<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
* QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- - ----- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 1995
---------------------------
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- - ------ ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
------------ -----------
COMMISSION FILE NUMBER 0-17951
CORTEX PHARMACEUTICALS, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
Delaware 33-0303583
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
15241 Barranca Parkway, Irvine, California, 92718
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(714) 727-3157
(ISSUERS'S TELEPHONE NUMBER)
NOT APPLICABLE
----------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST YEAR)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports); and (2) has been
subject to such filing requirements for the past 90 days.
YES * NO
----- -----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
6,159,855 shares of Common Stock as of November 1, 1995
Page 1 of 12
<PAGE>
CORTEX PHARMACEUTICALS, INC.
INDEX
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets -- September 30, 1995 and June 30, 1995. . . . 3
Statements of Operations -- Three months ended
September 30, 1995 and 1994; and period from
inception (February 10, 1987) through September 30, 1995. . . 4
Statements of Cash Flows -- Three months ended
September 30, 1995 and 1994 and period from
inception (February 10, 1987) through September 30, 1995. . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . 8
PART II. OTHER INFORMATION
Item 3. Defaults upon Senior Securities . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Page 2 of 12
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CORTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) (NOTE)
September 30, 1995 June 30, 1995
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 89,974 $ 149,880
U.S. government securities -- available for sale 2,972,598 3,689,356
Other current assets 41,278 92,212
------------ ------------
Total current assets 3,103,850 3,931,448
Furniture, equipment and leasehold improvements, net 870,845 931,794
Other 23,659 23,130
------------ ------------
$ 3,998,354 $ 4,886,372
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 413,630 $ 377,589
Accrued dividends 54,450 183,150
Accrued wages, salaries and related expenses 31,523 35,223
Current obligations under capital leases 7,904 7,698
------------ ------------
Total current liabilities 507,507 603,660
Obligations under capital leases 7,951 10,016
Note payable issuable to Alkermes, Inc. 1,000,000 1,000,000
Stockholders' equity:
9% cumulative convertible preferred stock, $0.001
par value; $1.00 per share liquidation preference;
shares authorized: 1,250,000; shares issued and
outstanding: 110,000 (September 30, 1995) and
370,000 (June 30, 1995) 110,000 370,000
Series B convertible preferred stock, $0.001 par value;
$0.6667 per share liquidation preference; shares
authorized: 3,200,000; shares issued and
outstanding: 150,000 (September 30, 1995) and
525,000 (June 30, 1995) 86,810 303,837
Common stock, $0.001 par value; shares authorized:
20,000,000; shares issued and outstanding:
6,159,855 (September 30, 1995) and 6,085,201
(June 30, 1995) 6,160 6,085
Additional paid-in capital 24,573,281 23,957,790
Deferred compensation (131,220) (145,359)
Unrealized loss on available for
sale U.S. government securities (6,474) (18,606)
Deficit accumulated during the development stage (22,155,661) (21,201,051)
------------ ------------
Total stockholders' equity 2,482,896 3,272,696
------------ ------------
$ 3,998,354 $ 4,886,372
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
NOTE: THE BALANCE SHEET AS OF JUNE 30, 1995 HAS BEEN DERIVED FROM THE AUDITED
FINANCIAL STATEMENTS AT THAT DATE.
Page 3 of 12
<PAGE>
CORTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
inception
(February 10,
Three months ended 1987) through
September 30, September 30,
------------------------------
1995 1994 1995
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Research and license revenue under an agreement
with Alkermes, Inc. $ -- $ -- $ 3,600,000
Grant revenue -- -- 94,717
------------ ----------- ------------
Total revenues -- -- 3,694,717
Operating expenses:
Research and development expenses 665,478 1,074,401 16,957,013
General and administrative expenses 323,444 426,296 8,730,271
Settlement with Alkermes, Inc. -- -- 1,227,977
------------ ----------- ------------
Total operating expenses 988,922 1,500,697 26,915,261
------------ ----------- ------------
Loss from operations (988,922) (1,500,697) (23,220,544)
Interest income, net 34,312 44,812 1,204,557
------------ ----------- ------------
Net loss $ (954,610) $(1,455,885) $(22,015,987)
------------ ----------- ------------
------------ ----------- ------------
Weighted average common shares outstanding 6,086,804 6,073,942
------------ -----------
------------ -----------
Net loss per share $ (0.16) $ (0.24)
------------ -----------
------------ -----------
</TABLE>
SEE ACCOMPANYING NOTES.
Page 4 of 12
<PAGE>
CORTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
inception
(February 10,
Three months ended 1987) through
September 30, September 30,
---------------------------------
1995 1994 1995
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
NET LOSS $ (954,610) $ (1,455,885) $ (22,015,987)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 58,173 45,522 936,971
Settlement with Alkermes, Inc. -- -- 1,227,977
Changes in operating assets/liabilities:
Accounts payable and accrued expenses 32,341 (109,689) 445,153
Accrued interest on U.S. government securities (21,080) (5,858) (39,041)
Other current assets 50,934 (30,438) (41,278)
Interest receivable from former officer -- -- (19,274)
Realized loss on sale of U.S. government securities 551 23,085 53,598
Stock option compensation expense 14,139 14,138 527,839
Stock issued for services -- -- 28,750
Reduction in note receivable from former
officer--compensation expense -- -- 22,600
Other -- -- 7,989
------------- ------------- -------------
NET CASH USED IN OPERATING ACTIVITIES (819,552) (1,519,125) (18,864,703)
------------- ------------- -------------
Cash flows from investing activities:
U.S. government securities--available-for-sale--
Purchases -- (3,853,748) (16,847,670)
Proceeds from sales 749,418 5,863,594 13,854,041
Purchase of fixed assets -- (135,134) (1,778,540)
Sale of fixed assets 2,777 -- 10,236
Decrease (increase) in--
Other assets (529) 1,092 (40,399)
Note receivable from former officer -- -- (100,000)
------------- ------------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 751,666 1,875,804 (4,902,332)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from issuance of common stock 9,839 -- 20,913,448
Proceeds from issuance of Series B
convertible preferred stock -- -- 1,841,108
Proceeds from issuance of 9% preferred stock -- -- 1,076,588
Proceeds from subordinated convertible note -- -- 208,333
Payment of 9% preferred stock dividends -- -- (110,250)
Redemption of 9% preferred stock -- (63,750) (63,750)
Redemption of common stock -- -- (350)
Principal payments on capitalized leases (1,859) -- (8,118)
------------- ------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 7,980 (63,750) 23,857,009
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents (59,906) 292,929 89,974
Cash and cash equivalents, beginning of period 149,880 160,956 --
------------- ------------- -------------
Cash and cash equivalents, end of period $ 89,974 $ 453,885 $ 89,974
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
(CONTINUED ...)
Page 5 of 12
<PAGE>
CORTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED, CONTINUED)
<TABLE>
<CAPTION>
Period from
inception
(February 10,
Three months ended 1987) through
September 30, September 30,
---------------------------------
1995 1994 1995
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental schedule of non-cash investing
and financing activities:
Accretion of 9% preferred stock $ -- $ -- $ 139,674
Conversion of 9% preferred stock to common stock 388,700 -- 1,311,686
Conversion of Series B preferred stock
to common stock 217,027 -- 1,754,273
Capital lease obligation incurred to lease equipment -- -- 23,973
</TABLE>
SEE ACCOMPANYING NOTES.
Page 6 of 12
<PAGE>
CORTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
Period from Inception (February 10, 1987) through September 30, 1995
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-QSB and Item 310(b) of Regulation S-
B. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended September 30,
1995 are not necessarily indicative of the results that may be expected for the
year ending June 30, 1996. For further information, refer to the financial
statements and notes thereto included in the Company's 1995 Annual Report on
Form 10-KSB. Certain previously reported amounts have been reclassified to
conform with the June 30, 1995 and September 30, 1995 presentation.
NOTE 2 -- DEVELOPMENT STAGE ENTERPRISE
From inception (February 10, 1987) through September 30, 1995, the Company has
generated only modest operating revenues and has incurred losses aggregating
$22,015,987. As of September 30, 1995, the Company had working capital of
$2,596,343, which under current spending plans will sustain its operations
through June 1996. Continued operation beyond June 1996 will require additional
capital. Over the longer term, successful completion of the Company's
development program and its transition, ultimately, to attaining profitable
operations is dependent upon obtaining additional financing adequate to fulfill
its research and development activities, and achieving a level of revenues
adequate to support the Company's cost structure.
NOTE 3 -- REVERSE STOCK SPLIT
On January 11, 1995, the Company effected a one-for-five reverse stock split of
its common stock and in connection therewith revised the authorized number of
shares of common stock to 20,000,000 shares, with no change in the par value of
$0.001 per share. The accompanying financial statements have been adjusted
retroactively to give effect to the reverse stock split.
Page 7 of 12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS REPORT.
RESULTS OF OPERATIONS
From inception (February 10, 1987) through September 30, 1995, the Company's
revenue has consisted of (i) $3,600,000 of license fees and research and
development funding from January 1992 through June 1993 under the Company's
agreement with Alkermes, Inc.(ii) net interest income aggregating $1,205,000,
and (iii) $95,000 of grant revenue.
From inception (February 10, 1987) through September 30, 1995, the Company has
sustained losses aggregating $22 million. Continuing losses are anticipated over
the next several years, as the Company's ongoing operating expenses for
preclinical research and early clinical development will only be offset, if at
all, by licensing revenues under planned strategic alliances with larger
pharmaceutical companies that the Company is seeking for the later stages of
clinical development, manufacturing and marketing of its products. The nature
and timing of payments to Cortex under these planned strategic alliances, if and
as entered into, is likely to significantly affect the Company's operations, and
to produce substantial period-to-period fluctuations in reported financial
results. Over the longer term, the Company will be dependent upon successful
commercial development of its products by its prospective partners to attain
profitable operations from product royalties or other revenues based on product
sales.
The Company believes that inflation and changing prices have not had a material
impact on its ongoing operations to date.
The loss for the three-month period ended September 30, 1995 of $954,610
compares with a net loss of $1,455,885 for the corresponding prior year period.
Operating expenses were lower in the current year period primarily as a result
of expenses incurred during the three-month period ended September 30, 1994 in
connection with the commencement in October 1994 of human clinical testing,
along with a reduction in administrative and scientific personnel as of June 30,
1995.
Research and development expenses decreased from $1,074,401 to $665,478, or by
$408,923 (38%), during the three-month period ended September 30, 1995 compared
to the corresponding prior year period. The pre-clinical expenses incurred in
the prior year period contributed $215,000 of the decrease. A reduction in
employees in June 1995, a concomitant decrease in spending for laboratory
supplies and lower outlays for scientific consulting were partially offset by an
increase in patent expenses. General and administrative expenses decreased from
$426,296 to $323,444, or by $102,852 (24%) during the three-month period ended
September 30, 1995 compared to the corresponding prior year period. The decrease
was due to a decrease in full-time employees and related benefits, as well as
lower spending for consulting and investor and public relations activities.
PLAN OF OPERATIONS; LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1995, the Company had cash, cash equivalents and short-term
investments totaling $3.1 million and working capital of $2.6 million. In
comparison, as of September 30, 1994, the Company had cash, cash equivalents and
short-term investments of $7.9 million and working
Page 8 of 12
<PAGE>
capital of $7.3 million. The decreases resulted from amounts required to fund
operating losses, to purchase capital equipment and to construct a medicinal
chemistry laboratory. From inception (February 10, 1987) through September 30,
1995, net expenditures for furniture, equipment and leasehold improvements
aggregated $1.8 million.
Cortex has funded its organizational and research and development activities
primarily from the issuance of equity securities, with net proceeds from such
issuances from inception (February 10, 1987) through September 30, 1995
aggregating $24 million. An additional $3.6 million in research and license
payments was received from Alkermes, Inc. between January 1992 and June 1993 in
connection with a development and license agreement with that firm. Interest
income from inception through September 30, 1995, which approximates funds
received, was $1.2 million.
Cortex anticipates that its existing cash, cash equivalents and short-term
investments, combined with a modest amount of anticipated interest income, will
be sufficient to satisfy its capital requirements through June 30, 1996 under
current spending plans. The Company will require additional funds to continue
its operations beyond June 1996.
The Company is seeking collaborative or other arrangements with larger
pharmaceutical companies, under which such companies would provide additional
capital to the Company in exchange for exclusive or non-exclusive license or
other rights to certain of the technologies and products the Company is
developing. However, competition for such arrangements with major pharmaceutical
companies is intense, with a large number of biopharmaceutical companies
attempting to satisfy their funding requirements through such arrangements.
Accordingly, although the Company is presently engaged in discussions with a
number of candidate companies, there can be no assurance that an agreement or
agreements will arise from these discussions in a timely manner, or at all. The
Company is considering the possibility of raising additional capital through the
sale of debt or equity. If the Company proceeds with a debt or equity financing,
there can be no assurance that funds will be available on favorable terms, or
at all. If additional funds are raised by issuing equity securities, dilution to
existing stockholders is likely to result.
Over the next twelve months, the Company plans to conduct additional preclinical
and Phase I clinical studies on its AMPAKINE-TM- compounds. This planned
research is estimated to involve a twelve-month expenditure of approximately
$1.2 million. This amount includes approximately $550,000 of funding for
sponsored research in academic laboratories, to which the Company is commited
under various license, sponsored research and consulting agreements. The Company
does not plan significant purchases or sales of plant or equipment over the next
twelve months, nor significant changes to its complement of employees, except as
may be called for under corporate partnering agreements that may be entered
into. A workforce reduction of approximately twenty-five percent was effected in
June 1995. As of September 30, 1995, Cortex had 12 full-time employees and two
part-time employees.
As of September 30, 1995, Cortex had outstanding 110,000 shares of 9% cumulative
convertible preferred stock, which accrue cumulative dividends semi-annually at
an annual rate of $0.09 per share. To conserve capital for operations, the
Company has elected not to distribute the dividends that have accrued from June
15, 1990. Accrued and unpaid dividends as of September 30, 1995 were $54,450.
Page 9 of 12
<PAGE>
The Company leases approximately 30,000 square feet of research laboratory,
office and expansion space under an operating lease that expires on May 31,
1999, with an additional five-year option at 95% of the then fair market rental
rate. The commitments under the lease agreement for the years ending June 30,
1996, 1997, 1998 and 1999 are $192,000, $198,000, $203,000 and $192,000,
respectively. Minimum obligations have not been reduced by minimum sublease
rentals of $60,500 receivable during the year ending June 30, 1996 under a
noncancelable sublease.
The settlement of the license dispute with Alkermes, Inc. involved the issuance
by the Company of a $1,000,000 three-year promissory note accruing interest
semi-annually at the then federal funds rate. The Company also agreed to pay
Alkermes, Inc. a graduated royalty on calpain inhibitor development proceeds, as
defined and subject to certain limitations.
Over the longer term, Cortex will require substantial additional capital, which
it intends to raise through a combination of corporate partnering and financing
activities, to complete its development phase and, assuming that its proposed
products can be successfully developed and marketed, to make the transition to
profitable operations. There can be no assurance that the Company will be able
to enter into corporate partnering arrangements on favorable terms, or at all,
or that any such arrangements will reduce the Company's future funding
requirements. There can also be no assurance that any such arrangements that may
be entered into will continue. Additional equity or debt financings will be
required, and any equity financings are likely to cause dilution to then-
existing shareholders.
The Company's proposed products are in the preclinical or early clinical stage
of development and will require significant further research, development,
clinical testing and regulatory clearances. They are subject to the risks of
failure inherent in the development of products based on innovative
technologies. These risks include the possibilities that any or all of the
proposed products will be found to be ineffective or toxic, or otherwise fail to
receive necessary regulatory clearances, that the proposed products, although
effective, will be uneconomical to market, that third parties may now or in the
future hold proprietary rights that preclude the Company from marketing them, or
that third parties will market a superior or equivalent product. Accordingly,
the Company is unable to predict whether its research and development activities
will result in any commercially viable products or applications. Further, due to
the extended testing and regulatory review process required before marketing
clearance can be obtained, the Company does not expect to be able to
commercialize any therapeutic drug for at least five years, either directly or
through its corporate partners or licensees. There can be no assurance that the
Company's proposed products will prove to be safe or effective or receive
regulatory approvals that are required for commercial sale.
page 10 of 12
<PAGE>
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Board of Directors of the Company elected not to distribute the semi-annual
dividends that have accrued from June 15, 1990 on the Company's 9%
cumulative convertible preferred stock, in order to conserve capital for
operations. As of September 30, 1995, accrued and unpaid dividends on the 9%
cumulative convertible preferred stock were $54,450.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
-------------------------------------------------------------------------
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1995.
Page 11 of 12
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CORTEX PHARMACEUTICALS, INC.
November 3, 1995 By: /s/ D. Scott Hagen
---------------------------------------------
D. Scott Hagen
Acting President and Chief Operating Officer;
Vice President and Chief Financial Officer;
Corporate Secretary
(Principal Executive Officer; Principal
Financial and Accounting Officer)
Page 12 of 12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE BALANCE SHEET AS OF SEPTEMBER 30, 1995, AND THE RELATED STATEMENTS
OF OPERATIONS, STOCKHOLDER'S EQUITY AND CASH FLOWS FOR THE THREE
MONTHS THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 89,974
<SECURITIES> 2,972,598
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,103,850
<PP&E> 1,784,231
<DEPRECIATION> 913,386
<TOTAL-ASSETS> 3,998,354
<CURRENT-LIABILITIES> 507,507
<BONDS> 1,000,000<F1>
<COMMON> 6,160
0
196,810
<OTHER-SE> 2,279,926
<TOTAL-LIABILITY-AND-EQUITY> 3,998,354
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 988,922
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (954,610)
<INCOME-TAX> 0
<INCOME-CONTINUING> (954,610)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (954,610)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
<FN>
<F1> PROMISSORY NOTE ISSUABLE TO ALKERMES, INC.
</FN>
</TABLE>
