan of Merger. In connection with the merger transaction with Pier, the Company issued 58,417,895 newly issued shares of its common stock valued at $3,271,402 ($0.056 per share), based upon the closing price of its common stock on such date. The Company’s common stock was issued to former Pier shareholders, convertible note holders, warrant holders, option holders, and certain employees and vendors in satisfaction of their interests and claims. The common stock issued by the Company represented approximately 41% of the Company’s outstanding common stock 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 for the treatment of breathing-related sleep disorders (including sleep apnea), of which dronabinol is a specific example of one type of compound falling within this class. 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 and is sold generically for use in refractory chemotherapy-induced nausea and vomiting, as well as for anorexia associated with weight loss in patients with AIDS. 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. In exchange, 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 the Company 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 License Agreement was terminated effective March 21, 2013 due to the Company’s failure to make a required payment (see Note 10).

 

Pursuant to the terms of the transaction, the Company agreed to issue approximately 18,300,000 additional shares of its common stock to Pier’s former shareholders as contingent consideration in the event that certain of the Company’s stock options and warrants outstanding as of the date of the transaction were subsequently exercised. Nearly all of the Company’s stock options and warrants outstanding as of the date of the transaction were out-of-the-money. In the event that such contingent shares were issued, the ownership percentage of Pier’s former shareholders, following their receipt of such additional shares, could not exceed their ownership percentage as of the initial transaction date. None of these contingent shares have been issued to date. The Company has concluded that the issuance of such contingent consideration is remote, given the exercise prices of these stock options and warrants, the Company’s distressed financial condition and capital requirements, and that these stock options and warrants remain out-of-the-money and continue to expire as time passes. Accordingly, the Company considers the contingent consideration to be functionally zero and has therefore not ascribed any value to such contingent consideration; if any such shares are ultimately issued to the former Pier shareholders, 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 shareholders, 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 contract-based intangible assets and consisted of the License Agreement, and that there was no measurable goodwill.

 

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 three months and nine months ended September 30, 2012 and 2011, as if the merger had occurred on the first day of each period presented. Merger transaction costs incurred by both Pier and the Company of $1,353,235 and $1,621,993 for the three months and nine months September 30, 2012, respectively, are not included in the net loss below. 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 respective dates, or of future results of operations. Pro forma information for the three months and nine months ended September 30, 2012 and 2011 is summarized as follows:

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2012     2011     2012     2011  
Total revenues   $     $ 2,139     $ 48,309     $ 1,112,466  
Net Loss   $ (731,783 )   $ (1,443,095 )   $ (2,806,572 )   $ (3,894,398 )
Net loss per common share - Basic and diluted   $ (0.01 )   $ (0.01 )   $ (0.02 )   $ (0.03 )
Weighted average common shares outstanding - Basic and diluted     144,041,558       79,708,197       144,041,558       79,708,197  

 

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 provide 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 11).

 

Merger-related costs for the three months and nine months ended September 30, 2012 are summarized as follows:

 

    Three Months Ended     Nine Months Ended  
    September 30, 2012     September 30, 2012  
Direct merger costs   $ 345,629     $ 506,876  
Merger-related severance and termination costs     739,231       739,231  
Total   $ 1,084,860     $ 1,246,107  

Note Payable to Related Party

v2.4.0.8
Note Payable to Related Party
9 Months Ended
Sep. 30, 2012
Debt Disclosure [Abstract]  
Note payable to Related Party

5. Note Payable to Related Party

 

On June 25, 2012, the Company borrowed 465,000,000 South Korean Won, (equivalent to approximately $400,000 US dollars) from and executed a secured note payable to Samyang Optics Co., Inc. (“Samyang”), an approximately 20% 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. The Company has not made any payments on the note, nor has Samyang made any demand for repayment. The note, including accrued interest, is currently due and payable.

 

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 patent for its ampakine CX1739 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 an 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 warrants expired unexercised on June 25, 2014.

 

The Company considered the face amount of the note payable as a fair approximation of its value. 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 an 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 is being amortized as additional interest expense over the life of the note. Additionally, financing costs aggregating $21,370 incurred in connection with the transaction are also being amortized over the expected life of the note. In that repayment could be demanded after six months, that period is being used as the expected life of the note payable for amortization purposes.

 

Note payable to Samyang consists of the following at September 30, 2012:

 

Principal amount of note payable   $ 399,774  
Accrued interest payable     13,080  
Unamortized discount attributed to warrant     (67,162 )
Foreign currency translation     16,250  
    $ 361,942  

Furniture, Equipment and Leashold Improvements

v2.4.0.8
Furniture, Equipment and Leashold Improvements
9 Months Ended
Sep. 30, 2012
Furniture Equipment And Leashold Improvements  
Furniture, Equipment and Leasehold Improvements

6. Furniture, Equipment and Leasehold Improvements

 

Furniture, equipment and leasehold improvements consist of the following at September 30, 2012 and December 31, 2011:

 

    September 30, 2012     December 31, 2011  
Laboratory equipment   $ 2,583     $ 59,822  
Leasehold improvements     5,293       766,905  
Furniture and equipment     93,664       170,447  
Computers and software     170,579       173,675  
      272,119       1,170,849  
Accumulated depreciation     (229,841 )     (1,303,967 )
    $ 42,278     $ 66,882  

 

During the nine months ended September 30, 2012, the Company disposed of $894,067 of furniture, equipment and leasehold improvements, including $834,016 of fully depreciated furniture, equipment and leasehold improvements, which consisted primarily of leasehold improvements abandoned in connection with the downsizing of the Company’s operations.

 

In March 2013, the Company vacated its operating facilities prior to the scheduled termination of the lease. Subsequently, the Company received notice that it has been sued in the Superior Court of California by its former landlord seeking, among other things, past due rent and reasonable attorney fees. On May 23, 2013, a settlement was reached wherein the Company agreed 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 on or before September 30, 2013. The transfer of the Company’s furniture, equipment and leasehold improvements resulted in a loss of $39,126, which, because the Company had substantially abandoned these assets prior to December 31, 2012, was charged to operations at December 31, 2012 (see Note 11).

Project Advance

v2.4.0.8
Project Advance
9 Months Ended
Sep. 30, 2012
Project Advance  
Project Advance

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 the Company’s ampakine CX516 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 Phase III 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 may 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 initially set at $4.50 per share and is subject to adjustment if the Company pays a dividend or distribution in shares of common stock, effects a stock split or reverse stock split, effects a reorganization or reclassification of its capital stock, or effects a consolidation or merger with or into another corporation or entity. Included in the condensed consolidated balance sheets is principal and accrued interest with respect to this funding agreement in the amount of $328,995 and $323,779 at September 30, 2012 and December 31, 2011, respectively. The Company currently has no plans to conduct the above mentioned Phase III Alzheimer’s study. The Company is currently in discussions with the Institute to settle this obligation.

Stockholders' Equity

v2.4.0.8
Stockholders' Equity
9 Months Ended
Sep. 30, 2012
Equity [Abstract]  
Stockholders' Equity

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 September 30, 2012 and December 31, 2011, 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 during the nine months ended September 30, 2012 or the year ended December 31, 2011.

 

Series B Preferred shares outstanding as of September 30, 2012 and December 31, 2011 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, subject to adjustment under certain circumstances. As of September 30, 2012 and December 31, 2011, these shares of Series B Preferred outstanding are convertible into 3,679 shares of common stock. The Company may redeem the Series B Preferred at a price of $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 11).

 

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 warrants expired unexercised 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 warrants to purchase 3,006,875 shares of the Company’s common stock expired unexercised 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 warrants to purchase 7,375,000 shares of the Company’s common stock expired unexercised 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 warrants to purchase 6,666,517 shares of the Company’s common stock expired unexercised 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 warrants to purchase 4,081,633 shares of the Company’s common stock expired unexercised 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 warrants to purchase 1,691,367 shares of the Company’s common stock expired unexercised 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 an 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.

 

A summary of common stock warrant activity for the nine months ended September 30, 2012 and the year ended December 31, 2011is presented in the tables below.

 

      Number of Shares     Weighted Average Exercise Price     Weighted Average Remaining Contractual Life (in Years)  
Warrants outstanding at December 31, 2010       24,126,952     $ 0.74          
Issued       1,691,367       0.10          
Exercised                      
Expired                      
Warrants outstanding at December 31, 2011       25,818,319       0.70          
Issued       4,000,000       0.056          
Exercised                      
Expired       (10,085,435 )     0.82          
Warrants outstanding at September 30, 2012       19,732,884     $ 0.22       0.60  
                           
Warrants exercisable at December 31, 2011       25,818,319     $ 0.70          
Warrants exercisable at September 30, 2012       19,732,884     $ 0.22       0.60  

 

The exercise prices of common stock warrants outstanding and exercisable are as follows at September 30, 2012:

 

Exercise Price     Warrants Outstanding (Shares)     Warrants Exercisable
(Shares)
    Expiration Date
$ 0.056       4,000,000       4,000,000     June 25, 2014
$ 0.100       1,691,367       1,691,367       October 20, 2013
$ 0.260       433,824       433,824     October 17,2012
$ 0.270       6,941,176       6,941,176     October 17, 2012
$ 0.270       6,060,470       6,060,470     January 31, 2013
$ 0.370       606,047       606,047       January 31, 2013
                         
          19,732,884       19,732,884      

 

Based on a fair market value of $0.06 per share on September 30, 2012, the intrinsic value attributed to exercisable but unexercised common stock warrants at September 30, 2012 was $16,000.

 

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 expire ten years from the date of grant, but some options granted to consultants expire five years from the date of grant.

 

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.

 

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.

 

Under the 2006 Plan, each non-employee director is automatically granted options to purchase 30,000 shares of common stock upon commencement of service as a director and, each non-employee director is automatically granted additional options to purchase 30,000 shares of common stock on the date of the first meeting of the Board of Directors for the relative calendar year. The nonqualified options to non-employee directors have an exercise price equal to 100% of the fair market value of the common stock on the date of grant, have a ten-year term and vest annually over a three-year period from the dates of grant.

 

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.

 

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 Company is no longer making awards under the 2006 Plan and has adopted, with shareholder approval, the 2014 Equity, Equity-Linked and Equity Derivative Incentive Plan (see Note 11).

 

As of September 30, 2012, options to purchase an aggregate of 17,425,024 shares of common stock were exercisable under the Company’s stock option plans. During the nine months ended September 30, 2012 and year ended December 31, 2011, the Company did not issue any options to purchase shares of common stock with exercise prices below the fair market value of the common stock on the dates of grant.

 

A summary of stock option activity for the nine months ended September 30, 2012 and the year ended December 31, 2011 is presented in the tables below.

 

      Number
of
Shares  
    Weighted
Average
Exercise
Price
    Weighted
Average
Remaining
Contractual
Life
(in Years)
 
Options outstanding at December 31, 2010     $ 12,141,640     $ 1.39          
Granted       180,000       0.13          
Expired       (258,665 )     0.20          
Forfeited       (1,262,119 )     1.59          
Options outstanding at December 31, 2011       10,800,856       1.38          
Granted       7,361,668       0.06          
Exercised                      
Expired       (737,500 )     0.95          
Options outstanding at September 30, 2012       17,425,024     $ 0.84       6.64  
                           
Options exercisable at December 31, 2011       9,569,860     $ 1.53          
Options exercisable at September 30, 2012       17,425,024     $ 0.84       6.64  

 

Since all stock options outstanding were fully vested at September 30, 2012, there is no compensation expense to be recognized in future periods.

 

The exercise prices of common stock options outstanding and exercisable were as follows at September 30, 2012:

 

Exercise
Price
    Options
Outstanding
(Shares)
    Options
Exercisable
(Shares)
    Expiration
Date
$ 0.060       2,195,000       2,195,000     August 3, 2022
$ 0.060       5,166,668       5,166,668     August 10, 2022
$ 0.130       180,000       180,000     March 1, 2021
$ 0.160       180,000       180,000     March 3,2021
$ 0.170       100,000       100,000     May 26, 2020
$ 0.200       2,413,000       2,413,000     August 22, 2019
$ 0.290       181,000       181,000     June 5, 2019
$ 0.540       850,000       850,000     January 18, 2018
$ 0.540       4,630       4,630     December 19, 2017
$ 0.710       18,075       18,075     February 28, 2013
$ 0.720       17,824       17,824     March 31, 2013
$ 0.750       437,500       437,500     December 16, 2016
$ 0.800       50,000       50,000     February 11, 2013
$ 0.860       180,000       180,0000     February 13, 2018
$ 0.970       200,000       200,000     August 13, 2018
$ 1.110       11,562       11,562     April 30, 2013
$ 1.120       275,000       275,000     February 6, 2017
$ 1.180       20,000       20,000     February 12, 2017
$ 1.300       980,000       980,000     December 18, 2016
$ 1.720       7,461       7,461     July 31, 2013
$ 1.780       7,209       7,209     May 30, 2013
$ 1.800       7,129       7,129     June 30, 2013
$ 2.350       925,000       925,000     December 1, 2015
$ 2.680       900,000       900,000     December 16, 2014
$ 2.760       1,015,000       1,015,000     December 9, 2013
$ 2.950       205,017       205,017     February 9, 2016
$ 2.950       750,000       750,000     January 30, 2016
$ 3.260       100,000       100,000     August 28, 2013
$ 3.380       30,000       30,000     October 31, 2013
$ 3.770       3,404       3,404     August 29, 2013
$ 4.400       14,545       14,545       September 2, 2013
                         
          17,425,024       17,425,024      

 

Based on a fair market value of $0.06 per share on September 30, 2012, there were no exercisable in-the-money stock options as of September 30, 2012. The outstanding stock options had zero intrinsic value at September 30, 2012.

 

As of September 30, 2012, the Company had reserved an aggregate of 3,679 shares for issuance upon conversion of the Series B Preferred; 19,732,884 shares for issuance upon exercise of warrants; 17,425,024 shares for issuance upon exercise of outstanding stock options; and 2,055,136 shares for issuance upon exercise of stock options available for future grant pursuant to the 2006 Plan. The Company expects to satisfy such stock obligations through the issuance of authorized but unissues share 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 and the related Rights terminated by their terms on February 15, 2012.

Related Party Transactions

v2.4.0.8
Related Party Transactions
9 Months Ended
Sep. 30, 2012
Related Party Transactions [Abstract]  
Related Party Transactions

9. Related Party Transactions

 

See Notes 5 and 8 for a description of transactions with Samyang, a significant stockholder of the Company and a lender to the Company.

Commitments and Contingencies

v2.4.0.8
Commitments and Contingencies
9 Months Ended
Sep. 30, 2012
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

10. 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 condensed consolidated financial statements with respect to such matters.

 

Lease Commitment

 

On May 14, 2012, the Company executed a three-year lease for office space beginning June 1, 2012 at a monthly rate of $9,204. In March 2013, the facility was vacated and the lease was terminated (see Note 11).

 

University of Illinois Licensing Agreement

 

In conjunction with the Company’s merger with Pier on August 10, 2012, the Company became a party to a Licensing Agreement entered into on October 10, 2007 by Pier with the University of Illinois (the “License Agreement”) covering 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 breathing-related sleep disorders (including sleep apnea), of which dronabinol is a specific example of one type of compound falling within this class. 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. In exchange, 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 terminated effective March 21, 2013 due to the Company’s failure to make a required payment (see Note 11).

 

University of Alberta 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. In return, the Company agreed to pay the University of Alberta licensing fees, patent costs, milestone payments, royalties on net sales and potential fees in the event the Company enters into a sub-license agreement with an outside party. The license fees have been fully paid.

Subsequent Events

v2.4.0.8
Subsequent Events
9 Months Ended
Sep. 30, 2012
Subsequent Events [Abstract]  
Subsequent Events

11. Subsequent Events

 

Abandonment of Lease and Settlement

 

In March 2013, the Company vacated its operating facilities prior to the scheduled termination of its lease. Subsequently, the Company received notice that it has been sued in the Superior Court of California by its former landlord seeking among other things, past due rent and reasonable attorney fees, On May 23, 2013, a settlement was reached wherein the Company agreed 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 on or before September 30, 2013. The transfer of the Company’s furniture, equipment and leasehold improvements resulted in a loss of $39,126, which, because the Company had substantially abandoned these assets prior to December 31, 2012, was charged to operations at December 31, 2012 (see Note 6).

 

Termination of University of Illinois Licensing Agreement

 

On March 22, 2013, the Company received a letter from the University of Illinois indicating that the License Agreement between the University of Illinois and the Company had been terminated effective March 21, 2013 due to the Company’s failure to make a required payment. The University of Illinois had previously notified the Company on February 19, 2013 of a default by the Company under the License Agreement due to non-payment of a $75,000 milestone fee due December 31, 2012. Due to the Company’s failure to cure the default within the 30-day cure period provided for in the License Agreement, the value of the License Agreement was impaired at December 31, 2012 and the Company recorded a charge to operations of $3,321,678 at such date. On June 27, 2014, the Company entered into a new license agreement with the University of Illinois that is similar, but not identical, to the License Agreement that had been terminated.

 

Termination of University of California Licensing Agreements

 

On April 15, 2013, the Company received a letter from the University of California indicating that the license agreements between the University of California and the Company had been terminated due to the Company’s failure to make certain payments necessary to maintain the agreements.

 

Management Changes

 

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 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. 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 subsequently appointed as a director, Vice President and Chief Financial Officer.

 

In 2012, Aurora Capital LLC provided investment banking services to Pier, a company that the Company acquired by merger on August 10, 2012. For those services, Aurora Capital LLC received 2,971,792 shares of the Company’s common stock in payment of its fee of $194,950. Both Dr. Lippa and Mr. Margolis have indirect ownership interests in Aurora Capital LLC through interests held in its members.

 

Working Capital Advances

 

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. 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, approximately 0.22% for 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 described below.

 

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 initial 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 initial 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 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) then in effect. 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 then applicable 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, and (ii) new 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 5.6365% of the shares of common stock into which the Series G Preferred Stock may convert, exercisable for five years at a price that 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 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 price that is 120% of the conversion price at which the Series G Preferred Stock may convert into the Company’s common stock.

 

The stated value of the Series G Preferred Stock is $1,000 per share, and the initial 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 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 144,041,558 shares of common stock, plus an additional 57,000,000 shares of common stock issued to management as described below, 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 price that 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, 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.

 

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, 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 are also directors of the Company, and 12,000,000 shares to certain other parties, one of whom is an associated person of Aurora Capital LLC. These awards were made under the Plan and were awarded as compensation for those individuals through March 31, 2014. None of the officers or directors of the Company had received any cash compensation from the Company since joining the Company in March and April 2013.

 

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 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.

 

Debt Settlements

 

During the first quarter of 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 the case of two of these former executives, the Company also agreed to formalize the issuance of options to purchase 5,166,668 shares of common stock exercisable at $0.06 per share that had previously been reported as issued in August 2012, but that the former executives claimed they had never received. In addition to other provisions, the settlement agreements included mutual releases.

 

During the second quarter of 2014, the Company also executed settlement agreements with and paid judgments in respect to 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 five years. In addition to other provisions, the settlement agreements included mutual releases.

 

The above described 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 “University”), which shall become effective 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 certain rights the Company holds in certain patent applications. In exchange for certain milestone and royalty payments, the 2014 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 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 obstructive sleep apnea (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 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, would only require approval by the FDA of a supplemental new drug application (sNDA).

Summary of Significant Accounting Policies (Policies)

v2.4.0.8
Summary of Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2012
Summary Of Significant Accounting Policies Policies  
Principles of Consolidation

Principles of Consolidation

 

The accompanying condensed 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

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

Cash Equivalents

 

The Company considers all highly liquid short-term investments with maturities of less than three months when acquired to be cash equivalents.

Marketable Securities

Marketable Securities

 

Marketable securities are carried at fair value, with unrealized gains and losses, net of any tax, reported as a separate component of stockholders’ equity. The Company utilizes observable inputs based on quoted prices in active markets for identical assets to record the fair value of its marketable securities. Authoritative guidance that establishes a framework for fair value for GAAP deems observable inputs for identical assets as Level 1 inputs, the most reliable in the hierarchy of inputs for determining fair value measurements.

 

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses and declines in value judged to be other-than-temporary on short-term investments are included in interest income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income.

Concentrations of Credit Risk

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

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.

Furniture, Equipment and Leasehold Improvements

Furniture, Equipment and Leasehold Improvements

 

Furniture, equipment and leasehold improvements are recorded at cost and depreciated on a straight-line basis over the lesser of their estimated useful lives, ranging from five to ten years, or the life of the lease, as appropriate.

License Agreement

License Agreement

 

The License Agreement with the University of Illinois has been presented at cost (based on the fair value ascribed to the License Agreement in August 2012 as described in Note 4) and is being amortized on a straight-line basis over the remaining life of its underlying patents of 172 months from the date of acquisition of August 10, 2012.

 

The carrying value of the License Agreement is assessed for impairment at least annually. The Company performs an impairment assessment at its year end or whenever events or circumstances indicate impairment may have occurred. The value of the License Agreement was impaired at December 31, 2012 and the Company recorded a charge to operations of $3,321,678 at such date (see Note 11), which will be reflected in the Company’s financial statements for the year ended December 31, 2012.

Long-Lived Assets

Long-Lived Assets

 

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the total amount of an asset may not be recoverable. 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 did not recognize any significant impairment losses during any of the periods presented.

Revenue Recognition

Revenue Recognition

 

The Company recognizes revenue when all four of the following criteria are met: (i) pervasive evidence that an arrangement exists; (ii) delivery of the products and/or services has occurred; (iii) the amounts earned can be readily determined; and (iv) collectability of the amounts earned is reasonably assured. Amounts received for upfront technology license fees under multiple-element arrangements are deferred and recognized over the period of committed services or performance, if such arrangements require the Company’s on-going services or performance.

 

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.

Employee Stock Options and Stock-Based Compensation

Employee Stock Options and Stock-Based Compensation

 

All share-based payments to employees, including grants of employee stock options, are recognized in the financial statements based on their fair values. For options granted during the nine months ended September 30, 2012 and 2011, the fair value of each option award was estimated using the Black-Scholes option-pricing model and the following assumptions:

 

    Nine Months Ended
September 30,
 
    2012     2011  
Risk-free interest rate     0.30 %     2.80 %
Expected dividend yield     0 %     0 %
Expected volatility     176 %     107 %
Expected life     10 years       7 years  

 

Expected volatility is based on the historical volatility of the Company’s stock. The Company also uses historical data to estimate the expected term of options granted and employee termination rates. The risk-free rate for periods within the expected useful life of the options is based on the U.S. Treasury yield curve in effect at the time of grant.

 

Stock options and warrants issued to non-employees as compensation for services to be provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair value of the option or warrant, whichever can be more clearly determined. The Company recognizes this expense over the period in which the services are provided.

 

The Company issues new shares to satisfy stock option and warrant exercises. There were no options exercised during the three months and nine months ended September 30, 2012 and 2011.

Income Taxes

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. As of December 31, 2011, the Company had federal and California tax net operating loss carryforwards of approximately $82,886,000 and $83,513,000, 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 2012 through 2031. 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, 2011. The federal research and development tax credit carryforwards will expire at various dates from 2012 through 2031. The California research and development tax credit carryforward does not expire and will carryforward indefinitely until utilized.

 

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.

 

The Company’s effective tax rate is different from the federal statutory rate of 35% due primarily to operating losses that receive no tax benefit as a result of a valuation allowance recorded for such losses.

 

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, 2011, 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 tax as well as income tax of multiple state tax jurisdictions. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ending December 31, 2010 through 2013. The Company and its subsidiary’s state income tax returns (prior to the Pier merger) are open to audit under the statute of limitations for the years ended December 31, 2009 through 2013. The Company does not anticipate any material amount of unrecognized tax benefits within the next 12 months.

 

The Company is currently delinquent with respect to its U.S. federal and applicable states income tax filings for the year ended December 31, 2012, and no potential penalties, interest or other charges have been provided for in the Company’s financial statements because no income was generated during those periods.

Research and Development Costs

Research and Development Costs

 

Costs related to research and development activities are charged to operations in the period incurred.

Comprehensive Income (Loss)

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), including unrealized gains and losses on investments, 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 nine months ended September 30, 2012 or 2011.

Net Loss per Share

Net Loss 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 shareholders 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 September 30, 2012 and 2011, 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.

 

    September 30, 2012     September 30, 2011  
Convertible preferred stock     3,679       3,679  
Warrants     22,739,759       25,818,319  
Stock options     17,425,024       11,586,891  
Total     40,168,462       37,408,889  

Use of Estimates

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

Recent Accounting Pronouncements

 

In May 2011, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This guidance was issued to achieve common fair value measurement and disclosure requirements between GAAP and International Financial Reporting Standards. This new guidance amends current fair value measurement and disclosure guidance to include increased transparency around valuation inputs and investment categorization. The Company adopted the ASU effective January 1, 2012. The adoption of this new guidance did not have any impact on the Company’s fair value measurements or the Company’s financial statement presentation or disclosures.

 

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This guidance requires companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. It eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The guidance does not change the items, which must be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income. In addition, in December 2011, the FASB issued an amendment which defers the requirement to present components of reclassifications of other comprehensive income on the face of the income statement. The Company adopted the ASU effective January 1, 2012. Because this guidance impacts presentation only, it did not have any impact on the Company’s consolidated financial statements.

 

In September 2011, the FASB issued ASU No. 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment. This guidance simplifies how entities test goodwill for impairment and permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The Company adopted the ASU effective January 1, 2012. The adoption of this new guidance did not have any impact on the Company’s financial statement presentation or disclosures.

 

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. This guidance requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The guidance will be applied retrospectively and is effective for annual and interim reporting periods beginning on or after January 1, 2013. The Company does not expect adoption of this guidance to have any impact on its consolidated financial statement presentation or disclosures.

 

In July 2012, the FASB issued ASU No. 2012-02, Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. This guidance allows entities the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. If the qualitative assessment indicates that it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, the quantitative impairment test is required. Otherwise, no testing is required. The guidance is effective for the Company in the period beginning January 1, 2013. The Company does not expect the adoption of this guidance to have any impact on its consolidated financial statement presentation or 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.

Summary of Significant Accounting Policies (Tables)

v2.4.0.8
Summary of Significant Accounting Policies (Tables)
9 Months Ended
Sep. 30, 2012
Summary Of Significant Accounting Policies Tables  
Summary of Fair Value Option Award Using Black Scholes Pricing Model

For options granted during the nine months ended September 30, 2012 and 2011, the fair value of each option award was estimated using the Black-Scholes option-pricing model and the following assumptions:

 

    Nine Months Ended
September 30,
 
    2012     2011  
Risk-free interest rate     0.30 %     2.80 %
Expected dividend yield     0 %     0 %
Expected volatility     176 %     107 %
Expected life     10 years       7 years  

Summary of Anti Dilutive Effect of Earnings Per Share

At September 30, 2012 and 2011, 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.

 

    September 30, 2012     September 30, 2011  
Convertible preferred stock     3,679       3,679  
Warrants     22,739,759       25,818,319  
Stock options     17,425,024       11,586,891  
Total     40,168,462       37,408,889  

Merger with Pier Pharmaceuticals (Tables)

v2.4.0.8
Merger with Pier Pharmaceuticals (Tables)
9 Months Ended
Sep. 30, 2012
Business Combinations [Abstract]  
Summary of Fair Value of Assets and Liabilities

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  

Summay of Proforma Information Regarding Results of Operations

Pro forma information for the three months and nine months ended September 30, 2012 and 2011 is summarized as follows:

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2012     2011     2012     2011  
Total revenues   $     $ 2,139     $ 48,309     $ 1,112,466  
Net Loss   $ (731,783 )   $ (1,443,095 )   $ (2,806,572 )   $ (3,894,398 )
Net loss per common share - Basic and diluted   $ (0.01 )   $ (0.01 )   $ (0.02 )   $ (0.03 )
Weighted average common shares outstanding - Basic and diluted     144,041,558       79,708,197       144,041,558       79,708,197  

Summary of Merger-Related Costs

Merger-related costs for the three months and nine months ended September 30, 2012 are summarized as follows:

 

    Three Months Ended     Nine Months Ended  
    September 30, 2012     September 30, 2012  
Direct merger costs   $ 345,629     $ 506,876  
Merger-related severance and termination costs     739,231       739,231  
Total   $ 1,084,860     $ 1,246,107  

Notes Payable to Related Party (Tables)

v2.4.0.8
Notes Payable to Related Party (Tables)
9 Months Ended
Sep. 30, 2012
Notes Payable To Related Party Tables  
Summary of Note Payable

Note payable to Samyang consists of the following at September 30, 2012:

 

Principal amount of note payable   $ 399,774  
Accrued interest payable     13,080  
Unamortized discount attributed to warrant     (67,162 )
Foreign currency translation     16,250  
    $ 361,942  

Furniture, Equipment and Leasehold Improvements (Tables)

v2.4.0.8
Furniture, Equipment and Leasehold Improvements (Tables)
9 Months Ended
Sep. 30, 2012
Furniture Equipment And Leasehold Improvements Tables  
Schedule of Furniture, Equipment and Leasehold Improvements

Furniture, equipment and leasehold improvements consist of the following at September 30, 2012 and December 31, 2011:

 

    September 30, 2012     December 31, 2011  
Laboratory equipment   $ 2,583     $ 59,822  
Leasehold improvements     5,293       766,905  
Furniture and equipment     93,664       170,447  
Computers and software     170,579       173,675  
      272,119       1,170,849  
Accumulated depreciation     (229,841 )     (1,303,967 )
    $ 42,278     $ 66,882  

Stockholders' Equity (Tables)

v2.4.0.8
Stockholders' Equity (Tables)
9 Months Ended
Sep. 30, 2012
Equity [Abstract]  
Schedule of Warrants Activity

A summary of common stock warrant activity for the nine months ended September 30, 2012 and the year ended December 31, 2011is presented in the tables below.

 

      Number of Shares     Weighted Average Exercise Price     Weighted Average Remaining Contractual Life (in Years)  
Warrants outstanding at December 31, 2010       24,126,952     $ 0.74          
Issued       1,691,367       0.10          
Exercised                      
Expired                      
Warrants outstanding at December 31, 2011       25,818,319       0.70          
Issued       4,000,000       0.056          
Exercised                      
Expired       (10,085,435 )     0.82          
Warrants outstanding at September 30, 2012       19,732,884     $ 0.22       0.60  
                           
Warrants exercisable at December 31, 2011       25,818,319     $ 0.70          
Warrants exercisable at September 30, 2012       19,732,884     $ 0.22       0.60  

Schedule of Common Stock Warrants Outstanding

The exercise prices of common stock warrants outstanding and exercisable are as follows at September 30, 2012:

 

Exercise Price     Warrants Outstanding (Shares)     Warrants Exercisable
(Shares)
    Expiration Date
$ 0.056       4,000,000       4,000,000     June 25, 2014
$ 0.100       1,691,367       1,691,367       October 20, 2013
$ 0.260       433,824       433,824     October 17,2012
$ 0.270       6,941,176       6,941,176     October 17, 2012
$ 0.270       6,060,470       6,060,470     January 31, 2013
$ 0.370       606,047       606,047       January 31, 2013
                         
          19,732,884       19,732,884      

Schedule of Stock Options Activity

A summary of stock option activity for the nine months ended September 30, 2012 and the year ended December 31, 2011 is presented in the tables below.

 

      Number
of
Shares  
    Weighted
Average
Exercise
Price
    Weighted
Average
Remaining
Contractual
Life
(in Years)
 
Options outstanding at December 31, 2010     $ 12,141,640     $ 1.39          
Granted       180,000       0.13          
Expired       (258,665 )     0.20          
Forfeited       (1,262,119 )     1.59          
Options outstanding at December 31, 2011       10,800,856       1.38          
Granted       7,361,668       0.06          
Exercised                      
Expired       (737,500 )     0.95          
Options outstanding at September 30, 2012       17,425,024     $ 0.84       6.64  
                           
Options exercisable at December 31, 2011       9,569,860     $ 1.53          
Options exercisable at September 30, 2012       17,425,024     $ 0.84       6.64  

Schedule of Stock Options Outstanding

The exercise prices of common stock options outstanding and exercisable were as follows at September 30, 2012:

 

Exercise
Price
    Options
Outstanding
(Shares)
    Options
Exercisable
(Shares)
    Expiration
Date
$ 0.060       2,195,000       2,195,000     August 3, 2022
$ 0.060       5,166,668       5,166,668     August 10, 2022
$ 0.130       180,000       180,000     March 1, 2021
$ 0.160       180,000       180,000     March 3,2021
$ 0.170       100,000       100,000     May 26, 2020
$ 0.200       2,413,000       2,413,000     August 22, 2019
$ 0.290       181,000       181,000     June 5, 2019
$ 0.540       850,000       850,000     January 18, 2018
$ 0.540       4,630       4,630     December 19, 2017
$ 0.710       18,075       18,075     February 28, 2013
$ 0.720       17,824       17,824     March 31, 2013
$ 0.750       437,500       437,500     December 16, 2016
$ 0.800       50,000       50,000     February 11, 2013
$ 0.860       180,000       180,0000     February 13, 2018
$ 0.970       200,000       200,000     August 13, 2018
$ 1.110       11,562       11,562     April 30, 2013
$ 1.120       275,000       275,000     February 6, 2017
$ 1.180       20,000       20,000     February 12, 2017
$ 1.300       980,000       980,000     December 18, 2016
$ 1.720       7,461       7,461     July 31, 2013
$ 1.780       7,209       7,209     May 30, 2013
$ 1.800       7,129       7,129     June 30, 2013
$ 2.350       925,000       925,000     December 1, 2015
$ 2.680       900,000       900,000     December 16, 2014
$ 2.760       1,015,000       1,015,000     December 9, 2013
$ 2.950       205,017       205,017     February 9, 2016
$ 2.950       750,000       750,000     January 30, 2016
$ 3.260       100,000       100,000     August 28, 2013
$ 3.380       30,000       30,000     October 31, 2013
$ 3.770       3,404       3,404     August 29, 2013
$ 4.400       14,545       14,545       September 2, 2013
                         
          17,425,024       17,425,024      

Organization and Business Operations (Details Narrative)

v2.4.0.8
Organization and Business Operations (Details Narrative) (USD $)
3 Months Ended 9 Months Ended 12 Months Ended 9 Months Ended 0 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Dec. 31, 2011
Sep. 30, 2012
Series G Preferred Stock [Member]
March And April 2014 [Member]
Sep. 30, 2012
June 2013 Through March 2014 [Member]
Chairman And Chief Executive Officer [Member]
Jun. 15, 2012
Executive Officers [Member]
Sep. 30, 2012
Chief Executive Officer [Member]
June 2013 Through March 2014 [Member]
Net loss $ 1,770,513 $ 1,174,835 $ 3,699,290 $ 3,087,322 $ 2,255,320        
Net cash used in operating activities     1,789,792 2,605,973          
Employee contribution on salary               50.00%  
Short term loans contributed to the company             150,000   150,000
Sale of preferred stock           928.5      
Proceeds from sale of preferred stock           $ 928,500      

Summary of Significant Accounting Policies (Details Narrative)

v2.4.0.8
Summary of Significant Accounting Policies (Details Narrative) (USD $)
3 Months Ended 9 Months Ended 12 Months Ended 9 Months Ended 0 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Dec. 31, 2011
Dec. 31, 2011
Federal Tax [Member]
Dec. 31, 2011
California Tax [Member]
Sep. 30, 2012
December 31, 2012 [Member]
Aug. 10, 2012
Patents [Member]
Sep. 30, 2012
Furniture [Member]
Minimum [Member]
Sep. 30, 2012
Furniture [Member]
Maximum [Member]
Sep. 30, 2012
Equipment [Member]
Minimum [Member]
Sep. 30, 2012
Equipment [Member]
Maximum [Member]
Sep. 30, 2012
Leasehold Improvement [Member]
Minimum [Member]
Sep. 30, 2012
Leasehold Improvement [Member]
Maximum [Member]
Estimated useful lives                 172 months 5 years 10 years 5 years 10 years 5 years 10 years
Impairment of license agreement               $ 3,321,678              
Stock options exercised 0 0    0 (258,665)                    
Net operating loss carryforwards           82,886,000 83,513,000                
Operating loss carryforwards expiration period           Dates from 2012 through 2031. Dates from 2012 through 2031.                
Tax credit carryforwards on Research and Development           2,093,000 1,146,000                
Tax credit carryforwards expiration period           Dates from 2012 through 2031.                  
Effective federal statutory tax rate     35.00%                        
Income tax benefit     0                        
Minimum percentage of ownership for net operating loss and credit carryforwards to be limited 50.00%   50.00%                        
Change in ownership period     3 years                        
Unrecognized tax benefits related to federal and state income tax           0 0                
Comprehensive income loss     $ 0 $ 0