<PAGE>
As filed with the Securities and Exchange Commission on November ____, 1995
Registration No. 33-71894
- ------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
POST-EFFECTIVE AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT
under the Securities Act of 1933
----------------------------------
CORTEX PHARMACEUTICALS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 2834 33-0303583
(STATE OR JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
ORGANIZATION) CODE NUMBER)
15241 Barranca Parkway
Irvine, California 92718
(714) 727-3157
(ADDRESS AND TELEPHONE NUMBER
OF PRINCIPAL EXECUTIVE OFFICES
AND PRINCIPAL PLACE OF BUSINESS)
D. Scott Hagen
Acting President and Chief Operating Officer
15241 Barranca Parkway
Irvine, California 92718
(714) 727-3157
(NAME, ADDRESS AND
TELEPHONE NUMBER OF AGENT FOR SERVICE)
Copies to:
Nick E. Yocca, Esq.
Lawrence B. Cohn, Esq.
Stradling, Yocca, Carlson & Rauth
A Professional Corporation
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660
(714) 725-4000
---------------------
Approximate date of proposed sale to the public: From time to time after this
Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering:_____.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration for the
same offering:_____.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box:______.
<PAGE>
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: X .
---
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
_____________
<PAGE>
CORTEX PHARMACEUTICALS, INC.
CROSS REFERENCE SHEET
Showing Location in Prospectus of Information
Required by Items of Form SB-2
<TABLE>
<CAPTION>
Form SB-2 Item Number and Caption Prospectus Caption
- --------------------------------- ------------------
<S> <C>
1. Front of the Registration Statement
and Outside Front Cover Page of Prospectus . . . . . . . . . Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus . . . . . . . . . . . . . . . . . . . . . Inside Front Cover Page; Outside Back
Cover Page
3. Summary Information and Risk Factors . . . . . . . . . . . . . . Prospectus Summary; Risk Factors
4. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . Use of Proceeds
5. Determination of Offering Price . . . . . . . . . . . . . . . . Not Applicable
6. Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
7. Selling Security Holders . . . . . . . . . . . . . . . . . . . . Selling Stockholders
8. Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . Outside Front Cover Page; Plan of
Distribution
9. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . Business
10. Directors, Executive Officers, Promoters
and Control Persons . . . . . . . . . . . . . . . . . . . . . Management
11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . . Management; Certain Transactions;
Principal Stockholders
12. Description of Securities. . . . . . . . . . . . . . . . . . . . Outside Front Cover Page;
Capitalization; Description of Securi-
ties; Plan of Distribution
13. Interests of Named Experts and Counsel . . . . . . . . . . . . . Not Applicable
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities . . . . . . . Not Applicable
15. Organization Within Last Five Years . . . . . . . . . . . . . . Certain Transactions
16. Description of Business . . . . . . . . . . . . . . . . . . . . Business
17. Management's Discussion and Analysis
or Plan of Operation . . . . . . . . . . . . . . . . . . . . Management's Discussion and
Analysis of Financial Condition and
Operations
</TABLE>
<PAGE>
FORM SB-2 ITEM NUMBER AND CAPTION
<TABLE>
<CAPTION>
Prospectus Caption
---------------------------------
<S> <C>
18. Description of Property . . . . . . . . . . . . . . . . . . . . . Business
19. Certain Relationships and Related Transactions . . . . . . . . . Certain Transactions
20. Market for Common Equity and Related Stockholder Matters . . . . Prospectus Summary; Dividend Policy;
Price Range of Common Stock
21. Executive Compensation . . . . . . . . . . . . . . . . . . . . . Management
22. Financial Statements . . . . . . . . . . . . . . . . . . . . . . Financial Statements of the Company
23. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . Not Applicable
</TABLE>
- --------------
<PAGE>
PROSPECTUS
CORTEX PHARMACEUTICALS, INC.
1,350,000 Shares of Common Stock
(Par Value $0.001 Per Share)
This Prospectus relates to the sale of up to 1,350,000 shares (the "Shares")
of the common stock, par value $0.001 per share (the "Common Stock"), of
Cortex Pharmaceuticals, Inc. ("Cortex" or the "Company") by certain
stockholders of the Company (the "Selling Stockholders"). The Selling
Stockholders may sell the Shares from time to time in transactions in the
over-the-counter market, in negotiated transactions, by writing options on
the Shares or by a combination of these methods, at fixed prices that may be
changed, at market prices prevailing at the time of the sale, at prices
related to such market prices or at negotiated prices. The Selling
Stockholders may effect these transactions by selling the Shares to or
through broker-dealers, who may receive compensation in the form of discounts
or commissions from the Selling Stockholders or from the purchasers of the
Shares for whom the broker-dealers may act as an agent or to whom they may
sell as a principal, or both. See "Selling Stockholders" and "Plan of
Distribution."
The Company will not receive any part of the proceeds from the sale of the
Shares. The Selling Stockholders and such brokers-dealers may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, in
connection with such sales. The Company has agreed to bear all of the
expenses in connection with the registration and sale of the Shares (other
than underwriting discounts and selling commissions and the fees and expenses
of counsel or other advisors to the Selling Stockholders).
The Common Stock of the Company trades on the Nasdaq Small-Cap Market under
the symbol CORX. On November 1, 1995, as reported by Nasdaq, the high and low
sale prices of a share of Common Stock of the Company were $3-49/64 and
$3-3/4, respectively. See "Price Range of Common Stock."
SEE RISK FACTORS BEGINNING AT PAGE 5 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF
THE COMMON STOCK OFFERED HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER ______, 1995.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: 7 World Trade Center, 13th Floor, New York, New
York 10048; 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Reports and other information on the Company may be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.
This Prospectus constitutes part of a Registration Statement (the
"Registration Statement") on Form SB-2 under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the securities offered
hereby. For further information about the Company and the securities offered
hereby, reference is made to the Registration Statement and to the financial
statements and exhibits filed as a part thereof. The statements contained in
this Prospectus as to the contents of any contract or any other document are
not necessarily complete, and in each instance reference is made to the copy
of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement, including exhibits thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission as provided in the preceding paragraph, and copies of all or any
part thereof may be obtained from the Commission's Public Reference Section
at prescribed rates.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS. ALL SHARE AND PER SHARE DATA HAVE BEEN RESTATED
TO REFLECT A ONE-FOR-FIVE REVERSE STOCK SPLIT THAT WAS EFFECTED JANUARY 11,
1995. AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS."
THE COMPANY
Cortex Pharmaceuticals, Inc. ("Cortex" or the "Company") is a development
stage enterprise organized in 1987 to engage in the discovery and development
of innovative pharmaceuticals to treat age-dependent neurological diseases
and disorders. The primary product development effort at Cortex is centered
on the AMPA receptor, a complex of proteins that is involved in most
communication between nerve cells in the human brain. Cortex is developing a
family of chemical compounds, known as AMPAKINEs-TM-, that modulate the
normal biological activity of this receptor. Cortex believes that AMPAKINEs
hold great promise for correcting chemical imbalances brought on by a variety
of diseases and disorders that are known, or thought, to involve depressed
functioning of certain pathways in the brain. In October 1994, the Company
initiated human safety studies in Europe in healthy young volunteers with
CX516 (AMPALEX-TM-) for the potential treatment of deficits of memory and
cognition due to Alzheimer's disease, and recently reported that it had
observed positive effects on memory performance in the first Phase I study. A
second Phase I study in healthy elderly volunteers was initiated in June
1995. The Company plans to maintain a strong focus on AMPAKINEs, but also to
increase its research and development activities in the area of developing
pharmaceuticals to slow or halt the fundamental progression of Alzheimer's
disease. Cortex will also be seeking a corporate partnership with a larger
pharmaceutical company for joint development of its calpain inhibitor
products for the potential treatment of a variety of medical conditions,
which products were recently reacquired from Alkermes, Inc.
Cortex believes that its competitive advantage is the quality of its science
and technology, and that it can compete effectively with larger, more
established, better capitalized entities in the area of discovery of
innovative pharmaceuticals. The Company does not, however, have the resources
or expertise for later-stage clinical development, manufacturing and
worldwide marketing of major pharmaceuticals. The Company's commercial
development plans therefore involve partnering with larger pharmaceutical
companies for Phase II and later clinical testing, manufacturing and global
marketing of its proposed products, while attempting to retain the right to
eventually co-promote in the United States. If the Company is successful in
the pursuit of this strategy, it is intended that it will be in a position to
contain its costs over the next few years, to maintain its focus on the
research and early development of innovative pharmaceuticals, and to
eventually participate more fully in the commercial development of its
proposed products in the United States. Cortex is actively seeking
collaborative or licensing arrangements with larger pharmaceutical companies
that will permit its product candidates to be advanced into the later stages
of clinical development and that will provide access to the extensive
clinical trials management, manufacturing and marketing expertise of such
companies. There can be no assurance, however, that the Company will secure
such arrangements on favorable terms, or at all, or that its products will be
successfully developed and approved for marketing by government regulatory
agencies, or accepted by patients, health care providers and insurers.
Cortex was incorporated in Delaware on February 10, 1987. The Company's
offices and laboratories are located at 15241 Barranca Parkway, Irvine,
California, 92718, and its telephone number is (714) 727-3157.
AMPALEX-TM- and AMPAKINE-TM- are trademarks of Cortex Pharmaceuticals, Inc.
This Prospectus also includes registered trademarks of other companies.
RISK FACTORS
An investment in the Shares offered hereby involves a high degree of risk.
See "Risk Factors."
3
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected financial information set forth below is derived from and should
be read in conjunction with the more detailed financial statements (including
the notes thereto) appearing elsewhere in this Prospectus.
STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
(UNAUDITED)
PERIOD FROM PERIOD FROM
(UNAUDITED) INCEPTION INCEPTION
THREE MONTHS ENDED (FEBRUARY 10, (FEBRUARY 10,
SEPTEMBER 30, 1987) THROUGH YEARS ENDED JUNE 30, 1987) THROUGH
SEPTEMBER 30, JUNE 30,
-------------------------- -------------------------
1995 1994 1995 1995 1994 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues $ -- $ -- $ 3,694,717 $ -- $ 39,665 $ 3,694,717
Total operating expenses 988,922 1,500,697 26,915,261 7,031,842 5,007,650 25,926,339
----------- ------------ ------------ ------------ ------------ -------------
Loss from operations (988,922) (1,500,697) (23,220,544) (7,031,842) (4,967,985) (22,231,622)
Interest income, net 34,312 44,812 1,204,557 196,310 262,994 1,170,245
----------- ------------ ------------- ------------ ------------ -------------
Net loss $ (954,610) $(1,455,885) $(22,015,987) $(6,835,532) $(4,704,991) $(21,061,377)
----------- ------------ ------------- ------------ ------------ -------------
----------- ------------ ------------- ------------ ------------ -------------
Weighted average common
shares outstanding 6,086,804 6,073,942 6,075,454 4,880,338
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
Net loss per share $ (0.16) $ (0.24) $ (1.13) $ (0.97)
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
JUNE 30,
(UNAUDITED) ------------------------------
SEPTEMBER 30, 1995 1995 1994
------------------------------
<S> <C> <C> <C>
Total current assets $ 3,103,850 $ 3,931,448 $ 9,702,938
Total assets 3,998,354 4,886,372 10,441,998
Total current liabilities 507,507 603,660 720,367
Redeemable preferred stock -- -- 433,750
Deficit accumulated during the development stage (22,155,661) (21,201,051) (14,365,519)
Total stockholders' equity (1) $ 2,482,896 $ 3,272,696 $ 9,287,881
Common shares outstanding 6,159,855 6,085,201 6,073,942
</TABLE>
--------------------------
(1) See "Capitalization."
4
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY IS SPECULATIVE IN NATURE,
INVOLVES A HIGH DEGREE OF RISK, AND SHOULD NOT BE MADE BY ANY INVESTOR WHO
CANNOT AFFORD THE LOSS OF HIS ENTIRE INVESTMENT. EACH PROSPECTIVE INVESTOR
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS AND SPECULATIVE FACTORS, AS
WELL AS OTHERS DESCRIBED ELSEWHERE IN THIS PROSPECTUS, ASSOCIATED WITH THIS
OFFERING BEFORE MAKING AN INVESTMENT.
NEED FOR ADDITIONAL FUNDS. Cortex anticipates that its existing capital
resources will enable it to maintain its current and planned operations
through June 1996. The Company will require additional funds to continue its
operations beyond June 1996. There can be no assurance that the Company will
be able to obtain the additional needed funds on reasonable terms, or at all,
particularly in light the the Company's current lack of a permanent Chief
Executive Officer. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
LACK OF PERMANENT CHIEF EXECUTIVE OFFICER. Alan A. Steigrod resigned as
President and Chief Executive Officer of the Company effective October 31,
1995. A Board committee consisting of Jerome M. Arnold and Davis L. Temple,
Jr., Ph.D., both directors of Cortex, was created by the Board of Directors
to serve as the Office of Chief Executive, and D. Scott Hagen, Vice President
and Chief Financial Officer, was appointed as Acting President and Chief
Operating Officer. The Board has appointed a search committee to identify and
recruit, with the assistance of a retained executive search firm, a permanent
Chief Executive Officer for the Company. The lack of a permanent Chief
Executive Officer may impair the Company's ability to secure larger
pharmaceutical company partners for the development of its products and to
raise additional needed capital.
DEVELOPMENT STAGE COMPANY; HISTORY OF LOSSES. Cortex is a development stage
enterprise. From inception on February 10, 1987 through September 30, 1995,
the Company has generated only modest operating revenues and has incurred net
losses aggregating $22,015,987. As of September 30, 1995, the Company had an
accumulated deficit of $22,155,661. The Company will require substantial
additional funds to advance its research and development programs,
particularly should the Company decide to independently conduct later-stage
clinical testing and apply for regulatory approval of any of its proposed
products. There can be no assurance that such additional financing will be
available on acceptable terms, or at all. If additional funds are raised by
issuing equity securities, further dilution to existing stockholders may
result. If the Company is unable to obtain additional funds when and as
needed, the Company may be required to significantly curtail one or more of
its product development programs. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business."
TECHNOLOGICAL UNCERTAINTY; EARLY STAGE OF PRODUCT DEVELOPMENT; NO ASSURANCE
OF REGULATORY APPROVALS. 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 are 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. See "Business."
DEPENDENCE ON THIRD PARTIES FOR CLINICAL TESTING, MANUFACTURING AND
MARKETING. The Company does not have the resources, and does not presently
intend, to conduct later-stage human clinical trials or to manufacture any of
its proposed products. The Company is therefore seeking larger pharmaceutical
company partners to conduct such activities for most or all of its proposed
products. In connection with its efforts to secure corporate partners, the
Company will seek to retain certain co-promotional rights to its proposed
products, so that it may promote such products to selected medical
specialists while its corporate partner promotes to the general medical
market. There can be no assurance that the Company will be able to enter into
any such partnering arrangements on this or any other basis. In addition,
there can be no assurance that either the Company or its prospective
corporate partners can successfully introduce its proposed products, that
they will achieve acceptance by patients, health care providers and insurance
companies, or that they can be manufactured and marketed at prices that would
permit the Company to operate profitably. See "Business."
5
<PAGE>
DEPENDENCE ON RELATIONSHIPS WITH KEY CONSULTANTS AND THE UNIVERSITY OF
CALIFORNIA, IRVINE. The Company is highly dependent upon its relationships
with a number of key academic consultants, particularly Drs. Carl W. Cotman
and Gary S. Lynch of the University of California, Irvine ("UCI"). Drs.
Cotman and Lynch play an important role in guiding the internal research of
the Company. In addition, Cortex sponsors research in the laboratories of Dr.
Lynch at UCI that is an important component of the Company's product
development and corporate partnering profile. The sponsored research is
highly technically demanding and involves the use of expensive equipment,
much of it custom-built, that is the property of UCI. Were Cortex's
relationships with Dr. Lynch or UCI to be disrupted, it is likely that the
Company's AMPA receptor research program would be adversely affected, and
there is no assurance that the Company would be able to conduct the sponsored
research internally at reasonable cost, or at all. The Company's agreements
with its consultants, including those with Drs. Cotman and Lynch, are
generally terminable by the consultant on short notice. The loss of services
of certain of these individuals, and particularly Dr. Lynch, could have a
material adverse effect on the Company. See "Management."
LIMITED PROPRIETARY RIGHTS; LACK OF PATENT PROTECTION. Since its initial
public offering in July 1989, the Company has negotiated technology rights
agreements giving it exclusive rights to its proposed cognition enhancement
products and calpain inhibitor products under patents or patent applications
owned wholly by other parties or by other parties as co-owners with the
Company. The Company also holds options or other rights to obtain exclusive
licenses under patent applications relating to certain of its potential
products. Certain of the Company's licenses and other agreements are
terminable if the Company does not make certain minimum annual payments, meet
certain milestones or diligently seek to commercialize the underlying
technology. In addition, the Company's related collaborative and consulting
agreements are generally terminable upon 30 to 60 days' written notice.
There can be no assurance that current or future patent applications in which
Cortex has an interest, either as sole owner or as a current or prospective
licensee, will result in patents being issued. There can also be no assurance
that patents issuing in the future in connection with current or future
patent applications will afford effective protection against competitors with
similar technology, or that any patents issued or licensed to Cortex will not
be infringed upon or designed around by others.
If Cortex is unable to obtain protection of its proprietary rights in its
products or processes prior to or after obtaining regulatory clearances,
whether through patents, trade secrets or otherwise, competitors may be able
to market competing products by obtaining regulatory clearance through
demonstration of equivalency to the Company's products, without being
required to conduct the same lengthy clinical tests conducted by the Company.
In some cases, Cortex may rely on trade secrets to protect its innovations.
There can be no assurance that secrecy obligations will be honored or that
others will not independently develop similar or superior technologies. To
the extent that consultants, key employees or other third parties apply
technological information independently developed by them or by others to the
Company's projects, disputes may arise as to the proprietary rights to such
information that may not be resolved in favor of the Company. See "Business--
Patents and Proprietary Rights."
COMPETITION. The Company's business is characterized by intensive research
efforts. Many companies, research institutes and universities are working in
a number of pharmaceutical or biotechnology disciplines to develop
therapeutic products similar to those under investigation by the Company.
Most of these companies, research institutes and universities have
substantially greater financial, technical, manufacturing, marketing,
distribution and/or other resources than Cortex. In addition, many of such
companies have experience in undertaking human clinical trials of new or
improved therapeutic products and obtaining FDA and other regulatory
clearances of products for use in human health care. The Company has no
experience in conducting and managing clinical testing or in preparing
applications necessary to gain regulatory clearances. Accordingly, other
companies may succeed in developing products that are safer or more effective
than those proposed to be developed by the Company and in obtaining FDA
clearances for such products more rapidly than the Company. Further, it is
expected that competition in this field will continue to intensify over the
next few years. See "Business--Competition."
DEPENDENCE UPON KEY PERSONNEL. Cortex is highly dependent upon key
management and technical personnel. Competition for qualified employees among
pharmaceutical and biotechnology companies is intense, and the loss of any of
such persons, or an inability to attract, retain and motivate the additional
highly-skilled employees and consultants required for the Company's
activities, could materially adversely affect its business and prospects.
There can be no assurance that Cortex will be able to retain its existing
personnel or attract additional qualified employees when they are needed. See
"Business" and "Management."
6
<PAGE>
GOVERNMENT REGULATION. Therapeutic products such as those proposed to be
developed by Cortex are subject to an extensive and lengthy regulatory review
and approval process by the FDA and comparable agencies in other countries.
Prior to commercialization, the Company's products will require governmental
approvals that have not yet been obtained and that are not expected to be
obtained for several years, if at all. The regulatory process, which includes
pre-clinical, clinical and post-clinical testing of the Company's products to
establish their safety and efficacy, will take many years and require the
expenditure of substantial resources. There can also be no assurance that,
even after such time and expenditures, regulatory clearances will be obtained
for any of the Company's products. Even if regulatory clearances are
obtained, a marketed product is subject to continual review, and later
discovery of previously unknown problems may result in restrictions on
marketing or withdrawal of the product from the market. In addition, the
current administration in the U.S. is proposing changes in federal regulation
and reimbursement policies intended to facilitate the delivery of
cost-effective health care. The implementation of such proposed changes may
affect the regulation and availability of, and the pricing and reimbursement
for, health care products. The Company is unable to predict the effect, if
any, that these proposed changes will have on the Company. See "Business--
Government Regulation."
PRODUCT LIABILITY AND INSURANCE. The clinical testing, manufacturing and
marketing of the Company's products may expose the Company to product
liability claims. Cortex maintains liability insurance with coverage limits
of $5 million per occurrence and $5 million in the annual aggregate. Although
the Company has never been subject to a product liability claim, there can be
no assurance that the coverage limits of the Company's insurance policies
will be adequate or that one or more successful claims brought against the
Company would not have a material adverse effect upon the Company's business,
financial condition and results of operations.
LIMITED PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE; SHARES ELIGIBLE
FOR FUTURE SALE. The Company's Common Stock has been publicly traded since
July 1989. Although the Company currently has approximately 20 market makers,
there can be no assurance that an active or established trading market for
the Company's Common Stock will be maintained. The Company's Common Stock
currently trades on the Nasdaq Small Cap Market. There can be no assurance
that the Company's Common Stock will continue to be traded on the Nasdaq
Small Cap Market.
There is significant volatility in the market price of securities of life
sciences companies generally, and the trading price of the Company's Common
Stock has been subject to wide fluctuations. See "Price Range of Common
Stock." Various factors and events, including announcements by the Company or
its competitors concerning technological innovations, new products, proposed
governmental regulations or actions, developments or disputes relating to
patents or proprietary rights and public concern over the safety of
therapeutic products or other factors that affect the market generally, may
have a significant impact on the Company's business and on the market price
of the Company's securities.
If all outstanding warrants and options are exercised prior to their
expiration, approximately 3,000,000 additional shares of Common Stock could
become freely tradeable without restriction under the Securities Act. See
"Description of Securities." Sales of substantial amounts of Common Stock in
the public market could adversely affect the prevailing market price of the
Common Stock.
DIVIDENDS. The Company has not paid cash dividends on its Common Stock and
does not anticipate doing so in the foreseeable future. The Company may not
pay any dividends on its Common Stock until accrued and unpaid dividends on
the 9% Preferred Stock have been paid in full. As of September 30, 1995,
accrued and unpaid dividends on the 9% Preferred Stock were $54,450. See
"Dividend Policy."
ANTI-TAKEOVER PROVISIONS. The Board of Directors has the authority, without
further approval of the Company's stockholders, to issue up to 550,000 shares
of Preferred Stock having such rights, preferences and privileges as the
Board of Directors may determine. Any such issuance of additional shares of
Preferred Stock could, under certain circumstances, have the effect of
delaying or preventing a change in control of the Company and may adversely
affect the rights of holders of Common Stock. See "Description of Securities."
USE OF PROCEEDS
The proceeds from the sale of each Selling Stockholder's Shares will belong
to the Selling Stockholders. The Company will not receive any of the proceeds
from such sales of the Shares.
7
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock (Nasdaq symbol: "CORX") began trading publicly in the
over-the-counter market on July 18, 1989. The following table presents
quarterly information on the high and low sale prices of the Common Stock for
the fiscal years ended June 30, 1995 and 1994, and thereafter, as reported by
Nasdaq. These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, may not represent actual transactions and have been
adjusted for a one-for-five reverse stock split that became effective January
11, 1995.
<TABLE>
<CAPTION>
FISCAL YEAR ENDING JUNE 30, 1996 HIGH LOW
---- ----
<S> <C> <C>
Second Quarter (through November 1, 1995). . . . . . . $5-17/32 $3-5/8
First Quarter. . . . . . . . . . . . . . . . . . . . . 6-3/8 2-7/8
FISCAL YEAR ENDED JUNE 30, 1995
Fourth Quarter . . . . . . . . . . . . . . . . . . . . 3-3/4 2-1/2
Third Quarter. . . . . . . . . . . . . . . . . . . . . 3-3/4 1-5/8
Second Quarter . . . . . . . . . . . . . . . . . . . . 5-5/32 3-1/8
First Quarter. . . . . . . . . . . . . . . . . . . . . 5-5/16 3-3/4
FISCAL YEAR ENDED JUNE 30, 1994
Fourth Quarter . . . . . . . . . . . . . . . . . . . . 8-1/8 4-11/16
Third Quarter. . . . . . . . . . . . . . . . . . . . . 10-5/16 6-7/8
Second Quarter . . . . . . . . . . . . . . . . . . . . 14-1/16 7-13/16
First Quarter. . . . . . . . . . . . . . . . . . . . . 12-13/16 6-7/8
</TABLE>
As of October 25, 1995, there were 607 stockholders of record of the Company's
Common Stock, and approximately 7,400 beneficial owners. The last sale
price of the Company's Common Stock on November 1, 1995, as reported by
Nasdaq, was $3-3/4.
DIVIDEND POLICY
The Company has never paid cash dividends on the Common Stock and does not
anticipate paying such dividends in the foreseeable future. The Company
currently intends to retain any future earnings for use in the Company's
business. The outstanding shares of 9% Preferred Stock bear a fixed dividend
of $0.09 per share per annum, which accrues in equal semiannual installments
on June 15 and December 15 of each year, which dividends must be paid in full
before any dividends can be paid on the Common Stock. As of September 30,
1995, accrued and unpaid dividends on the 9% Preferred Stock were $54,450.
The payment of future dividends, if any, will be determined by the Board of
Directors in light of conditions then existing, including the Company's
financial condition and requirements, future prospects, restrictions in
financing agreements, business conditions and other factors deemed relevant
by the Board of Directors.
8
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1995. The figures are unaudited, and this table should be read
in conjunction with the financial statements (including the notes thereto)
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
September 30,1995 (1)
--------------------
<S> <C>
Note payable issuable to Alkermes, Inc. $ 1,000,000
Stockholders' equity:
9% cumulative convertible preferred stock,
$0.001 par value; $1.00 per share liquidation
preference; authorized: 1,250,000 shares;
issued and outstanding: 370,000 shares 110,000
Series B convertible preferred stock, $0.001 par
value; $0.6667 per share liquidation preference;
authorized: 3,200,000 shares; issued and
outstanding: 525,000 shares 86,810
Common stock, $0.001 par value; authorized
20,000,000 shares; issued and outstanding:
6,085,201 shares 6,160
Additional paid-in capital 24,573,281
Deferred compensation (131,220)
Unrealized loss on available for sale
U.S. Government securities (6,474)
Deficit accumulated during the development stage (22,155,661)
-------------
Total stockholders' equity 2,482,896
-------------
Total capitalization $ 3,482,896
-------------
-------------
</TABLE>
- --------------
(1) Excludes an aggregate of 3,001,410 shares of Common Stock reserved for
issuance upon possible exercise of outstanding warrants and options and
an aggregate of 29,384 shares of Common Stock reserved for issuance
upon conversion of outstanding preferred stock. See "Description of
Securities" and Notes 3, 4 and 5 of Notes to Financial Statements.
9
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data with respect to the Company presented below for
the fiscal years ended and as of June 30, 1995 and 1994 and the period from
inception (February 10, 1987) through June 30, 1995 are derived from and
should be read in conjunction with the more detailed financial statements
(including the notes thereto) of the Company, which have been audited by
Ernst & Young LLP, independent auditors, whose report thereon is included
elsewhere herein and in the Registration Statement. The selected financial
data for the years ended and as of June 30, 1993, 1992 and 1991 is derived
from audited financial statements that are not included in this Prospectus.
The selected financial data for the three-month periods ended September 30,
1995 and 1994 and the period from inception (February 10, 1987) through
September 30, 1995 are derived from unaudited interim financial statements.
The unaudited interim financial statements include all adjustments
(consisting only of normally recurring accruals) that management considers
necessary for a fair presentation of the Company's financial position and
results of operations for the periods presented. Operating results for the
three-month period ended September 30, 1995 are not necessarily indicative of
the results that may be expected for the fiscal year ending June 30, 1996.
STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Period from
inception
(February 10,
1987) through
Years ended June 30, June 30,
------------------------------------------------------------------------
1995 1994 1993 1992 1991 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Research/license revenue (1) $ -- $ -- $ 2,600,000 $ 1,000,000 $ -- $ 3,600,000
Grant revenue -- 39,665 10,103 -- 33,712 94,717
------------ ------------ ------------ ------------ ------------ ------------
Total operating revenues -- 39,665 2,610,103 1,000,000 33,712 3,694,717
------------ ------------ ------------ ------------ ------------ ------------
Operating expenses:
Research & development 4,138,731 3,226,858 2,316,622 2,284,283 1,917,857 16,291,535
General & administrative 1,665,134 1,780,792 1,101,134 1,164,148 865,722 8,406,827
Settlement with Alkermes, Inc. 1,227,977 -- -- -- -- 1,227,977
------------ ------------ ------------ ------------ ------------ ------------
Total operating expenses 7,031,842 5,007,650 3,417,756 3,448,431 2,783,579 25,926,339
------------ ------------ ------------ ------------ ------------ ------------
Loss from operations (7,031,842) (4,967,985) (807,653) (2,448,431) (2,749,867) (22,231,622)
Interest income, net 196,310 262,994 46,117 93,661 155,899 1,170,245
------------ ------------ ------------ ------------ ------------ ------------
Net loss $(6,835,532) $(4,704,991) $(761,536) $(2,354,770) $(2,593,968) $(21,061,377)
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Weighted average common
shares outstanding 6,075,454 4,880,338 3,147,204 2,753,754 2,617,111
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Net loss per share $ (1.13) $ (0.97) $(0.26) $(0.88) $(1.02)
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
Period from
inception
Three months ended (February 10,
September 30, 1987) through
------------------------------------ September 30
1995 1994 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues:
Research/license revenue (1) $ -- $ -- $ 3,600,000
Grant revenue -- -- 94,717
-------------- -------------- ------------
Total operating revenues -- -- 3,694,717
-------------- -------------- ------------
Operating expenses:
Research & development 665,478 1,074,401 16,957,013
General & administrative 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>
- -----------------------
(1) Received under an agreement with Alkermes, Inc.
10
<PAGE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
June 30,
September 30, 1995 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Working capital $2,596,343 $3,327,788 $ 8,982,571 $ 888,199 $1,245,987 $2,039,240
Total assets 3,998,354 4,886,372 10,441,998 1,924,856 3,095,641 3,296,206
Total liabilities and
redeemable preferred stock 1,515,458 1,613,676 1,154,117 788,392 1,560,218 1,323,326
Deficit accumulated during
the development stage (22,155,661) (21,201,051) (14,365,519) (9,660,528) (8,882,992) (6,504,980)
Stockholders' equity (deficit) $2,482,896 $3,272,696 $ 9,287,881 $1,136,464 $1,535,423 $1,972,880
Common shares outstanding 6,159,855 6,085,201 6,073,942 3,209,975 3,047,438 2,632,994
</TABLE>
11
<PAGE>
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 (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE HEREIN.
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. ("Alkermes", see Note 6 of Notes to Financial
Statements), (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 $22,015,987. 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
fluctuation 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.
FISCAL YEARS ENDED JUNE 30, 1995 AND 1994
For the year ended June 30, 1995, the Company's net loss of $6,836,000
compares with a net loss of $4,705,000 for the prior year. The settlement of
the dispute with Alkermes (see Note 6 of Notes to Financial Statements)
accounted for $1,228,000 of the increase in the net loss over the prior year.
The balance of the increase was due to higher expenditures for research and
development, from initiation of human clinical studies, partially offset by a
decrease in general and administrative expenses.
General and administrative expenses decreased to $1,665,000, or by 6%, in the
year ended June 30, 1995. This decrease was the result of lower outlays for
investor and public relations activity and decreased stock option
compensation expense, partially offset by increases in consulting expenses
related to the Company's corporate partnering efforts.
Research and development expenses increased to $4,139,000, or by 28%, in the
year ended June 30, 1995. The increase was due to the commencement of Phase I
human clinical testing of AMPALEX-TM- for the potential treatment of memory
deficits due to Alzheimer's disease, as well as higher outlays for
sponsorship of research in academic laboratories, for scientific consulting,
and for the filing and prosecution of patent applications.
THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994
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
performed 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 costs. 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
12
<PAGE>
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 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 between January 1992 and June 1993 in
connection with the development and license agreement with that firm (see
Note 6 of notes to financial statements). 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 equity. If the Company proceeds with
an equity or debt financing, there that 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 committed 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 such 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 semiannual
dividends 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.
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 (see "Legal Proceedings"
and Note 6 of notes to financial statements) required the Company to issue a
$1,000,000 non-transferable, three-year promissory note accruing interest
semi-annually
13
<PAGE>
at the then federal funds rate. The Company also agreed to pay Alkermes 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, 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 are 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.
14
<PAGE>
BUSINESS
OVERVIEW
Cortex Pharmaceuticals, Inc. ("Cortex" or the "Company") is a development
stage enterprise organized in 1987 to engage in the discovery and development
of innovative pharmaceuticals to treat age-dependent neurological diseases
and disorders. The primary product development effort at Cortex is centered
on the AMPA receptor. Receptors are complexes of proteins that are involved
in most of the communication between nerve cells in the human brain. Cortex
is developing a family of chemical compounds, known as AMPAKINEs-TM-, that
modulate the normal biological activity of this receptor. Cortex believes
that AMPAKINEs hold great promise for correcting chemical imbalances brought
on by a variety of diseases and disorders that are known, or thought, to
involve depressed functioning of certain pathways in the brain. In October
1994, the Company initiated human safety studies in Europe in healthy young
volunteers with CX516 (AMPALEX-TM-) for the potential treatment of deficits of
memory and cognition due to Alzheimer's disease, and recently reported that
it had observed positive effects on memory performance in the first Phase I
study. A second Phase I study in healthy elderly volunteers was initiated in
June 1995. The Company plans to maintain a strong focus on AMPAKINEs, but also
to increase its research and development activities in the area of developing
pharmaceuticals to slow or halt the fundamental progression of Alzheimer's
disease. Cortex will also be seeking corporate partnerships with
biotechnology or pharmaceutical companies for joint development of its
calpain inhibitor products for the potential treatment of a variety of
medical conditions, which products were recently reacquired from Alkermes,
Inc. In the fiscal years ended June 30, 1995 and 1994, the Company's
expenditures on research and development were $4,138,731 and $3,226,858,
respectively, with the bulk of the increase attributable to the initiation of
human clinical testing of AMPALEX.
INTRODUCTION TO THE CENTRAL NERVOUS SYSTEM
The human brain contains some 10 billion nerve cells, or neurons, each of
which has connections with many other neurons. Sensory, motor and cognitive
activities are all governed by this complex network of neurons, each member
of which communicates with other neurons across junctions known as
"synapses." A synapse is the region where an output arm of one neuron comes
into very close proximity to an input arm of the next neuron. As the brain
functions, electrical signals pass down the long output arms, known as axons,
of the neurons sending the signal, eventually reaching a synapse. At the
synapse, communication involves chemical "messengers" known as
neurotransmitters, which are released by the sending neuron, diffuse across a
small gap, and bind to corresponding receptors on the receiving neuron. In
the majority of synapses, if enough neurotransmitter is present, the
receptors open and allow current, in the form of ions, to flow into the
receiving neuron. This flow of current triggers subsequent biological events,
which may include electrical propagation of the signal by the receiving
neuron to the next neuron in the pathway.
Much of the progress in neuropharmacology that has been made in the last
several decades is due to an enhanced understanding of the molecular events
that are involved in synaptic transmission. This understanding has led to
innovative pharmaceuticals that modulate these molecular events in a
therapeutically useful manner. Valium-Registered Trademark- and
Xanax-Registered Trademark-, for example, act by affecting synaptic
transmission involving a receptor called the GABA receptor, while
Prozac-Registered Trademark- acts by affecting neurotransmission that
utilizes a neurotransmitter known as serotonin. Abnormal neuronal
communication has been implicated in a range of psychiatric and neurological
disorders, including memory deficits, schizophrenia, depression, anxiety and
eating disorders. Cortex's primary drug development program focuses on
AMPAKINEs, which modulate the activity of a receptor known as the AMPA
receptor, one of the receptors for the neurotransmitter glutamate. The
Company believes that modulation of the AMPA receptor is a very promising
approach for the prospective treatment of a range of neurological conditions,
particularly deficits of memory and cognition.
Our understanding of degenerative processes in the brain has also advanced.
The molecular events that are involved in acute neurodegenerative disorders,
such as stroke, are now fairly well understood. Cortex's calpain inhibitors,
for example, act by interfering with an enzyme, calpain, that is believed to
play an important role in the destruction of neurons following a stroke.
Other approaches to the treatment of acute neurodegeneration under
investigation by other companies also involve defined molecular targets --
approaches such as the use of NMDA antagonists or free radical scavengers.
Chronic neurodegeneration, such as is seen with Alzheimer's disease, remains
less well understood, but rational targets for intervention with innovative
pharmaceuticals are beginning to emerge, and many drug companies have active
programs
15
<PAGE>
that are likely to lead to the emergence of viable therapeutic candidates for
slowing or halting the progression of chronic neurodegenerative disorders.
BUSINESS STRATEGY
FOCUS ON LARGE, UNDER-SERVED MARKETS
Each of Cortex's drug discovery and development programs addresses a large
potential market. The Company intends to maintain its focus on the
development of products for presently unserved or under-served markets that
have the potential for a substantial rate of return if such products can be
successfully developed and marketed.
FOCUS ON DISCOVERY AND EARLY CLINICAL DEVELOPMENT
Cortex believes that its competitive advantage is the quality of its science
and technology, and that it can compete effectively with larger, more
established, better capitalized entities in the area of discovery of
innovative pharmaceuticals. The Company does not, however, have the resources
or expertise for later-stage clinical development, manufacturing and
worldwide marketing of major pharmaceuticals. The Company's commercial
development plans therefore involve partnering with larger pharmaceutical
companies for Phase II and later clinical testing, manufacturing and global
marketing of its proposed products, while attempting to retain the right to
eventually co-promote in the United States. If the Company is successful in
the pursuit of this strategy, it is intended that it will be in a position to
maintain its focus on the research and early development of innovative
pharmaceuticals, yet contain its costs over the next few years, and to
eventually participate more fully in the commercial development of its
proposed products in the United States. Cortex is actively seeking
collaborative or licensing arrangements with larger pharmaceutical companies
that will permit its product candidates to be advanced into the later stages
of clinical development and that will provide access to the extensive
clinical trials management, manufacturing and marketing expertise of such
companies. There can be no assurance, however, that the Company will secure
such arrangements on favorable terms, or at all, or that its products will be
successfully developed and approved for marketing by government regulatory
agencies, or accepted by patients, health care providers and insurers.
MAINTAIN A COMPETITIVE POSITION
Cortex will seek to maintain a competitive position in its field by:
/ / actively seeking out new drug development opportunities, both with
internal efforts and through its active network of academic consultants,
/ / out-sourcing functions that can be performed more cost effectively than
internally, e.g. sponsoring highly technically demanding research in
academic specialty laboratories and using contract research organizations
and consultants to oversee clinical testing,
/ / licensing out technology and potential products that are not core to the
business focus, and
/ / protecting core technologies through an ongoing investment in patent
filing, prosecution and maintenance.
16
<PAGE>
PRODUCT RESEARCH AND DEVELOPMENT
<TABLE>
<CAPTION>
PROGRAM OVERVIEW
- --------------------------------------------------------------------------------------------------
AREA/INDICATION AND STATUS (1) PHARMACOLOGICAL ACTION/TARGET
- --------------------------------------------------------------------------------------------------
<S> <C>
AMPAKINE program for AMPA Receptor Modulation 1. Enhancement of current flow
through the AMPA subtype of
Alzheimer's disease -- Phase I testing in Europe glutamate receptor.
Age-associated memory deficits -- Pre-clinical (2) 2. Maintenance of excitatory
Schizophrenia -- Pre-clinical (2) input in degenerative disorders.
Other indications -- Research (3) and Discovery (4)
- --------------------------------------------------------------------------------------------------
Alzheimer's disease program -- Research (3) Interference with receptor-based
events thought to be involved in
progression of the disease.
- --------------------------------------------------------------------------------------------------
Calpain inhibitor program
Cerebral vasospasm -- Research (3) Inhibition of the activity of the
Stroke -- Research (3) proteolytic enzyme calpain.
Other indications -- Discovery (4)
- --------------------------------------------------------------------------------------------------
Spectrin Breakdown Product Assay -- Research tool Patented assay for detecting neuro-
degeneration and identifying neuro-
protective agents.
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) The government regulatory approval process requires many steps, and very
substantial expenditures of time and money, before a product can, if ever,
be approved for marketing. See "Government Regulation."
(2) "Pre-clinical" means that a reliable effect has been observed with lead
compounds in at least one model system that the Company believes is relevant
to the disease state. The lead compounds may require structural modification
and/or more extensive evaluation prior to the selection of candidates, if
any, for further pre-clinical development.
(3) "Research" means that reliable effects in model systems have been observed,
but the relevance of the model systems utilized to the disease state is less
clear, or the compounds for which the effects were seen are inappropriate
as lead compounds for a directed synthesis program.
(4) "Discovery" means that the Company believes that the pharmacological effect
is relevant to a disease state and is conducting or plans to conduct
research into underlying mechanisms and to attempt to demonstrate effects
in model systems where these are available.
AMPA RECEPTOR PROGRAM
Cortex's primary product development effort is centered on the AMPA receptor,
a subtype of receptor for the neurotransmitter glutamate, which is
responsible for the bulk of excitatory neurotransmission in mammalian
forebrain. Cortex is developing a new family of low-molecular weight
pharmaceuticals (AMPAKINEs) that enhance the flow of current through the AMPA
receptor in response to the binding of glutamate. The Company believes that
AMPAKINEs, or similar compounds, will eventually find widespread utility in
the treatment of neurological diseases and disorders characterized by
depressed functioning of brain pathways that utilize glutamate as a
neurotransmitter. Diseases and disorders that may benefit from AMPA
receptor-directed therapeutics include Alzheimer's disease and schizophrenia.
AMPAKINEs act by binding to a modulatory site on the AMPA receptor. Many
years of research by Dr. Gary Lynch, a Cortex founder, and more recently by
others, have established that the AMPA receptor is intimately involved in the
formation of certain types of memory. This involvement is manifested at the
molecular level through a process known as long-term potentiation ("LTP").
LTP can be thought of as a relatively long-lived change to a synapse that
makes it easier for subsequent communication involving that synapse to take
place. When AMPAKINE is bound to the AMPA receptor, more current flows in
response to the binding of glutamate, and LTP becomes easier to induce. The
practical implication
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is that acquisition of new memories should be easier, and memories that are
formed should be more stably encoded. These effects have now been thoroughly
demonstrated in animal tests in a number of independent laboratories.
AMPA receptors are also involved in most "excitatory" communication in the
cerebral cortex, which is the part of the brain that is involved in higher
functions such as learning, reasoning and memory. As mentioned above,
AMPAKINEs interact with the AMPA receptor and increase current flow in
response to the binding of glutamate. They do not mimic the effect of
glutamate, but rather they increase the response to it when it is released at
nerve terminals as the brain goes about its normal activity. The
amplification provided by AMPAKINEs is selective to the circuits that are
already active when, for example, a new task is being learned, in much the
same way that a hearing aid amplifies only sounds that are already present.
Furthermore, the amplification appears to be magnified in circuits that
involve multiple neurons, where Neuron A causes Neuron B to fire, Neuron B
causes Neuron C to fire, and so on. AMPAKINEs exert their effect on current
flow at each synapse in the chain -- as a result, the amplification caused by
the drugs in a complex circuit is substantially greater than that which is
seen across a single synapse. The more complex, multi-neuronal type of
circuit tends to be associated with higher brain functions that are primarily
localized in the cerebral cortex. For this reason, Cortex believes that
AMPAKINEs may someday find utility beyond the treatment of memory deficits.
They have already been shown to have a beneficial effect in a standard
preclinical model of schizophrenia.
DEFICITS OF MEMORY AND COGNITION
Impairment of memory and cognition is becoming a very serious problem as the
elderly proportion of the population continues to increase. While not fatal
(except when associated with diseases such as Alzheimer's disease) the
incidence and prevalence of cognitive deficits increase inexorably with age.
According to a General Accounting Office study, in 1985 approximately
3,900,000 Americans had deficits severe enough to greatly interfere with
daily activity. Many elderly individuals are confined to nursing homes
because of psychological disorientation and functional difficulties.
According to a 1985 survey of nursing homes conducted by the National Center
for Health Statistics, over half of the individuals in nursing homes have
some degree of cognitive impairment. Pharmaceuticals to alleviate deficits in
memory and cognition could potentially enable many of the elderly to remain
independent longer and to enjoy life well into and beyond their eighties.
Memory is not located in a specific area of the brain, but rather becomes
established in multiple areas of the brain that are involved with different
types of sensory information. The prevailing scientific theory is that the
brain deals with new information by constructing electrochemical and
structural frameworks to put the information into some sort of context. Most
of this processing, at least three-fourths of which is taken up with complex
activities often referred to as "associations," appears to be handled in the
cerebral cortex. The cerebral cortex is where the brain generates thoughts,
language and plans, controls sensations and voluntary movements, evokes
imagination, and stores certain types of permanent memory.
Substantial scientific evidence points to a long-lasting change -- known as
"long-term potentiation," or LTP -- in synapses (junctions between neurons) as
the basis of many types of memory, including memory residing in the cerebral
cortex. Long-term potentiation involves a series of chemical reactions that
creates a more stable information transfer point between neurons.
Experimental disruption of these chemical reactions in lower animals has been
shown to cause a disruption of memory acquisition. In an important experiment
with mice, a single genetic change was made to prevent the production of a
protein involved in long-term potentiation. When the mice were tested, they
were unable to learn to swim out of a maze that required them to remember
spatial cues.
Although disease and physiological malfunctions are thought to be the
fundamental cause of severe mental decline, age itself is a contributory
factor. The human brain loses about 10% of its weight over a normal life
span. In the cerebral cortex, a great deal of the communication between
neurons is mediated by receptors for the neurotransmitter glutamate,
including a subtype usually designated as AMPA receptors (which are involved
in long-term potentiation). AMPA receptors and synapses decline in number
with aging, making it more difficult for information to pass through and
between areas of the cerebral cortex. A potential corrective approach to
alleviate age-related cognitive deficits is therefore to develop novel
compounds to enhance the activity of the AMPA receptors that are still
present.
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In June 1993, Cortex licensed from the University of California a new class
of compounds -- AMPAKINEs -- that facilitate the functioning of the AMPA
subtype of the receptor for the neurotransmitter glutamate. These AMPAKINE
compounds interact in a highly specific manner with the AMPA receptor in the
brain, thereby lowering the amount of neuronal stimulation required to
generate a response to subsequent incoming stimulation. Cortex is initially
developing AMPAKINEs for the alleviation of deficits of memory and cognition.
It is hoped that this will provide symptomatic relief to patients in the
early stages of Alzheimer's disease, where most of the difficulty relates to
memory and performance of familiar tasks.
Dr. Gary Lynch, Professor of Psychobiology at the University of California,
Irvine and a Cortex co-founder and Scientific Director, has developed a wide
range of model systems for examining aspects of long-term potentiation, from
organ cell culture models to complex animal behavior. Dr. Lynch's group has
extensively characterized the mechanism of action of AMPAKINEs, and has
clearly shown that AMPAKINEs stimulate LTP. In addition, Dr. Lynch and other,
independent, researchers have demonstrated, in established animal models,
that AMPAKINEs enhance several types of memory.
The first major results of AMPAKINE testing in animal behavioral models of
learning and memory were reported in early 1994 in the prestigious journal
PROCEEDINGS OF THE NATIONAL ACADEMY OF SCIENCES. In these studies, which
involved tests of both short- and long-term memory, AMPAKINE-treated rats
performed significantly better than untreated control animals. The authors
concluded that "facilitation of [excitatory] transmission causes a general
improvement in memory encoding."
In these and other preclinical studies, the experimental compounds
demonstrated pharmaceutically attractive qualities, including apparent low
toxicity, rapid onset of action, rapid excretion and an ability to freely
cross the blood-brain barrier (a semi-permeable barrier that prevents many
drugs from getting into the brain).
In October 1994, Cortex initiated safety testing in humans with CX516
(AMPALEX), the Company's lead compound for the treatment of memory deficits.
This double-blind, placebo-controlled, clinical study involved forty-eight
healthy volunteers from eighteen to thirty-five years of age. Each volunteer
was administered one dose of AMPALEX or placebo, with the dosage increasing
as the trial progressed. The study was conducted in Berlin, under the
supervision of Dr. Werner Herrmann, Chief Scientific Officer at AFB Parexel,
a contract clinical research organization. Dr. Herrmann, who is also a
Professor at the Free University of Berlin, is a leading expert on the
clinical evaluation of central nervous system pharmaceuticals.
In February 1995, the Company announced that AMPALEX was safe and well
tolerated by healthy young volunteers with single administrations at dosages
that exceeded the expected therapeutic range. In September 1995, Cortex
reported that analysis of the psychological data had revealed that AMPALEX
had also produced an apparent positive effect on memory. Each volunteer had
been given a battery of psychological and psychometric tests before and
approximately three hours following administration of AMPALEX or placebo.
There were no significant effects on mood, sense of arousal, or other
variables sampled by the test battery. A significant effect was seen,
however, on a simple, standard test of memory. This test involved the
memorization and subsequent recall, after a five-minute delay, of lists of
three-letter nonsense syllables. It was found that those volunteers who
received the two highest dosages of AMPALEX did not exhibit the approximately
35% decline in performance between the pre-administration and three-hour
post-administration tests that was evident for the placebo group. These
results provide the first suggestion of the types of effects that can be
expected from positive modulation of AMPA receptor function in the human
brain.
In June 1995, Cortex initiated a similar Phase I study in healthy, elderly
volunteers, ranging in age from sixty-five to seventy-six. The Company hopes
to report on the results of this study by the end of calendar 1995.
A commonly asked question is how AMPALEX differs from stimulants like
caffeine or amphetamines. Stimulants act by producing nonspecific cerebral
(brain) arousal, as well as somatic (body) arousal. Somatic arousal is
evidenced by increases in heart rate and galvanic skin response, and is
experienced as a "jittery" feeling. The nonspecific nature of the cerebral
arousal and the accompanying bodily responses caused by stimulants generate
what are known as "competing responses." Competing responses may be random
thoughts, or sensations of anxiety or restlessness, which make it difficult
to focus on the material that is to be learned. For mastering relatively
simple material or learning simple, repetitive tasks, coffee or amphetamines
do help, at low dosage levels. As the material becomes more complex, or the
task more involved, or if
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the dosage is increased, the competing responses come to dominate, and
significant decreases in performance can be demonstrated.
AMPAKINEs, on the other hand, produce selective cerebral arousal through
their action on higher cortical functions. In addition, AMPAKINEs do not
produce somatic arousal. Finally, AMPAKINEs have a direct effect on LTP, and
thereby on memory formation. This effect is not seen with known stimulants.
SCHIZOPHRENIA
Schizophrenia has long been thought to have its biochemical basis in
hyperactivity of dopamine pathways projecting into certain regions of the
brain. More recently, there has been considerable speculation in the
scientific literature that schizophrenia also involves an underactivity of
glutamate pathways projecting into the same areas. It therefore made sense to
examine whether AMPAKINEs, which increase current flow through the AMPA
subtype of glutamate receptor, might have an effect in model systems for the
disease.
In September 1995, Cortex announced that Professor John Larson, a University
of California, Irvine ("UCI") neuroscientist and Cortex consultant, had
demonstrated that an AMPAKINE reduced stereotypic behavior (mechanical
repetition of posture or movement) in rats injected with methamphetamine.
Reduction of methamphetamine-induced stereotypic behavior is widely used for
initial screening of anti-psychotic drugs. The results have now been extended
by scientists at both UCI and Cortex to include two additional AMPAKINEs. A
patent application related to the schizophrenia study has been filed by the
University of California, and Cortex recently negotiated an expansion of its
commercial rights to include schizophrenia.
FUTURE DIRECTIONS AND OTHER INDICATIONS
Cortex plans to extend its initial positive findings in schizophrenia to
other preclinical models of the disease. Other studies will be initiated to
explore the potential utility of AMPAKINEs for the treatment of other
diseases and disorders thought to involve depressed functioning of
glutamatergic pathways. In addition, Cortex collaborators are engaged in
mapping the locations of AMPA receptor variants across brain regions. With
this information, the Company plans to initiate a program of directed
synthesis in an attempt to identify AMPAKINEs directed toward specific AMPA
receptor variants, and thereby toward regions of the brain with different
functions. It is hoped that this will lead to a new generation of highly
selective pharmaceuticals for the treatment of a range of hypoglutamatergic
neurological disorders.
TOWARD A FUNDAMENTAL TREATMENT FOR ALZHEIMER'S DISEASE
Alzheimer's disease is the best known destroyer of memory, already afflicting
some four million Americans. With the aging of our population, unless a
treatment is found the number of Americans with Alzheimer's disease is
expected to more than triple by the middle of the next century. According to
the Alzheimer's Association, Alzheimer's disease is the third most expensive
disease in the U.S. (after heart disease and cancer), with an estimated
annual cost to society of $100 billion and a lifetime cost per patient of
$174,000. The impact of an effective treatment, even a symptomatic one, would
be enormous. Because the disease is so closely tied to aging, it has been
estimated that delaying the onset of its symptoms by only five years would
halve the number of people diagnosed with the disease.
Alzheimer's disease is a progressive, degenerative and uniformly fatal
disease that slowly destroys the brain. The early symptoms are problems with
memory of recent events and difficulty performing familiar tasks. As the
disease progresses, other symptoms appear, including confusion, personality
change, behavioral change, impaired judgment, and difficulty finding words,
finishing thoughts, or following directions. While the disease progresses at
different rates in different individuals, eventually the victims are unable
to care for themselves. Ultimately, they become less resistant to infections
and other illnesses, which are often the actual cause of death.
It is in the early stages of Alzheimer's disease -- the first few years -- that
Cortex believes AMPAKINEs may someday play their most valuable role,
enhancing the effectiveness of the brain cells that have not yet succumbed to
the disease. This may alleviate the memory and cognitive deficits that make
up the early symptoms. There is also a possibility that treatment with
AMPAKINEs may slow the progression of Alzheimer's disease. The reason is that
brain cells, or neurons, require
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continued excitatory input from other brain cells to remain alive. As neurons
die, other neurons begin to lose their excitatory inputs, hastening their own
death. It may be that maintaining the "tone" of the remaining neurons, by
using AMPAKINEs to increase the effectiveness of the excitatory input that is
still available, will slow this cascade of neuronal death.
While the Company's primary effort in Alzheimer's disease involves the
development of AMPAKINEs for the alleviation of deficits of memory and
cognition, Cortex is also attempting to develop novel pharmaceuticals to slow
or halt the progression of the underlying disease. This is a longer-term
prospect, as the cause of the disease and best approach to therapeutic
intervention are presently not well understood. However, through the work of
Cortex co-founder and Scientific Director Dr. Carl Cotman, Cortex scientists
and academic collaborators, the Company is attempting to develop a better
understanding of the molecular pathways involved in the underlying pathology
of the disease, and the most promising approaches to intervening in those
pathways in a therapeutically beneficial manner.
In patients with Alzheimer's disease, beta amyloid, a naturally-occurring
soluble protein fragment, appears to aggregate abnormally into insoluble
clumps that then become involved with nerve cells in the brain. Formation of
these deposits of beta amyloid is an early event in Alzheimer's disease,
beginning before signs of dementia occur. However, the deterioration of brain
function does not appear to be the direct result of beta amyloid
accumulation. Rather, an excessive accumulation of amyloid deposits ("senile
plaques") triggers a chain of molecular events that ultimately causes
neuronal cell death. The Company has developed advanced cell culture models
that permit the screening of compounds thought to offer the greatest
therapeutic potential for disrupting this chain of events, and has identified
promising early lead compounds from several chemical classes. In the fiscal
year ended June 30, 1995, Cortex's medicinal chemists synthesized a number of
promising variants on these early lead compounds. However, to accommodate the
increased focus on the AMPA receptor program in the face of financial
constraints, this program received relatively less emphasis than previously
planned. The Company is presently seeking a larger pharmaceutical company
partner to assist financially and technically with the further development of
this program in exchange for license rights to any products that are
successfully developed.
CALPAIN INHIBITOR PROGRAM
For approximately the last five years, the Company has been involved in
research and early product development of inhibitors of the enzyme calpain.
Calpain is a protease, a protein that digests other proteins. It is involved
in a variety of biological processes throughout the body, and has been
implicated in the pathology of several diseases and disorders. These include
brain damage following stroke or head injury, spasming of blood vessels
(vasospasm) and restenosis.
The Company's first target for calpain inhibitor therapeutics was brain
damage following stroke. A stroke is a vascular event causing localized
damage to the brain. There are two general categories of stroke: ischemic
stroke, which is due to a blockage of blood flow, and hemorrhagic stroke, in
which a blood vessel bursts in the brain. In either case, the insult to the
brain is often immediately life-threatening and initiates a cascade of events
that ultimately leads to permanent brain damage. Each year more than 500,000
Americans experience a stroke. Approximately 150,000 die, and most survivors
are left with some degree of permanent residual disability due to damage to
brain tissue. Although stroke is the third leading cause of death in the
U.S., no satisfactory therapy exists to limit or reverse the brain damage
brought on by this condition.
Interruption of the supply of oxygen and nutrients to the brain following a
stroke is not in and of itself responsible for the widespread destruction of
neurons that often follows. Rather, it is believed that these disruptions
trigger biochemical changes that lead over a period of hours or days to death
of the affected neurons. It is now fairly well accepted that this crucial
period of time between a stroke and the actual death of brain cells provides
a "window of opportunity" during which key chemical events can potentially be
blocked, to limit or prevent damage to nerve cells and thereby maintain their
viability until homeostasis is re-established following an ischemic episode.
Ischemia-induced release of the neurotransmitter glutamate appears to
initiate the cascade. Glutamate builds up in the extra-cellular space
following a stroke, stimulating receptors and allowing an excessive amount of
calcium to enter nerve cells. Calcium control systems become overwhelmed,
intracellular calcium concentrations rise high above normal physiological
levels, and several calcium-dependent enzymes are activated. Of particular
concern is calpain, which when activated, degrades the neuron's cytoskeleton
as well as regulatory proteins such as protein kinase C. This causes
progressively greater damage, and eventually the cell is no longer able to
recover.
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In calendar 1990 and 1991, Cortex established laboratory models of ischemia
and used them to identify a range of calpain inhibitor compounds that
appeared to have the potential to block brain damage due to stroke and other
ischemic events. In January 1992, Cortex entered into a Development and
License Agreement, which was amended in October 1992, (the "Alkermes
Agreement") with Alkermes, Inc. ("Alkermes"), a larger neuroscience company.
Cortex granted to Alkermes an exclusive worldwide license, with a right to
sublicense, to commercialize products using the Company's calpain inhibitor
technology for products for the prevention or treatment of acute and chronic
neurodegenerative diseases and disorders of the nervous system. Under the
Alkermes Agreement, Alkermes made a $1.5 million equity investment in Cortex
and paid a $500,000 option fee for a limited expansion of its field of use.
Alkermes and Cortex conducted collaborative research for over the
eighteen-month period ended June 30, 1993 on the development of calpain
inhibitors for the treatment of acute neurodegenerative disorders. Under the
collaboration, Alkermes paid Cortex $3.1 million to fund the Company's
preclinical research and development efforts. From June 1993, Alkermes was to
assume responsibility for further product development, selecting a candidate
compound for human clinical testing and subsequently initiating and
conducting human clinical testing and obtaining regulatory approvals. In
exchange, Cortex was to receive from Alkermes milestone payments aggregating
$10 million, dependent upon successful progress by Alkermes in initiating and
conducting human clinical trials and obtaining regulatory approvals, as well
as royalties on sale of calpain inhibitor products by Alkermes or its
sublicensees.
Subsequently, Cortex shifted its own emphasis into calpain inhibitor research
outside the nervous system. The Company was particularly active in
investigating the potential role of calpain inhibitors as therapeutics for
the treatment of vasospasm and restenosis, two serious vascular disorders.
The Company established research collaborations and began screening compounds
for these purposes, and reported on its progress in its 1993 annual report.
This report of progress included a discussion of the Company's research in
cerebral vasospasm, which involved reversal of an existing spasm of blood
vessels in the brain. In October 1993, Alkermes notified the Company that
Alkermes believed that it had rights to this indication under the Alkermes
Agreement. On November 19, 1993, Alkermes filed an action in U.S. District
Court in Massachusetts alleging that the Company had breached the Alkermes
Agreement by developing calpain inhibitors for cerebral vasospasm. See "Legal
Proceedings."
In the fiscal year ended June 30, 1994, difficulties were encountered in
scaling up production of sufficient quantities of calpain inhibitor compound
for additional preclinical testing in animals. In fiscal 1995, these
difficulties were not resolved, in spite of a dedicated effort by Cortex's
medicinal chemists. In light of the continuing synthetic problems, financial
constraints, the lawsuit by Alkermes and the increasing focus on the AMPAKINE
program, active effort on calpain inhibitors was suspended in the third
fiscal quarter.
In September 1995, the Company and Alkermes agreed to a settlement of the
dispute. Alkermes agreed to dismiss its action against the Company and to
relinquish all rights previously granted them by the Company, as well as
rights to related technologies developed by Alkermes subsequent to October 6,
1992. In return, the Company issued to Alkermes a $1,000,000
non-transferable, three-year promissory note accruing interest semi-annually
at the federal funds rate. The Company also committed to pay Alkermes a
graduated royalty on calpain inhibitor development proceeds, as defined and
subject to certain limitations. Cortex presently intends to seek, with the
assistance of its financial advisor, Vector Securities International, Inc., a
larger pharmaceutical company partner for the further development of the
calpain inhibitor technology.
SPECTRIN BREAKDOWN PRODUCT ASSAY
Cortex holds an exclusive worldwide license from the University of California
for patented technology relating to the use of detection of breakdown
products of a protein, called spectrin, for determining whether degeneration
of neuronal tissue is taking place. Spectrin is a component of the
cytoskeleton, the molecular framework, of neurons, and is attacked in a
unique manner when degeneration is occurring. In acute neurodegenerative
disorders such as stroke or head injury, a protease called calpain,
inhibitors of which the Company is attempting to develop as a treatment for
brain damage following stroke, is activated and, among other things, cleaves
spectrin in two. Once this has happened, the distinctive breakdown products
of spectrin can be detected using antibodies against them, and the presence
and extent of neurodegeneration determined.
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The Company feels that the spectrin breakdown product assay has potential
utility as (i) a diagnostic tool, for determining the presence and extent of
neurodegeneration, (ii) a treatment monitoring approach, for evaluating the
effectiveness of therapeutic intervention, (iii) an assay for neurotoxicity,
and (iv) a tool for identifying inhibitors of calpain, which may have benefit
as therapeutics. The Company does not presently intend to develop this
technology internally, but rather to license this assay to other firms in
exchange for license fees, royalties or other consideration.
MANUFACTURING
Cortex has no experience in manufacturing pharmaceutical products and
presently intends to rely on the manufacturing and quality control expertise
of contract manufacturing organizations or prospective corporate partners.
There is no assurance that the Company will be able to enter into
arrangements for product manufacturing on favorable terms.
MARKETING
The Company has no experience in the marketing of pharmaceutical products and
does not anticipate having the resources to distribute and broadly market any
products that it may develop. The Company will therefore continue to seek
commercial development arrangements with other pharmaceutical companies for
its proposed products. However, in entering into such arrangements, the
Company will seek to retain the right to co-promote certain products in the
United States to selected medical specialties (gerontologists, neurologists
and psychiatrists). The Company believes that these specialties can be
effectively addressed with a relatively small sales force, as the number of
target physicians in these specialties ranges from 4,000 to 25,000. There is
no assurance that the Company will be able to enter into co-promotional
arrangements in connection with its licensing activities, or that any
retention of co-promotional rights will lead to greater revenues for the
Company.
TECHNOLOGY RIGHTS AND COLLABORATIVE AGREEMENTS
AMPA RECEPTOR MODULATING COMPOUNDS
Effective June 1993, Cortex entered into an agreement with the Regents of the
University of California ("UC"), under which Cortex secured exclusive
commercial rights to AMPA receptor modulating compounds ("AMPAKINEs-TM-") for
the treatment of deficits of memory and cognition. Under the agreement, the
Company paid an initial license fee and is obligated to make additional
payments, including license maintenance fees creditable against future
royalties, over the course of initiating and conducting human clinical
testing and obtaining regulatory approvals. When and if sales of licensed
products commence, the Company will begin paying royalties on net sales, and
is obligated to pay for patent prosecution and maintenance. The Company has
an exclusive option agreement with UC for negotiation of an exclusive license
for the use of AMPAKINEs in the treatment of schizophrenia. Cortex also
sponsors research in the laboratory of Dr. Gary Lynch at the University of
California, Irvine, and in connection therewith has rights to negotiate
licenses for discoveries arising from the sponsored research, such as the use
of AMPAKINEs for additional indications.
CALPAIN INHIBITORS
Effective February 1991, Cortex entered into a series of agreements with
Georgia Tech Research Corporation, the licensing arm of the Georgia Institute
of Technology ("Georgia Tech"), under which Cortex secured exclusive
commercial rights, for selected disorders, to several novel classes of
chemical compounds that the Company has demonstrated are effective as calpain
inhibitors. Under the agreement, the Company paid an initial license fee and
is obligated to make additional payments, including license maintenance fees
creditable against future royalties, over the course of initiating and
conducting human clinical testing and obtaining regulatory approvals. The
Company also reimburses Georgia Tech for its patent expense. When and if
sales of licensed products commence, the Company will begin paying royalties
on net sales.
SPECTRIN BREAKDOWN PRODUCT ASSAY
Effective March 1991, the Company entered into an exclusive license agreement
with UC, since amended, under which Cortex has secured exclusive rights to
use, develop and sell products arising from use of the spectrin breakdown
product assay. Under the agreement, the Company paid an initial license fee,
is paying minimum annual royalties, and is
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underwriting the costs of patent prosecution and maintenance. When and if
sales of licensed products commence, the Company will pay UC royalties and
will also share revenues that are received under sublicense agreements.
PATENTS AND PROPRIETARY RIGHTS
The Company is aggressively pursuing patent protection of its technologies.
Cortex owns, or has exclusive rights (within its areas of product
development) to, a number of issued U.S. patents and a range of U.S. patent
applications and their international counterparts.
On December 8, 1994, the United States adopted the Uruguay Round Agreements
Act ("URAA") to implement the General Agreement on Tariffs and Trade ("GATT").
The URAA significantly alters many United States intellectual property
laws. One of the most significant changes is to patent term length. Any
patent issued on an application filed on or after June 8, 1995 will have a
term that begins on the date the patent issues and ends 20 years from the
earliest United States filing date claimed in the patent. This is in contrast
to the 17-year term measured from the patent issue date, which has been the
law in the United States for nearly two centuries. Given the significance of
this change, the new law has a transition provision that applies to patents
issuing on applications filed before June 8, 1995 and to all patents still in
force on June 8, 1995. The term for these patents is the longer of either 17
years from the date of issuance or 20 years from the earliest United States
filing date. These changes are not presently expected to have a material
impact on the Company's business.
There can be no assurance that issued patents, whether already issued or
issuing in the future in connection with current or future patent
applications, will afford effective protection against competitors with
similar technology. There can also be no assurance that any patents issued or
licensed to Cortex will not be infringed upon or designed around by others.
Further, since issuance of a patent does not guarantee the right to practice
the claimed invention, there can be no assurance that others will not obtain
patents that the Company would need to license or design around in order to
practice its patented technologies, or that licenses that might be required
to practice these technologies due to patents of others would be available on
reasonable terms. Additionally, there can be no assurance that any unpatented
manufacture, use or sale of the Company's technology, processes or products
will not infringe on patents or proprietary rights of others, and the Company
may be unable to obtain licenses or other rights to these other technologies
that may be required for commercialization of the Company's proposed products
or processes.
Cortex relies to a certain extent upon unpatented proprietary technology, and
may determine in some cases that its interests would be better served by
reliance on trade secrets or confidentiality agreements rather than patents.
No assurance can be made that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to or disclose such technology. In addition, there is no
assurance that Cortex can meaningfully protect its rights in such unpatented
proprietary technology or that others will not wrongfully obtain such
technology.
If Cortex is unable to obtain strong protection of its proprietary rights in
its products or processes prior to or after obtaining regulatory clearance,
whether through patents, trade secrets or otherwise, competitors may be able
to market competing products by obtaining regulatory clearance through
demonstration of equivalency to the Company's products, without being
required to conduct the same lengthy clinical tests conducted by the Company.
GOVERNMENT REGULATION
In order to test, produce and market human therapeutic products in the United
States, mandatory procedures and safety standards established by the Food and
Drug Administration ("FDA") must be satisfied. Obtaining FDA approval has
historically been a costly and time-consuming process. While Cortex has
initiated Phase I (safety) testing in Europe, it has not yet initiated
preparation of an Investigational New Drug (IND) application with the FDA for
testing in the United States. It is the Company's intent that a larger
pharmaceutical company partner, which the Company is seeking, will pursue the
required regulatory approvals and conduct the necessary clinical tests in the
United States.
The FDA must concur with an IND application before human clinical testing of
an investigational drug can begin in the United States. An IND application
includes the results of preclinical studies evaluating the potential safety
and efficacy of the drug, and a detailed description of the clinical
investigations to be undertaken.
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Clinical trials are normally conducted in three phases. Phase I trials are
concerned primarily with the safety of the drug, involve fewer than 100
subjects, and may take from six months to over a year. Phase II trials
normally involve a few hundred patients and are designed primarily to
demonstrate effectiveness in treating or diagnosing the disease or condition
for which the drug is intended, although short-term side effects and risks in
people whose health is impaired may also be examined. Phase III trials may
involve up to several thousand patients who have the disease or condition for
which the drug is intended, to approximate more closely the conditions of
ordinary medical practice. Phase III trials are also designed to clarify the
drug's benefit-risk relationship, to uncover less common side effects and
adverse reactions, and to generate information for proper labelling of the
drug. The FDA receives reports on the progress of each phase of clinical
testing, and may require the modification, suspension, or termination of
clinical trials if an unwarranted risk is presented to patients. The FDA
estimates that the clinical trial period of drug development can take from
two to ten years, and averages five years. With certain exceptions, once
clinical testing is completed, the sponsor can submit a New Drug Application
("NDA") for approval to market a drug. The FDA's review of an NDA is also
lengthy and on average takes approximately two and one-half years.
Therapeutic products that may be developed and sold by the Company outside
the United States will be subject to regulation by the various countries in
which they are to be distributed. In addition, products manufactured in the
United States which have not yet been cleared for domestic distribution will
require FDA approval in order to be exported to foreign countries for
distribution there.
In late 1992, legislation was enacted that imposed user fees on manufacturers
of prescription drugs, antibiotic and biological products. Such fees will now
be required for each application submitted for FDA review, with additional
annual product and establishment fees being imposed as well. The revenues
raised by these fees are earmarked specifically to increase the resources of
the FDA, and by so doing to increase the speed with which the FDA reviews and
approves drug and biological product marketing applications. By fiscal 1997,
the user fee established by the legislation for an NDA will be $233,000,
while the annual establishment fee will be $138,000. The legislation provides
small companies (i.e., companies with fewer than 500 employees that are not
currently marketing a prescription drug product) with a reduction in the
initial application fee, and contains provisions for fee waivers. The Company
is unable to predict the impact of this or similar user fee legislation upon
its product development plans.
Under FDA regulations, sponsors of promising investigational drugs and
biologics for certain immediately life-threatening or serious diseases may
make those drugs or biologics available for treatment of patients prior to
approval of an NDA. Cortex believes, therefore, that it, or its licensees,
may be able to distribute certain proposed products, in limited fashion,
while still in the clinical testing stage. However, because of the
limitations imposed on commercialization under this program, this is not
expected to be of significant economic benefit.
Under the Drug Price Competition and Patent Term Restoration Act of 1984, a
product patent or use patent covering a drug, biological product or medical
device may be extended for up to five years to compensate the patent holder
for the time required for FDA review of the product. This law also
establishes a period of time following approval of a drug during which the
FDA may not accept or approve applications for certain similar or identical
drugs from other sponsors. There can be no assurance that the Company or its
licensees will be able to take advantage of either the patent term extension
or marketing exclusivity provisions of this law, nor that it will not be
adversely affected by the provisions should they be taken advantage of by
competitors of the Company.
There can be no assurance that any required FDA or other governmental
approval will be granted or, if granted, will not be withdrawn. Governmental
regulation may prevent or substantially delay the marketing of the Company's
proposed products, or cause the Company to undertake additional procedures,
which may be both costly and lengthy, and thereby furnish a competitive
advantage to the competitors of the Company or its licensees.
Cortex does not have the financial and other resources to conduct the
clinical testing and other procedures required to obtain approval to market
its products and, accordingly, will be dependent on entering into joint
ventures or other collaborative arrangements with third parties with the
required resources in order to obtain the needed approvals. Cortex intends to
enter into license or other arrangements with other pharmaceutical companies
under which those companies would conduct the required clinical trials and
bear the expenses of obtaining FDA approval for most or all of its proposed
25
<PAGE>
products. There can be no assurance that Cortex will be able to enter into
such arrangements on favorable terms, or at all, or that such arrangements
will ultimately result in obtaining the necessary governmental approvals.
The entire health care system in the U.S. is presently the subject of intense
governmental review. There is no assurance that cost-control legislation that
may be adopted will not adversely affect the market for or profitability of
the Company's proposed products.
COMPETITION
The pharmaceutical industry is characterized by rapidly evolving technology
and intense competition. Many companies of all sizes, including a number of
major pharmaceutical companies and several specialized biotechnology
companies, are engaged in activities similar to those of Cortex. A number of
drugs intended for the treatment of Alzheimer's disease, age-related
cognitive deficits, stroke and other neurodegenerative diseases and disorders
are on the market or in the later stages of clinical testing. The Company's
competitors have substantially greater financial and other resources and
larger research and development staffs. Larger pharmaceutical company
competitors also have significant experience in preclinical testing, human
clinical trials and regulatory approval procedures.
In addition, colleges, universities, governmental agencies and other public
and private research organizations will continue to conduct research and are
becoming more active in seeking patent protection and licensing arrangements
to collect license fees, milestone payment and royalties in change for
license rights to technology that they have developed, some of which may be
directly competitive with that of the Company. These institutions also
compete with companies such as Cortex in recruiting highly qualified
scientific personnel.
The Company expects technological developments in the neuropharmacology field
to continue to occur at a rapid rate and expects competition will remain
intense as advances continue to be made. Although the Company believes, based
on the technical qualifications, expertise and reputations of its Scientific
Directors, consultants and other key scientists, that it will be able to
compete in the discovery and early clinical development of therapeutics for
neurological disorders, the Company does not have the resources, and does not
presently intend, to compete with major pharmaceutical companies in the areas
of later stage clinical testing, manufacturing and marketing.
PRODUCT LIABILITY INSURANCE
The clinical testing, manufacturing and marketing of the Company's products
may expose the Company to product liability claims. The Company maintains
liability insurance with coverage limits of $5 million per occurrence and $5
million in the annual aggregate. Although the Company has never been subject
to a product liability claim, there can be no assurance that the coverage
limits of the Company's insurance policies will be adequate or that one or
more successful claims brought against the Company would not have a material
adverse effect upon the Company's business, financial condition and results
of operations. Further, if AMPALEX is approved by the FDA for marketing,
there can be no assurance that adequate product liability insurance will be
available, or if available, that it will be available at a reasonable cost.
Any adverse outcome resulting from a product liability claim could have a
material adverse effect on the Company's business, financial condition and
results of operations.
EMPLOYEES
As of September 30, 1995, Cortex had 12 full-time employees and two part-time
employees and had engaged 12 part-time Ph.D.-level scientific consultants. Of
the 12 full-time employees, seven are engaged in research and development and
five are engaged in management and administrative support. The Company also
sponsors research in academic laboratories at the University of California,
Irvine, Wake Forest University and New York University.
FACILITIES
The Company leases approximately 30,000 square feet of office, research
laboratory and expansion space under an operating lease that expires May 31,
1999, with an additional five-year option at 95% of the then fair market
rental rate.
26
<PAGE>
Current monthly rent on these facilities is approximately $20,000. The
Company believes that this facility will be adequate for its research and
development activities for at least the next three years.
LEGAL PROCEEDINGS
In October 1993, Alkermes notified the Company that Alkermes believed that it
had rights to the development and commercialization of the Company's calpain
inhibitors for cerebral vasospasm under the Development and License Agreement
between the Company and Alkermes dated January 7, 1992 and amended October 6,
1992 (the "Alkermes Agreement"). On November 19, 1993, Alkermes filed an
action in U.S. District Court in Massachusetts alleging that the Company had
breached the Alkermes Agreement by developing calpain inhibitors for cerebral
vasospasm. In September 1995, the Company and Alkermes agreed to a settlement
of the dispute. Alkermes agreed to dismiss its action against the Company and
to relinquish all rights previously granted them by the Company, as well as
rights to related technologies developed by Alkermes subsequent to October 6,
1992. In return, the Company issued to Alkermes a $1,000,000
non-transferable, three-year promissory note accruing interest semi-annually
at the federal funds rate. The Company also committed to pay Alkermes a
graduated royalty on calpain inhibitor development proceeds, as defined and
subject to certain limitations.
27
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND SCIENTIFIC DIRECTORS
The directors, executive officers and scientific directors of the Company are
as follows:
<TABLE>
<CAPTION>
Name Age Position
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Jerome M. Arnold (1)(3) 54 Director, member of Office of the Chief Executive
Carl W. Cotman, Ph.D. (1) 55 Director, Scientific Director of Alzheimer's Research
Michael G. Grey (2)(3) 42 Director
D. Scott Hagen 39 Acting President and Chief Operating Officer,
Vice President, Chief Financial Officer and
Corporate Secretary
Gary S. Lynch, Ph.D (2) 52 Director, Scientific Director of Memory Research
Harvey S. Sadow, Ph.D. (1)(2) 73 Chairman of the Board, Director
Alan A. Steigrod 58 Director
Davis L. Temple Jr., Ph.D. (1) 52 Director, member of Office of the Chief Executive
</TABLE>
- ----------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Stock Option Committee.
JEROME M. ARNOLD was elected as a director in December 1993, and was
appointed co-member of the Office of the Chief Executive in October 1995. Mr.
Arnold has been Chief Operating Officer, Clinics and Analytical Laboratories
Worldwide, Pharmaco LSR Inc. since July 1994. Prior to that, he was President
and Chief Executive Officer of CIBUS Pharmaceuticals, Inc., a pharmaceutical
company, from August 1992 to June 1994. From March 1992 to August 1992, Mr.
Arnold was Vice President of Market Planning and Development at Cato Research
Ltd., and Executive Vice President of Operations of Research Triangle
Pharmaceuticals Ltd., a contract clinical research organization and
pharmaceutical company in its developmental stage, respectively, both of
which are operating divisions of Cato Holdings, a privately-held firm. From
June 1991 to December 1991, Mr. Arnold was Vice President of Marketing and
Sales of Serono Laboratories, Inc., with responsibility for marketing, sales
and business development. From 1988 to May 1991, Mr. Arnold was Vice
President and General Manager of the hospital products division of Burroughs
Wellcome Co. Mr. Arnold holds B.A. and B.S. degrees from Merrimack College,
an M.B.A. degree from Suffolk University and has completed the Executive
Program at the University of North Carolina Graduate School of Business
Administration.
CARL W. COTMAN, PH.D. has been a Scientific Director of and consultant to the
Company since October 1987, served as a director of the Company from March
1989 to October 1990, and was reelected as a director in November 1991. Dr.
Cotman has been a Professor of Psychobiology, Neurology, and Psychiatry at
the University of California, Irvine since 1985. He was a Professor of
Psychobiology and Neurology at that University from 1983 to 1985, and has
held various other teaching and research positions at that University since
1968. He chaired the Scientific Advisory Council of the American Paralysis
Association and is a member of numerous professional associations and
committees, including the Council of the American Society for Neurochemistry,
the National Institute of Aging Task Force, the American Association for the
Advancement of Science and the International Society for Neurochemistry. Dr.
Cotman has served on the editorial boards of numerous scientific journals and
has authored or co-authored seven books and over 400 articles in the fields
of neurobiology, memory and cognition, and the recovery of function after
brain injury. Dr. Cotman holds a B.A. in Chemistry from Wooster College, an
M.A. in Analytical Chemistry from Wesleyan University, and a Ph.D. in
Biochemistry from Indiana University.
MICHAEL G. GREY has been a director of the Company since September 1994.
Since November 1994, Mr. Grey has been President of BioChem Therapeutic
Inc., a wholly-owned subsidiary of BioChem Pharma Inc., an international
biopharmaceutical company. From January 1994 to October 1994, Mr. Grey was
Senior Vice President, Corporate Development of Titan Pharmaceuticals, Inc. a
biopharmaceutical holding company and President and Chief Operating Officer
at Ansan, Inc., an early stage biopharmaceutical company. From 1991 until
1993, Mr. Grey served as Vice President, Corporate Development of Glaxo,
Inc., and from 1989 until 1991, Mr. Grey served as Director of International
28
<PAGE>
Licensing of Glaxo Holdings p.l.c., and was responsible for the worldwide
licensing activities of Glaxo, Inc. Mr. Grey holds a B.Sc. degree in
Chemistry from the University of Notingham.
D. SCOTT HAGEN was appointed Acting President and Chief Operating Officer in
October 1995, has been Vice President and Chief Financial Officer of the
Company since January 1992, and was Vice President-Finance and Administration
from September 1988 through December 1991. Mr. Hagen has been Corporate
Secretary since August 1991. From 1981 to August 1988, he was employed by
Chembiomed Ltd., a Canadian biopharmaceutical company, where he served in a
progression of scientific and administrative positions. Mr. Hagen holds a
B.Sc. in Biochemistry and an M.B.A. from the University of Alberta in
Edmonton, Canada, where he also completed two years of graduate level study
in biochemistry.
GARY S. LYNCH, PH.D. has been a Scientific Director of and consultant to the
Company since October 1987. He has served as a director of the Company since
December 1994, and previously served as a director from March 1988 to March
1989. Dr. Lynch has been a Professor in the Department of Psychobiology at the
University of California, Irvine, since 1981, and has held various other
teaching and research positions at that University since 1969. He is a
Professor at the University's Center for the Neurobiology of Learning and
Memory. Dr. Lynch is a member of the Neuroscience Society and the
International Brain Research Organization. He also serves on the Advisory
Board of the Cognitive Neurosciences Institute. Dr. Lynch has authored and
co-authored over 400 articles and a number of books in the areas of
neurobiology, cognition, and memory. Dr. Lynch holds a B.A. in Psychology
from the University of Delaware and a Ph.D. in Psychology from Princeton
University.
HARVEY S. SADOW, PH.D. has been a director of the Company since March 1988
and Chairman of the Board of Directors since January 1991. Dr. Sadow was
President and Chief Executive Officer of Boehringer Ingelheim Corporation, a
major health care company, from 1971 until his retirement in January 1988 and
was Chairman of the Board of that company from 1988 through December 1990.
Dr. Sadow was Chairman of the University of Connecticut Foundation, the
President's Council of the American Lung Association, and the Connecticut Law
Enforcement Foundation and was a member of the Board of Directors of the
Pharmaceutical Manufacturers Association ("PMA") and Chairman of the Board of
the PMA Foundation. Dr. Sadow is also a member of several other professional
committees and societies, including the American Society for Clinical
Pharmacology and Therapeutics. He has published extensively in the field of
treatment of diabetes mellitus. Dr. Sadow is Chairman of Cholestech
Corporation, a developer, manufacturer and seller of lipid measuring
diagnostic products;a director of Penederm, Inc., a developer and marketer of
specialized products in the dermatology area; a director of Cytel
Corporation, a biotechnology firm; and a director of several privately-held
companies in the health care field. Dr. Sadow holds a B.S. from the Virginia
Military Institute, an M.S. from the University of Kansas, and a Ph.D. from
the University of Connecticut.
ALAN A. STEIGROD joined the Company as President and Chief Executive Officer,
and as a director, in February 1993. Mr. Steigrod resigned as President and
Chief Executive Officer effective October 31, 1995. From February 1991 to
February 1993, Mr. Steigrod was an independent consultant to a number of
biopharmaceutical firms. From 1981 to January 1991, he was with Glaxo Inc.,
most recently as Executive Vice President, Sales and Marketing. Prior to
1981, Mr. Steigrod served in a succession of domestic and international
management positions with Eli Lilly & Company and Boehringer Ingelheim
Corporation. Mr. Steigrod is a director of Zynaxis, Inc., a biopharmaceutical
firm, and Sepracor, Inc., a pharmaceutical company. Mr. Steigrod holds a B.S.
degree in Pharmacy from Temple University and has completed advanced
corporate management programs at The Wharton School of the University of
Pennsylvania and at Harvard University.
DAVIS L. TEMPLE, JR., PH.D. has been a director of and consultant to the
Company since March 1994, and was appointed co-member of the Office of the
Chief Executive in October 1995. Dr. Temple has been a Managing Director at
Stover Haley Burns, Inc., a life science advisory group since January 1994.
From 1990 until 1993, Dr. Temple served as Vice President, CNS Drug
Discovery, of Bristol-Myers Squibb and from 1984 to 1990 he served as Senior
Vice President, CNS Research at Bristol-Myers Company. Dr. Temple holds a
B.S. degree in Pharmacy from Louisiana State University and a Ph.D. degree in
Medicinal Chemistry and Pharmacology from the University of Mississippi.
As a result of the resignation of Alan A. Steigrod as Chief Executive Officer
and President as of October 31, 1995, and the appointment of D. Scott Hagen
as Acting President and Chief Operating Officer, the Board created a
committee of directors to serve as the Office of the Chief Executive on an
interim basis. The Company anticipates that this committee,
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<PAGE>
which consists of Jerome M. Arnold and Davis L. Temple, Jr., Ph.D., will
participate in the management of the Company until the appointment of a
permanent Chief Executive Officer.
NOMINEES FOR DIRECTOR
ROBERT F. ALLNUT, 58, was Executive Vice President of the Pharmaceutical
Manufacturers Association from May 1985 until February 1995 and was Vice
President for Governmental Relations of Communications Satellite Corporation
from May 1984 until May 1985. Prior to 1985, Mr. Allnut held numerous
positions in the Federal Government over a 25-year period, including 15 years
at NASA, where he served as Associate Deputy Administrator, the third ranking
position in the agency. Mr. Allnut serves as a member of the Board of
Directors of the National Health Council and the National Council on Aging.
Mr. Allnut holds a B.S. in Industrial Engineering from the Virginia
Polytechnic Institute and J.D. and L.L.M. degrees from George Washington
University.
OTHER OFFICERS
PHILIP N. HAMILTON joined Cortex as Vice President, Business Development in
October 1995. From January 1995 to October 1995 he was an independent
consultant to a number of early stage biopharmaceutical companies. From 1987
to January 1995 he was with Cambridge NeuroScience, Inc., where he served in
a progression of scientific and administrative positions, most recently as
Director, Licensing and Strategic Alliances, with responsibility for
corporate partnering, new business opportunities and licensing. Prior to
joining Cambridge NeuroScience, Mr. Hamilton was engaged in research at
Harvard Medical School and St. George's Medical School, London, U.K. Mr.
Hamilton holds a B.Sc.(Hons) in Pharmacology from the University of Edinburgh
in Scotland, where he also completed four years of graduate level research in
Neurobiology. He also holds an M.B.A. from Suffolk University, Boston.
GARY A. ROGERS ,PH.D. has been Vice President, Pharmaceutical Discovery since
June 1995. In February 1994, he founded Ligand Design, a private contract
design and synthesis firm located in Santa Barbara. From 1987 to 1994, Dr.
Rogers served as an associate research biochemist at the University of
California, Santa Barbara. Prior to that, he held a succession of research
and faculty positions at universities in the United States and abroad,
including three years as an assistant adjunct professor of bio-organic
chemistry under Dr. Paul Boyer at the University of California, Los Angeles
and four years as an assistant professor at the University of Texas. Dr.
Rogers is a co-inventor of the AMPAKINE family of AMPA receptor modulating
compounds. He holds a B.S. degree in organic chemistry from the University of
California, Los Angeles and a Ph.D. in bio-organic chemistry from the
University of California, Santa Barbara.
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning compensation
paid or accrued by the Company for services rendered during the three fiscal
years ended June 30, 1995 to the Company's Chief Executive Officer and to the
other executive officer employed by the Company as of June 30, 1995.
30
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
----------------------------------------------------------- ----------------------------
Name and Other Annual All Other
Principal Position Year Salary Bonus Compensation (2) Options(#) Compensation
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alan A. Steigrod (1) 1995 $207,440 $ -- $12,559 195,600(3) $ --
President and Chief 1994 196,602 74,000 17,483 119,500 --
Executive Officer 1993 74,000 -- 21,273 180,000 --
D. Scott Hagen 1995 $124,583 $15,000 $ 9,346 15,000 $ --
Vice President, 1994 114,035 25,000 9,577 -- --
Chief Financial Officer 1993 96,692 -- 8,308 5,000 --
and Secretary
</TABLE>
- -------------------
(1) Mr. Steigrod served as President and Chief Executive Officer
from February 1993 through October 1995.
(2) Accrued or paid-out vacation pay, sick pay and/or relocation
reimbursements.
(3) Represents options issued to replace 195,600 of canceled
options.
OPTION MATTERS
OPTION GRANTS. The following table sets forth certain information concerning
grants of stock options to each of the Company's executive officers named in
the Summary Compensation Table during the fiscal year ended June 30, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% of Total
Options
Granted to
Options Employees in Exercise Expiration
Name Granted Fiscal Year Price($/Sh) Date
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alan A. Steigrod 100,000 (1) 30 $3.50 02/03/03
65,560 (1) 20 3.50 11/30/03
30,040 (1) 9 4.50 11/30/03
D. Scott Hagen 15,000 5 $3.125 01/12/05
</TABLE>
- -------------------
(1) Represents options issued to replace canceled options to purchase the
same number of shares.
OPTION EXERCISES. The following table sets forth certain information
concerning the exercise of options by each of the Company's executive
officers named in the Summary Compensation Table during the fiscal year ended
June 30, 1995, including the aggregate value of gains on the date of
exercise. In addition, the table includes the number of shares covered by
both exercisable and unexercisable stock options as of June 30, 1995. Also
reported are the values for "in the money" options which represent the
positive spread between the exercise prices of any such existing stock
options and $3.00, the last sale price of Common Stock on June 30, 1995 as
reported by Nasdaq.
31
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value Realized Value of Unexercised
(market price Number of Unexercised In-the-Money
at exercise Options at FY-End Options at FY-End
Shares Acquired less exercise --------------------------- ----------------------------
Name on Exercise price) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alan A. Steigrod 0 $ 0 175,007 100,593 $ 0 $ 0
D. Scott Hagen 0 0 22,800 16,200 7,000 0
</TABLE>
EMPLOYMENT AND CONSULTING AGREEMENTS
In February 1993, the Company entered into a three-year employment agreement
with Mr. Steigrod. Mr. Steigrod resigned as President and Chief Executive
Officer as of October 31, 1995. Under the agreement, Mr. Steigrod was
entitled to a base salary of $210,000 per year with an annual bonus at the
discretion of the Board of Directors of the Company, in cash and/or equity
equal to between 15% and 50% of his base salary. In connection with his
employment, Mr. Steigrod was granted options to purchase an aggregate of
180,000 shares of Common Stock, of which 100,000 shares have an exercise
price of $8.75, the fair market value on the date of grant, and 80,000 shares
have an exercise price of $4.375, representing 50% of fair market value on
the date of grant. The options were 20% vested on the date of grant with the
balance vesting periodically through January 31, 1998. In March 1995, 100,000
of these options were canceled and reissued as options to purchase 100,000
shares of common stock at $3.50 per share, the then fair market value of the
common stock. Options to purchase an additional 95,600 shares with an
exercise price of $9.375 per share, representing 100% of then fair market
value, were granted to Mr. Steigrod on December 1, 1993 pursuant to a
one-time anti-dilution provision in his employment agreement. These options
were canceled on March 23, 1995 and reissued as options to purchase 65,560
shares of common stock at an exercise price of $3.50 per share, the then fair
market value of the common stock, and options to purchase 30,040 shares of
common stock at $4.50 per share. Such options have a term and vesting
provisions identical to the options described above. In June 1995, Mr.
Steigrod's annual salary was voluntarily decreased by $10,000.
Mr. Hagen entered into a three-year employment agreement with the Company,
commencing September 1, 1988. The employment agreement was renewed for
additional one-year terms as of September 1, 1991, 1992 and 1993, and was
amended and extended effective September 1, 1994 for a term ending December
31, 1995. The agreement currently provides for a base salary of $130,000 with
an annual bonus of between $10,000 and $30,000. In December 1993, options to
purchase a total of 14,000 shares of Common Stock at an exercise price of
$2.50 per share, which were originally granted in 1989, were extended by the
Stock Option Committee for an additional three-year period, or until February
1997. The aggregate difference between exercise price and fair market value
of the Common Stock on the date of the extension has been recorded as
compensation expense. In the event that Mr. Hagen's employment is terminated
other than for cause or as a result of his voluntary resignation, death or
disability, he will receive a severance payment equal to six months' salary.
Mr. Hagen voluntarily reduced his annual compensation by $5,000 beginning
June 1, 1995.
Drs. Carl W. Cotman and Gary S. Lynch (both of whom are co-founders and
Scientific Directors of the Company) have each entered into a consulting
agreement with the Company that provides for the payment of an annual
consulting fee of $30,000. In December 1993, Dr. Lynch was awarded a bonus of
$25,000 by the Board of Directors in recognition of his contributions to the
AMPAKINE program. In September 1994, and again in July 1995, his consulting
fee was increased to $50,000 and $75,000 per year, respectively. Also in
September 1994, Dr. Cotman's consulting fee was increased to $33,000 per
year. The term of each consulting agreement commenced in November 1987 and
will continue until terminated by the respective parties thereto. The
consulting agreements obligate the respective consultants to make themselves
available to the Company for consulting and advisory services for an average
of three days per month. In June 1995, each of the consultants voluntarily
reduced their annual consulting fees by $10,000. In December 1993, the Board
of Directors instructed its Stock Option Committee to annually review the
contributions of Drs. Cotman and Lynch and to grant stock options in
recognition of those contributions, and to encourage future contributions, to
them in such amounts as are deemed
32
<PAGE>
appropriate by the Committee. On December 13, 1993, the Committee granted
options to purchase 5,000 shares of Common Stock, with an exercise price
equal to 100% of fair market value of the Common Stock on the date of grant
and vesting over a three-year period, to each of Drs. Cotman and Lynch. On
the same date, an additional option to purchase 7,000 shares of Common Stock,
with an exercise price equal to 100% of fair market value of the Common Stock
and full vesting on the date of grant, was granted to Dr. Lynch in
recognition of his contributions to the AMPAKINE-TM- program. On March 24, 1994,
the Committee granted options to purchase 5,000 shares of Common Stock, with
an exercise price equal to 100% of fair market value of the Common Stock on
the date of grant and vesting over a three-year period, to each of Drs.
Cotman and Lynch. On December 15, 1994, the Committee granted options to
purchase 20,000 shares of Common Stock with an exercise price of $3.125 per
share, the then fair market value, and vesting over a four-year period to Dr.
Cotman. On the same date, Dr. Lynch was granted options to purchase 70,000
shares of Common Stock at the same exercise price, and with the same vesting
period. On November 1, 1995, the Stock Option Committee granted options to
Dr. Lynch to purchase 50,000 shares of Common Stock with an exercise price of
$3.75 per share, the then fair market value, and vesting over a three-year
period, subject to the approval by the Company's stockholders, at the Company's
Annual Meeting of Stockholders to be held on December 12, 1995, of an
amendment to the 1989 Special Nonqualified Stock Option and Stock Purchase
Plan. See also "Director Compensation."
Dr. Davis L. Temple, a director of the Company, signed a consulting agreement
with the Company that includes the payment of consulting fees of $10,000 for
each six months of service. On February 27, 1995, the Stock Option Committee,
in recognition of his contributions to the Company, granted Dr. Temple an
option to purchase 20,000 shares of the Company's common stock at an exercise
price of $2.125 per share, representing the fair market value of the common
stock on that date. See also "Director Compensation."
DIRECTOR COMPENSATION
Each non-employee director (other than those who join the Board of Directors
to oversee an investment in the Company) receives $1,500 at each Board of
Directors meeting attended, and an additional $750 annual retainer for each
committee on which he or she serves.
Under the Company's 1989 Incentive Stock Option, Nonqualified Stock Option
and Stock Purchase Plan, each non-employee director (other than those who
serve on the Board of Directors to oversee an investment in the Company) is
automatically granted options to purchase 15,000 shares of Common Stock upon
commencement of service as a director and additional options to purchase
2,500 shares of Common Stock on the date of each Annual Meeting of
Stockholders. These nonqualified options 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 in equal increments of 25% on the anniversary dates of
the dates of grant. Non-employee directors who serve on the Board of
Directors to oversee an investment in the Company receive options to purchase
5,000 shares of Common Stock upon commencement of service as a director and
additional options to purchase 1,000 shares of Common Stock on the date of
each Annual Meeting of Stockholders. These nonqualified options 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 in equal increments of 25%
on the last day of each calendar quarter following the dates of grant. The
foregoing plan is subject to approval by the Company's stockholders.
CERTAIN TRANSACTIONS
The Company's Restated Certificate of Incorporation provides that, pursuant
to Delaware law, directors of the Company shall not be liable for monetary
damages for breach of the directors fiduciary duty of care to the Company
and its stockholders. This provision does not eliminate the duty of care, and
in appropriate circumstances equitable remedies such as injunctions or other
forms of non-monetary relief remain available under Delaware law. In
addition, each director will continue to be subject to liability for breach
of the director's duty of loyalty to the Company, for acts or omissions not
in good faith or involving intentional misconduct, for knowing violations of
law, for actions leading to improper personal benefit to the director and for
payment of dividends or approval of stock repurchases or redemptions that are
unlawful under Delaware law. The provision also does not affect a director's
responsibility under any other law, such as the Federal securities laws. The
Company has entered into Indemnification Agreements with each of the officers
and directors that obligate the Company to indemnify such officers and
directors as permitted by applicable law.
33
<PAGE>
On July 23, 1993, the Company entered into an agreement with Vector
Securities International, Inc. ("Vector"), under which it was agreed that
Vector would serve the Company through November 30, 1995 as exclusive
financial advisor in financial transactions and corporate partnering
activities, as placement agent in future private offerings of securities of
the Company and as co-managing underwriter in future public offerings of
securities of the Company. In connection with the agreement, Vector was paid
a $50,000 financial advisory fee and was issued a five-year non-redeemable
warrant to purchase 10,000 shares of Common Stock. The Company also granted
Vector a right of first refusal to act as co-managing underwriter in any
public offering or as placement agent in any private placement completed
prior to December 1, 1995. See "Description of Securities--Vector Warrants."
On December 1, 1993, the Company completed a $2.75 million private placement
of its securities, for which Vector served as the placement agent. Vector was
paid a placement agent fee of $1,096,800, was reimbursed for expenses
aggregating $100,000, and was issued a five-year non-redeemable warrant to
purchase 274,200 shares of Common Stock. In connection with Vector's
assistance in reaching the settlement with Alkermes (See "Business--Legal
Proceedings"), this warrant was cancelled and reissued as a new warrant to
purchase 210,000 shares of the Company's common stock at $6.00 per share, at
any time through January 15, 2000. See "Description of Securities--Vector
Warrants."
As consideration for its agreement to provide financial advisory services
related to corporate finance transactions and corporate partnering
activities, as amended and extended November 29, 1994, Vector was paid an
additional cash retainer of $50,000 and was issued a six-year non-redeemable
warrant to purchase 35,000 shares of the Company's common stock at $5.00 per
share, subject to adjustment under certain circumstances. Warrants to
purchase 5,000 shares of the Company's common stock vested immediately, and
warrants to purchase 15,000 shares of the Company's common stock shall vest
upon the consummation of each strategic alliance when and as secured by
Vector. Such strategic alliance may include, but is not limited to, a joint
venture, partnership, license or other contract for the research,
development, manufacture, distribution, sale or other activity relating to
the Company's present or future products, the sale of any of the Company's
assets or any rights in respect to its products or technology, or a
commitment to provide funding for all or part of the Company's research and
development activities. For its financial advisory assistance related to the
licensing of the Company's calpain inhibitor technology,in January 1995 the
Company paid a $20,000 cash retainer and issued to Vector a five-year
non-redeemable warrant to acquire 50,000 shares of the Company's common stock
at $3.00 per share, subject to adjustment under certain circumstances. The
Company may be required to make additional payments of up to $500,000 for
each strategic alliance secured by Vector prior to May 29, 1997. If a sale of
the Company as presented by Vector is consummated before November 29, 1997, a
fee of up to 3% of the aggregate consideration to be received by the Company
will also be due and payable. See "Description of Securities--Vector Warrants."
On January 7, 1992, in connection with the Alkermes Agreement (see "Legal
Proceedings") the Company sold 150,000 shares of its Common Stock and issued
warrants to purchase up to an additional 400,000 shares of Common Stock to
Alkermes, for a total consideration of $1,500,000. Under the warrant
agreements, 200,000 shares of common stock were purchasable by Alkermes
through January 6, 1995 for $12.50 per share. These warrants have since
expired. Another 200,000 shares of common stock may be purchased by Alkermes
at any time through January 6, 1996 for $37.50 per share, as adjusted and
subject to further adjustment under certain circumstances such as stock
splits or stock dividends. Alkermes was also granted certain registration
rights under the federal securities laws. (See "Description of Securities--
Warrants" and "Description of Securities--Registration Rights").
34
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, to the knowledge of the Company, certain
information regarding the beneficial ownership of the Company's Common Stock
as of September 30, 1995, by (i) each person known by the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock, (ii) each
of the Company's directors and nominees, (iii) each of the named executive
officers in the Summary Compensation Table and (iv) all of the Company's
executive officers and directors as a group. Except as indicated in the
footnotes to this table, the Company believes that the persons named in this
table have sole voting and investment power with respect to the shares of
Common Stock indicated.
<TABLE>
<CAPTION>
DIRECTORS, NOMINEES, SHARES PERCENT OF
OFFICERS, AND 5% BENEFICIALLY COMMON STOCK
STOCKHOLDERS OWNED BENEFICIALLY OWNED
----------------------------------------------------------------------------------
<S> <C> <C>
Jerome M. Arnold 3,250 (1) *
Carl W. Cotman, Ph.D. 104,584 (2) 1.7
D. Scott Hagen 23,200 (3) *
Michael G. Grey 4,250 (4) *
Gary S. Lynch, Ph.D. 123,974 (5) 2.0
Harvey S. Sadow, Ph.D. 23,250 (6) *
Alan A. Steigrod 197,500 (7) 3.1
Davis L. Temple, Jr., Ph.D. 4,250 (8) *
Robert F. Allnut 0 *
Alkermes, Inc. 350,000 (9) 5.5
64 Sidney Street
Cambridge, MA 02139
Quantum Partners LDC 1,100,000 17.9
Soros Fund Management
888 Seventh Avenue, 33rd Floor
New York, NY 10106
All officers, directors and nominees
as a group (9 persons) 481,258 7.5
</TABLE>
- -------------------
* Less than one percent
(1) Includes 3,250 shares that may be purchased upon exercise of options within
60 days of September 30, 1995.
(2) Includes 6,584 shares that may be purchased upon exercise of options within
60 days of September 30, 1995.
(3) Includes 22,800 shares that may be purchased upon exercise of options
within 60 days of September 30, 1995.
(4) Includes 1,250 shares that may be purchased upon exercise of options within
60 days of September 30, 1995.
(5) Includes 10,334 shares that may be purchased upon exercise of options
within 60 days of September 30, 1995.
(6) Includes 13,250 shares that may be purchased upon exercise of options
within 60 days of September 30, 1995.
(7) Includes 194,300 shares that may be purchased upon exercise of options
within 60 days of September 30, 1995.
35
<PAGE>
(8) Includes 4,250 shares that may be purchased upon exercise of options within
60 days of September 30, 1995.
(9) Includes 200,000 shares that may be acquired upon exercise of warrants.
The Company is not aware of any arrangements that may at a subsequent date
result in a change of control of the Company.
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of: 20,000,000 shares of
Common Stock, par value $0.001 per share, and 5,000,000 shares of Preferred
Stock, par value $0.001 per share, of which 1,250,000 shares have been
designated as 9% Cumulative Convertible Preferred Stock (the "9% Preferred
Stock") and 3,200,000 shares have been designated as Series B Convertible
Preferred Stock (the "Series B Preferred Stock").
As of September 30, 1995, there were 6,159,855 shares of Common Stock,
110,000 shares of 9% Preferred Stock, 150,000 shares of Series B Preferred
Stock, 2,199,990 Class A warrants, 10 Class B warrants, and 1,060,417 Class C
warrants outstanding. As of the same date, Alkermes, Inc. ("Alkermes") held
warrants to acquire 200,000 shares of Common Stock and Vector Securities
International, Inc. ("Vector") held warrants to acquire 305,000 shares of
Common Stock. Also as of September 30, 1995, there were 612 record holders of
Common Stock, 4 record holders of 9% Preferred Stock, 3 record holders of
Series B Preferred Stock, 32 record holders of Class A warrants, 1 record
holder of Class B warrants, 49 record holders of Class C warrants, one record
holder of the Alkermes warrants and one record holder of the Vector warrants.
An aggregate of 571,997, 572,000 and 275,708 shares of Common Stock are
issuable upon exercise of the Class A, Class B and Class C warrants,
respectively. In addition, as of September 30, 1995 the Company had reserved
an aggregate of 274,371 shares of Common Stock for issuance upon exercise of
outstanding stock options held by employees, officers and consultants to the
Company, 14,667 shares for issuance upon conversion of the 9% Preferred
Stock, 14,717 shares for issuance upon conversion of the Series B Preferred
Stock, 200,000 shares for issuance upon exercise of the Alkermes warrants,
369,200 shares for issuance upon exercise of the Vector warrants and an
aggregate of 209,510 shares for issuance upon exercise of Unit Purchase
Options (including the warrants included therein).
UNITS AND UNIT PURCHASE OPTIONS
In July 1989, the Company publicly offered and sold Units consisting of 0.6
shares of Common Stock and two Class A warrants. The components of the Units
were immediately and separately transferable. As adjusted for subsequent
equity placements, each Class A warrant entitles the registered holder
thereof to purchase 0.26 shares of Common Stock and one Class B warrant, and
each Class B warrant entitles the registered holder thereof to purchase 0.26
shares of Common Stock.
In connection with its initial public offering, the Company sold to D.H.
Blair Investment Banking Corp. ("Blair Investment") and certain of its
affiliates, for nominal consideration, Unit Purchase Options to acquire
110,000 Units, with each Unit consisting of 0.60 shares of Common Stock and
two Class A warrants, at a price of $46.50 per Unit from July 18, 1991
through July 17, 1994. In connection with subsequent issuances of securities
by the Company, the number of Units purchasable under the Unit Purchase
Options was adjusted to 29,930 and the per Unit purchase price was adjusted
to $34.95, in accordance with anti-dilution provisions of the Unit Purchase
Options. The exercise price of the Class A warrants issuable upon exercise of
the Unit Purchase Options is $15.05 per share, as adjusted and subject to
further adjustment. In connection with the surrender in July 1993 by Blair
Investment of a right of first refusal to act as placement agent or
underwriter in future financings, the Company agreed to reissue new Unit
Purchase Options with identical terms except with an expiration date of
January 18, 1996.
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote per share held
of record on all matters submitted to a vote of stockholders, including the
election of directors. The holders of Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors, in its
discretion, out of funds legally available therefor, subject to preferences
36
<PAGE>
that may be applicable to any outstanding shares of Preferred Stock. See
"Dividend Policy." In the event of a liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to share ratably in
all of the assets of the Company remaining after payment of liabilities and
after payment of any preferential amounts to which holders of shares of the
9% Preferred Stock, the Series B Preferred Stock, and any other series of
Preferred Stock that may be outstanding in the future, may be entitled.
Holders of Common Stock have no preemptive or other subscription rights, and
there are no conversion rights or redemption or sinking fund provisions with
respect to such shares. All of the outstanding shares of Common Stock are,
and the Shares of Common Stock when issued will be, fully paid and
nonassessable.
WARRANTS
CLASS A, CLASS B AND CLASS C WARRANTS
Each Class A warrant represents the right to purchase 0.26 shares of Common
Stock and one Class B warrant at an exercise price of $10.62 per share,
subject to further adjustment. The Class A warrants are subject to redemption
by the Company at any time on 30 days' prior written notice at $0.25 per
warrant if the average closing bid price of the Common Stock in the
over-the-counter market as reported by NASDAQ ("Average Closing Bid Price")
exceeds $21.25 per share for any period of 30 consecutive trading days ending
within 15 days prior to the date of the notice of redemption.
Each Class B warrant represents the right to purchase 0.26 shares of Common
Stock at an exercise price of $16.415 per share, subject to further
adjustment. The Class B warrants are, as issued upon exercise of Class A
warrants, separately transferable. The Class B warrants are subject to
redemption by the Company at any time after issuance on 30 days' prior
written notice at $0.25 per warrant if the Average Closing Bid Price of the
Common Stock exceeds $30.00 per share for any consecutive 30 trading days
ending within 15 days prior to the date of the notice of redemption.
The Class A and Class B warrants were to expire on April 17, 1995 and July
17, 1995, respectively. On February 27, 1995, the Company extended the
expiration dates of the Class A and Class B warrants to December 31, 1995.
The Class A warrants and Class B warrants underlying the Unit Purchase
Options are exercisable through January 18, 1996 and are not subject to
redemption by the Company. The Class A warrants included in the Unit Purchase
Options are exercisable at $15.05 rather than $10.62, subject to further
adjustment. With the exception of the warrants included as a part of, and
issued under, the Unit Purchase Options, all of the warrants of a particular
class must be redeemed if any of that class is redeemed.
The Class A warrants and Class B warrants (including those issuable upon
exercise of the Unit Purchase Options) were issued under and are governed by
a warrant agreement among the Company, American Stock Transfer and Trust
Company, as warrant agent (the "Warrant Agent"), and Blair Investment, a copy
of which is included as an exhibit to the Registration Statement of which
this Prospectus is a part. The summary of certain provisions of the warrant
agreement contained in this Prospectus does not purport to be complete and is
qualified in all respects by reference to the warrant agreement. The exercise
prices of the Class A warrants and Class B warrants were determined by
negotiation between the Company and Blair Investment in connection with the
Company's initial public offering of Units in July 1989, and should not be
construed to be predictive of or to imply that any price increases will occur
in the Company's securities.
In May 1991, the Company completed a private placement of its Series B
Convertible Preferred Stock and Class C warrants. Each Class C warrant
represents the right to purchase 0.26 shares of Common Stock at an exercise
price of $9.185 per share, subject to further adjustment. The Class C
warrants were immediately exercisable and are subject to redemption by the
Company at any time on 30 days' prior notice at $0.10 per warrant if the
Average Closing Bid Price is in excess of $23.56 per share for any
consecutive 30 trading days ending within 15 days prior to the date of the
notice of redemption. On February 27, 1995, the expiration date for the Class
C warrants was extended from April 30, 1995 to December 31, 1995. The Class C
warrants were issued under and are governed by a warrant agreement among the
Company, American Stock Transfer and Trust Company as Warrant Agent and Blair
Investment (the Company's selling agent in the private placement) a copy of
which is included as an exhibit to the Registration Statement of which this
Prospectus is a part. The summary of certain provisions of the Class C
warrant agreement contained in this Prospectus does not purport to be
complete and is qualified in all respects by reference to the Class C
warrant agreement. The exercise price of the Class C
37
<PAGE>
warrants was determined by negotiation between the Company and Blair
Investment, and should not be construed to be predictive of or to imply that
any price increases will occur in the Company's securities.
Upon notice to the warrant holders, the Company has the right to reduce the
exercise price or extend the expiration date of the warrants. The exercise
prices of the warrants and the number and kind of shares of Common Stock or
other securities and property to be obtained upon exercise are subject to
adjustment under certain circumstances including a stock split or stock
dividend; a subdivision, combination or recapitalization of the Common Stock;
or the sale of Common Stock at a price less than the fair market value of the
Common Stock. Additionally, an adjustment would be made upon the sale of all
or substantially all of the assets of the Company so as to enable warrant
holders to purchase the kind and number of shares of stock or other
securities or property (including cash) receivable in such event by a holder
of the number of shares of Common Stock that might otherwise have been
purchased upon exercise of such warrants. No adjustment for previously paid
cash dividends, if any, will be made upon exercise of the warrants.
ALKERMES WARRANTS
On January 7, 1992, the Company issued to Alkermes non-redeemable warrants to
purchase up to 400,000 shares of Common Stock (the "Alkermes Warrants").
Under the warrant agreements, 200,000 shares of common stock were purchasable
by Alkermes through January 6, 1995 for $12.50 per share. These warrants have
since expired. Another 200,000 shares of common stock may be purchased by
Alkermes at any time through January 6, 1996 for $37.50 per share, as
adjusted and subject to further adjustment under certain circumstances such
as stock splits or stock dividends. The Alkermes Warrants were issued under
and are governed by agreements between the Company and Alkermes, copies of
which are included as exhibits to the Registration Statement of which this
Prospectus is a part. The summary of certain provisions of the Alkermes
Warrants contained in this Prospectus does not purport to be complete and is
qualified in all respects by reference to such agreements. The exercise
prices of the Alkermes Warrants were determined by negotiation between
Alkermes and the Company and should not be construed to be predictive of or
to imply that any price increases will occur in the Company's securities. See
"Business--Satellite Research Programs Brain--Damage Following Stroke."
VECTOR WARRANTS
On July 23, 1993, in connection with the appointment of Vector Securities
International, Inc. as exclusive financial advisor to the Company, Cortex
issued to Vector a non-redeemable warrant to purchase 10,000 shares of Common
Stock at a price of $7.75 per share, subject to adjustment under certain
circumstances such as stock splits or stock dividends, at any time through
July 22, 1998.
On December 1, 1993, in connection with the closing of a private placement of
2,750,000 shares of Common Stock, for which Vector acted as placement agent,
the Company issued to Vector a similar warrant to purchase 274,200 shares of
Common Stock at a price of $9.375 per share at any time through November 30,
1998. As consideration for Vector's assistance in reaching the settlement
with Alkermes (see "Business--Legal Proceedings"), this warrant was cancelled
and reissued as a new warrant to purchase 210,000 shares of the Company's
common stock at $6.00 per share, at any time through January 15, 2000.
As consideration for its agreement to provide financial advisory services
related to corporate finance transactions and corporate partnering
activities, as amended and extended November 29, 1994, Vector was issued a
six-year non-redeemable warrant to purchase 35,000 shares of the Company's
common stock at $5.00 per share, subject to adjustment under certain
circumstances. Warrants to purchase 5,000 shares of the Company's common
stock vested immediately, and warrants to purchase 15,000 shares of the
Company's common stock shall vest upon the consummation of each strategic
alliance, as defined, when and as secured by Vector.
For its financial advisory assistance related to the licensing of the Company's
calpain inhibitor technology, in January 1995 the Company issued Vector a
five-year non-redeemable warrant to acquire 50,000 shares of the Company's
common stock at $3.00 per share, subject to adjustment under certain
circumstances, such as stock splits or stock dividends.
38
<PAGE>
PREFERRED STOCK
The holders of the 9% Preferred Stock are not entitled to vote for the
election of directors or upon any other matter presented to the stockholders'
except and to the extent provided by applicable law. The holders of the 9%
Preferred Stock are entitled to receive cumulative dividends, from and after
June 15, 1989, at the rate of $.09 per share per annum, out of funds legally
available therefor, when and as declared by the Board of Directors. Upon any
liquidation, dissolution or winding up of the Company, or any merger or
consolidation of the Company or other transaction in which more than 50% of
the Company's voting power is transferred (except for an issuance of the
Company's securities), the holders of the 9% Preferred Stock are entitled to
receive an amount equal to $1.00 per share plus accrued and unpaid dividends.
The holders of the 9% Preferred Stock are not entitled to share in assets
remaining after such preference is satisfied. The Company has the right at
any time to redeem the 9% Preferred Stock, in whole or in part, upon not less
than 30 days' nor more than 60 days' written notice, at a price of $1.00 per
share.
On July 28, 1994, holders of 63,750 shares of 9% Preferred Stock elected to
have their shares redeemed at a price of $1.00 per share. This redemption was
pursuant to a notice by the Company that its total stockholders' equity
exceeded $5,000,000, which notice the Company was required to provide within
30 days after the last day of the first calendar quarter with respect to
which, as of the last day of such calendar quarter, its total stockholders'
equity was found to exceed $5,000,000. In connection with the provision of
such notice, on January 28, 1994, the Company complied with the applicable
provisions of Rule 13e-4 under the Securities Exchange Act of 1934 and filed
with the Securities and Exchange Commission an Issuer Tender Offer Statement
on Schedule 13E-4.
Each share of 9% Preferred Stock is convertible at any time at the option of
the holder thereof into approximately 0.1333 shares of Common Stock, for an
effective conversion price of $7.50 per share, subject to adjustment under
certain circumstances (such as a stock dividend or a stock split) that result
in an increase in the number of shares of Common Stock outstanding. Upon
conversion of 9% Preferred Stock, accrued and unpaid dividends pertaining
thereto do not convert to Common Stock, but rather are credited to additional
paid-in capital.
The holders of Series B Preferred Stock are not entitled to vote for the
election of directors or upon any other matter presented to the stockholders',
except and to the extent provided by applicable law. In the event of any
liquidation, dissolution, winding-up or other distribution of the assets of
the Company, holders of Series B Preferred Stock are entitled to receive,
after payment of the full liquidation preference to holders of 9% Preferred
Stock, an amount equal to $0.6667 per share of Series B Preferred Stock. The
Company has the right to redeem the Series B Preferred Stock for $0.6667 per
share at any time after May 1, 1996. Each share of Series B Preferred Stock
is convertible at any time at the option of the holder thereof into
approximately 0.09812 shares of Common Stock at an effective conversion price
of $6.795 per share, subject to adjustment under certain circumstances (such
as a stock dividend or a stock split) that result in an increase in the
number of shares of Common Stock outstanding.
The Restated Certificate of Incorporation of the Company authorizes the
issuance of 5,000,000 shares of Preferred Stock, of which 550,000 shares
remain undesignated. The Board of Directors, within the limitations and
restrictions contained in the Restated Certificate of Incorporation and
without further action by the Company's stockholders', has the authority to
issue this undesignated Preferred Stock from time to time in one or more
series and to fix the number of shares and the relative rights, conversion
rights, voting rights, rights and terms of redemption, liquidation
preferences and any other preferences, special rights and qualifications of
any such series. If shares of Preferred Stock with voting rights are issued,
such issuance could affect the voting rights of the holders of the Company's
Common Stock by increasing the number of outstanding shares entitled to vote
and by the creation of class or series voting rights. In addition, any
further issuance of Preferred Stock could, under certain circumstances, have
the effect of delaying or preventing a change in control of the Company and
may adversely affect the rights of holders of Common Stock. Other than the
shares of 9% Preferred Stock and Series B Preferred Stock, there are no
shares of Preferred Stock currently issued and outstanding and the Company
has no present plans to issue any additional shares of Preferred Stock or to
establish or designate any new series of Preferred Stock.
39
<PAGE>
TRANSFER AGENT AND WARRANT AGENT
American Stock Transfer and Trust Company, 40 Wall Street, New York, New
York, 10005 serves as Transfer and Warrant Agent for the Common Stock, 9%
Preferred Stock, Series B Preferred Stock and Class A, Class B and Class C
warrants of the Company.
REGISTRATION RIGHTS
Holders of the Unit Purchase Options, Alkermes and Vector warrants have
certain demand and/or piggyback registration rights that pertain, in the
aggregate, to 864,510 shares of Common Stock, of which 150,000 shares are
presently outstanding. Any exercise of these registration rights will result
in additional shares becoming freely tradable and may hinder efforts by the
Company to arrange future financings.
The effect, if any, of public sales of previously restricted shares of Common
Stock or the availability of such shares for future sale at prevailing market
prices cannot be predicted. Nevertheless, the resale of substantial amounts
of previously restricted shares in the public market, either through exercise
of registration rights or in reliance upon Rule 144, may adversely affect
prevailing market prices for the Common Stock.
SELLING STOCKHOLDERS
The Shares are to be offered by and for the respective accounts of the
Selling Stockholders. The number of Shares which each Selling Stockholder may
offer is as follows:
Shares offered
pursuant
Shares owned to this
Selling Stockholder before offering Prospectus
- ------------------------------------------------------------------------
Bernstein, Thomas J. . . . . . . . . . . 10,000 10,000
Quantum Partners LDC . . . . . . . . . . 1,100,000 1,100,000
Smith, Richard A. . . . . . . . . . . . 20,000 20,000
Vector Securities International, Inc. . 275,000 (1) 220,000
- ------------------
(1) Includes an aggregate of 275,000 shares of Common Stock that may be
acquired upon exercise of warrants. Vector Securities International,
Inc. acts as a financial advisor to the Company and acted as placement
agent for the Regulation D Placement.
PLAN OF DISTRIBUTION
The Company has been advised by each Selling Stockholder that the Selling
Stockholder may sell its Shares from time to time in transactions on Nasdaq
in negotiated transactions, by writing options on the Shares or by a
combination of these methods, at fixed prices which may be changed, at market
prices at the time of sale, at prices related to market prices or at
negotiated prices. The Selling Stockholders may effect these transactions by
selling the Shares to or through broker-dealers, who may receive compensation
in the form of discounts, concessions or commissions from the Selling
Stockholders or the purchasers of the Shares for whom the broker-dealer may
act as an agent or to whom they may sell the Shares as a principal, or both.
The compensation to a particular broker-dealer may be in excess of customary
commissions.
The Selling Stockholders and broker-dealers who act in connection with the
sale of the Shares may be deemed to be "underwriters" within the meaning of
the Securities Act, and any commissions received by such broker-dealers and
profits on any resale of the Shares as a principal may be deemed to be
underwriting discounts and commissions under the Securities Act.
40
<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Stradling, Yocca, Carlson & Rauth, a Professional Corporation,
Newport Beach, California.
EXPERTS
The financial statements of Cortex Pharmaceuticals, Inc. as of June 30, 1995
and 1994, for each of the two years in the period ended June 30, 1995, and
for the period from inception (February 10, 1987) through June 30, 1995,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
41
<PAGE>
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42
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheets -- As of September 30, 1995 (unaudited) and June 30, 1995,
and June 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Operations -- For the three-month periods ended
September 30, 1995 and 1994 (unaudited), the period from inception
(February 10, 1987) through September 30, 1995 (unaudited), the
years ended June 30, 1995 and 1994, and the period from inception
(February 10, 1987) through June 30, 1995 . . . . . . . . . . . . . . . . F-4
Statements of Stockholders' Equity -- For the period from
inception (February 10, 1987) through September 30, 1995. . . . . . . . . F-5
Statements of Cash Flows -- For the three-month periods ended
September 30, 1995 and 1994 (unaudited), the period from inception
(February 10, 1987) through September 30, 1995 (unaudited), the years
ended June 30, 1995 and 1994, and the period from inception (February
10, 1987) through June 30, 1995 . . . . . . . . . . . . . . . . . . . . . F-8
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE STOCKHOLDERS AND BOARD OF DIRECTORS
CORTEX PHARMACEUTICALS, INC.
We have audited the accompanying balance sheets of Cortex Pharmaceuticals,
Inc. as of June 30, 1995 and 1994, and the related statements of operations,
stockholders' equity and cash flows for the years then ended and for the
period from inception (February 10, 1987) through June 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cortex Pharmaceuticals, Inc.
at June 30, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended and for the period from inception (February
10, 1987) through June 30, 1995, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
San Diego, California
August 15, 1995,
except for Note 6, as to which the date is
October 5, 1995
F-2
<PAGE>
CORTEX PHARMACEUTICALS, INC.
(A development stage enterprise)
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, 1995 June 30, 1995 June 30, 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 89,974 $ 149,880 $ 160,956
U.S. Government securities -- available for sale 2,972,598 3,689,356 9,423,093
Other current assets 41,278 92,212 118,889
----------- ----------- ------------
Total current assets 3,103,850 3,931,448 9,702,938
Furniture, equipment and leasehold improvements, net 870,845 931,794 714,838
Other 23,659 23,130 24,222
----------- ----------- ------------
$3,998,354 $4,886,372 $10,441,998
----------- ----------- ------------
----------- ----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 413,630 $ 377,589 $ 497,156
Accrued dividends 54,450 183,150 175,669
Accrued wages, salaries and related expenses 31,523 35,223 47,542
Current obligations under capital lease 7,904 7,698 --
----------- ----------- ------------
Total current liabilities 507,507 603,660 720,367
Obligations under capital leases 7,951 10,016 --
Note payable issuable to Alkermes, Inc. 1,000,000 1,000,000 --
Redeemable preferred stock:
9% cumulative convertible preferred stock, $0.001
par value; $1.00 per share liquidation preference;
shares authorized: 1,250,000; shares issued and
outstanding: 433,750 (June 30, 1994) -- -- 433,750
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 and 1994) 86,810 303,837 303,837
Common stock, $0.001 par value; shares authorized:
20,000,000; shares issued and outstanding: 6,159,855
(September 30, 1995), 6,085,201 (June 30, 1995)
and 6,073,942 (June 30, 1994) 6,160 6,085 6,074
Additional paid-in capital 24,573,281 23,957,790 23,708,502
Deferred compensation (131,220) (145,359) (201,451)
Unrealized loss on available for sale
U.S. Government securities (6,474) (18,606) (163,562)
Deficit accumulated during the development stage (22,155,661) (21,201,051) (14,365,519)
----------- ----------- ------------
Total stockholders' equity 2,482,896 3,272,696 9,287,881
----------- ----------- ------------
$ 3,998,354 $ 4,886,372 $ 10,441,998
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
Period from Period from
(Unaudited) inception inception
Three months ended (February 10, (February 10,
September 30, 1987) through Years ended June 30, 1987) through
------------------------- September 30, --------------------------- June 30,
1995 1994 1995 1995 1994 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Research and license revenue under an
agreement with Alkermes, Inc. $ -- $ -- $ 3,600,000 $ -- $ -- $ 3,600,000
Grant revenue -- -- 94,717 -- 39,665 94,717
---------- ----------- ------------ ------------ ----------- ------------
Total revenues -- -- 3,694,717 -- 39,665 3,694,717
---------- ----------- ------------ ------------ ----------- ------------
Operating expenses:
Research and development 665,478 1,074,401 16,957,013 4,138,731 3,226,858 16,291,535
General and administrative 323,444 426,296 8,730,271 1,665,134 1,780,792 8,406,827
Settlement with Alkermes, Inc. -- -- 1,227,977 1,227,977 -- 1,227,977
---------- ----------- ------------ ------------ ----------- ------------
Total operating expenses 988,922 1,500,697 26,915,261 7,031,842 5,007,650 25,926,339
---------- ----------- ------------ ------------ ----------- ------------
Loss from operations (988,922) (1,500,697) (23,220,544) (7,031,842) (4,967,985) (22,231,622)
Interest income, net 34,312 44,812 1,204,557 196,310 262,994 1,170,245
---------- ----------- ------------ ------------ ----------- ------------
Net loss $(954,610) $(1,455,885) $(22,015,987) $ (6,835,532) $(4,704,991) $(21,061,377)
---------- ----------- ------------ ------------ ----------- ------------
---------- ----------- ------------ ------------ ----------- ------------
Weighted average common shares
outstanding 6,086,804 6,073,942 6,075,454 4,880,338
---------- ----------- ------------ -----------
---------- ----------- ------------ -----------
Net loss per share $ (0.16) $ (0.24) $ (1.13) $ (0.97)
---------- ----------- ------------ -----------
---------- ----------- ------------ -----------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
CORTEX PHARMACEUTICALS, INC.
(A development stage enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
9% Series B
convertible convertible Additional
preferred preferred Common paid-in Deferred
stock stock stock capital compensation
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 10, 1987
(date of inception) $ -- $ -- $ -- $ -- $ --
Sale of 1,420,000 shares of common stock,
$0.005 per share -- -- 1,420 5,680
Sale of 500,000 shares of common stock,
$2.50 per share, net of expenses -- -- 500 1,076,089 --
Issuance of 11,000 shares of common stock
for services, $2.50 per share -- -- 11 27,489 --
9% preferred stock accretion -- -- -- -- --
Net loss -- -- -- -- --
-------- ---------- ------ ---------- ----------
BALANCE, JUNE 30, 1988 -- -- 1,931 1,109,258 --
Conversion of subordinated convertible note
and interest payable into 83,868 shares of
common stock, $2.50 per share -- -- 84 209,586 --
Issuance of 500 shares of common stock for
services, $2.50 per share -- -- 1 1,249 --
Conversion of 5,000 shares of 9% preferred
stock into 3,333 shares of common stock -- -- 3 22,903 --
9% preferred stock dividends -- -- -- (55,125) --
9% preferred stock accretion -- -- -- -- --
Net loss -- -- -- -- --
-------- ---------- ------ ---------- ----------
BALANCE, JUNE 30, 1989 -- -- 2,019 1,287,871 --
Initial public offering of 660,000 shares of
common stock, $10.00 per share,
net of expenses -- -- 660 5,244,230 --
Redemption of 70,000 shares of common
stock, $0.005 per share -- -- (70) (280) --
9% preferred stock dividends -- -- -- (110,250) --
9% preferred stock accretion -- -- -- -- --
Net loss -- -- -- -- --
-------- ---------- ------ ---------- ----------
BALANCE, JUNE 30, 1990 -- -- 2,609 6,421,571 --
Sale of 3,181,253 shares of Series B
convertible preferred stock, $0.6667
per share, net of expenses -- 1,841,108 -- -- --
Conversion of 182,200 shares of 9% preferred
stock into 24,293 shares of common stock -- -- 24 170,039 --
Issuance of compensatory stock options -- -- -- 330,084 (291,938)
Amortization of deferred compensation -- -- -- -- 90,016
9% preferred stock dividends -- -- -- (85,653) --
9% preferred stock accretion -- -- -- -- --
Net loss -- -- -- -- --
-------- ---------- ------ ---------- ----------
BALANCE, JUNE 30, 1991 $ -- $1,841,108 $2,633 $6,836,041 $ (201,922)
-------- ---------- ------ ---------- ----------
<CAPTION>
Unrealized loss Deficit
on available accumulated
for sale U.S. during the
Government development
securities stage Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, FEBRUARY 10, 1987
(date of inception) $ -- $ -- $ --
Sale of 1,420,000 shares of common stock,
$0.005 per share -- -- 7,100
Sale of 500,000 shares of common stock,
$2.50 per share, net of expenses -- -- 1,076,589
Issuance of 11,000 shares of common stock
for services, $2.50 per share -- -- 27,500
9% preferred stock accretion -- (2,560) (2,560)
Net loss -- (400,193) (400,193)
----------- ----------- -----------
BALANCE, JUNE 30, 1988 -- (402,753) 708,436
Conversion of subordinated convertible note
and interest payable into 83,868 shares of
common stock, $2.50 per share -- -- 209,670
Issuance of 500 shares of common stock for
services, $2.50 per share -- -- 1,250
Conversion of 5,000 shares of 9% preferred
stock into 3,333 shares of common stock -- -- 22,906
9% preferred stock dividends -- -- (55,125)
9% preferred stock accretion -- (32,733) (32,733)
Net loss -- (1,222,517) (1,222,517)
----------- ----------- -----------
BALANCE, JUNE 30, 1989 -- (1,658,003) (368,113)
Initial public offering of 660,000 shares of
common stock, $10.00 per share,
net of expenses -- -- 5,244,890
Redemption of 70,000 shares of common
stock, $0.005 per share -- -- (350)
9% preferred stock dividends -- -- (110,250)
9% preferred stock accretion -- (33,064) (33,064)
Net loss -- (2,187,870) (2,187,870)
----------- ----------- -----------
BALANCE, JUNE 30, 1990 -- (3,878,937) 2,545,243
Sale of 3,181,253 shares of Series B
convertible preferred stock, $0.6667
per share, net of expenses -- -- 1,841,108
Conversion of 182,200 shares of 9% preferred
stock into 24,293 shares of common stock -- -- 170,063
Issuance of compensatory stock options -- -- 38,146
Amortization of deferred compensation -- -- 90,016
9% preferred stock dividends -- -- (85,653)
9% preferred stock accretion -- (32,075) (32,075)
Net loss -- (2,593,968) (2,593,968)
----------- ----------- -----------
BALANCE, JUNE 30, 1991 $ -- $(6,504,980) $ 1,972,880
----------- ----------- -----------
</TABLE>
CONTINUED . . .
<PAGE>
CORTEX PHARMACEUTICALS, INC.
(A development stage enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
(CONTINUED)
<TABLE>
<CAPTION>
9% Series B
convertible convertible Additional
preferred preferred Common paid-in Deferred
stock stock stock capital compensation
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1991 $ -- $1,841,108 $2,633 $ 6,836,041 $(201,922)
Sale of 150,000 shares of common stock to
Alkermes, Inc., $10.00 per share -- -- 150 1,499,850 --
Conversion of 306,275 shares of 9% preferred
stock into 40,835 shares of common stock -- -- 40 335,283 --
Conversion of 1,525,003 shares of Series B
preferred stock into 149,629 shares of
common stock -- (882,576) 150 882,426 --
Issuance of 73,979 shares of common stock
upon exercise of stock options -- -- 74 110,313 --
Issuance of two shares of common stock upon
exercise of warrants -- -- -- 27 --
Issuance of compensatory stock options -- -- 24,532 (19,375)
Forfeiture of compensatory stock options -- -- (146,182) 146,182
Amortization of deferred compensation -- -- -- -- 58,567
9% preferred stock dividends -- -- -- (68,906) --
9% preferred stock accretion -- -- -- -- --
Net loss -- -- -- -- --
-------- ---------- ------ ----------- ----------
BALANCE, JUNE 30, 1992 -- 958,532 3,047 9,473,384 (16,548)
Conversion of 287,150 shares of 9% preferred
stock into 38,287 shares of common stock -- -- 38 360,398 --
Conversion of 1,081,250 shares of Series B
preferred stock into 106,088 shares of
common stock -- (625,758) 106 625,652 --
Redemption of 12,627 shares of common
stock, $7.65 per share -- -- (12) (96,662) --
Issuance of 30,789 shares of common stock
upon exercise of stock options -- -- 31 60,915 --
Issuance of compensatory stock options -- -- -- 350,000 (280,000)
Amortization of deferred compensation -- -- -- -- 36,897
9% preferred stock dividends -- -- -- (53,028) --
9% preferred stock accretion -- -- -- -- --
Net loss -- -- -- -- --
-------- ---------- ------ ----------- ----------
BALANCE, JUNE 30, 1993 $ -- $ 332,774 $3,210 $10,720,659 $ (259,651)
-------- ---------- ------ ----------- ----------
<CAPTION>
Unrealized loss Deficit
on available accumulated
for sale U.S. during the
Government development
securities stage Total
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, JUNE 30, 1991 $ -- $(6,504,980) $ 1,972,880
Sale of 150,000 shares of common stock to
Alkermes, Inc., $10.00 per share -- -- 1,500,000
Conversion of 306,275 shares of 9% preferred
stock into 40,835 shares of common stock -- -- 335,323
Conversion of 1,525,003 shares of Series B
preferred stock into 149,629 shares of
common stock -- -- --
Issuance of 73,979 shares of common stock
upon exercise of stock options -- -- 110,387
Issuance of two shares of common stock upon
exercise of warrants -- -- 27
Issuance of compensatory stock options -- -- 5,157
Forfeiture of compensatory stock options -- -- --
Amortization of deferred compensation -- -- 58,567
9% preferred stock dividends -- -- (68,906)
9% preferred stock accretion -- (23,242) (23,242)
Net loss -- (2,354,770) (2,354,770)
----------- ----------- -----------
BALANCE, JUNE 30, 1992 -- (8,882,992) 1,535,423
Conversion of 287,150 shares of 9% preferred
stock into 38,287 shares of common stock -- -- 360,436
Conversion of 1,081,250 shares of Series B
preferred stock into 106,088 shares of
common stock -- -- --
Redemption of 12,627 shares of common
stock, $7.65 per share -- -- (96,674)
Issuance of 30,789 shares of common stock
upon exercise of stock options -- -- 60,946
Issuance of compensatory stock options -- -- 70,000
Amortization of deferred compensation -- -- 36,897
9% preferred stock dividends -- -- (53,028)
9% preferred stock accretion -- (16,000) (16,000)
Net loss -- (761,536) (761,536)
----------- ----------- -----------
BALANCE, JUNE 30, 1993 $ -- $(9,660,528) $ 1,136,464
----------- ----------- -----------
</TABLE>
CONTINUED . . .
<PAGE>
CORTEX PHARMACEUTICALS, INC.
(A development stage enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
(CONTINUED)
<TABLE>
<CAPTION>
9% Series B
convertible convertible Additional
preferred preferred Common paid-in Deferred
stock stock stock capital compensation
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1993 $ -- $332,774 $3,210 $10,720,659 $(259,651)
Sale of 2,750,000 shares of common stock,
$5.00 per share, net of expenses -- -- 2,750 12,359,611 --
Sale of 103,577 shares of common stock,
$6.40 per share, net of expenses -- -- 104 510,707 --
Conversion of 15,625 shares of 9% preferred stock
into 2,083 shares of common stock -- -- 2 20,545 --
Conversion of 50,000 shares of Series B preferred
stock into 4,906 shares of common stock -- (28,937) 5 28,932 --
Issuance of compensatory stock options -- -- -- 100,625 --
Amortization of deferred compensation -- -- -- -- 58,200
Issuance of 3,401 shares of common stock upon
exercise of stock options -- -- 3 6,461 --
9% preferred stock dividends -- -- -- (39,038) --
Unrealized loss on available for sale
U.S. Government securities -- -- -- -- --
Net loss -- -- -- -- --
-------- -------- ------ ----------- ----------
BALANCE, JUNE 30, 1994 -- 303,837 6,074 23,708,502 (201,451)
Reclassification of unredeemed 9%
preferred stock 370,000 -- -- -- --
Issuance of warrants to purchase
265,000 shares of common stock -- -- -- 232,746 --
Adjustment of accrued dividends for
redemption of 9% preferred stock -- -- -- 25,819 --
Issuance of 11,272 shares of common stock
upon exercise of stock options -- -- 11 24,023 --
Amortization of deferred compensation -- -- -- -- 56,092
9% preferred stock dividends -- -- -- (33,300) --
Decrease in unrealized loss on available
for sale U.S. Government securities -- -- -- -- --
Net loss -- -- -- -- --
-------- -------- ------ ----------- ----------
BALANCE, JUNE 30, 1995 $370,000 $303,837 $6,085 $23,957,790 $(145,359)
-------- -------- ------ ----------- ----------
Conversion of 260,000 shares of 9% preferred
stock into 34,667 shares of common stock (260,000) -- 35 388,665 --
Conversion of 375,000 shares of Series B preferred
stock into 36,793 shares of common stock -- (217,027) 37 216,990 --
Issuance of 3,401 shares of common stock upon
exercise of stock options -- -- 3 9,836 --
Amortization of deferred compensation -- -- -- -- 14,139
Decrease in unrealized loss on available for
sale U.S. Government securities -- -- -- -- --
Net loss -- -- -- -- --
-------- -------- ------ ----------- ----------
BALANCE, SEPTEMBER 30, 1995 (Unaudited) $110,000 $ 86,810 $6,160 $24,573,281 $ (131,220)
-------- -------- ------ ----------- ----------
<CAPTION>
Unrealized loss Deficit
on available accumulated
or sale U.S. during the
Government development
securities stage Total
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, JUNE 30, 1993 $ -- $ (9,660,528) $ 1,136,464
Sale of 2,750,000 shares of common stock,
$5.00 per share, net of expenses -- -- 12,362,361
Sale of 103,577 shares of common stock,
$6.40 per share, net of expenses -- -- 510,811
Conversion of 15,625 shares of 9% preferred stock
into 2,083 shares of common stock -- -- 20,547
Conversion of 50,000 shares of Series B preferred
stock into 4,906 shares of common stock -- -- --
Issuance of compensatory stock options -- -- 100,625
Amortization of deferred compensation -- -- 58,200
Issuance of 3,401 shares of common stock upon
exercise of stock options -- -- 6,464
9% preferred stock dividends -- -- (39,038)
Unrealized loss on available for sale
U.S. Government securities (163,562) -- (163,562)
Net loss -- (4,704,991) (4,704,991)
-------- ------------ -----------
BALANCE, JUNE 30, 1994 (163,562) (14,365,519) 9,287,881
Reclassification of unredeemed 9%
preferred stock -- -- 370,000
Issuance of warrants to purchase
265,000 shares of common stock -- -- 232,746
Adjustment of accrued dividends for
redemption of 9% preferred stock -- -- 25,819
Issuance of 11,272 shares of common stock
upon exercise of stock options -- -- 24,034
Amortization of deferred compensation -- -- 56,092
9% preferred stock dividends -- -- (33,300)
Decrease in unrealized loss on available
for sale U.S. Government securities 144,956 -- 144,956
Net loss -- (6,835,532) (6,835,532)
-------- ------------ -----------
BALANCE, JUNE 30, 1995 $(18,606) $(21,201,051) $ 3,272,696
-------- ------------ -----------
Conversion of 260,000 shares of 9% preferred
stock into 34,667 shares of common stock -- -- 128,700
Conversion of 375,000 shares of Series B preferre
stock into 36,793 shares of common stock -- -- --
Issuance of 3,401 shares of common stock upon
exercise of stock options -- -- 9,839
Amortization of deferred compensation -- -- 14,139
Decrease in unrealized loss on available for
sale U.S. Government securities 12,132 -- 12,132
Net loss -- (954,610) (954,610)
-------- ------------ -----------
BALANCE, SEPTEMBER 30, 1995 (Unaudited) $(6,474) $(22,155,661) $ 2,482,896
-------- ------------ -----------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
CORTEX PHARMACEUTICALS, INC.
(A development stage enterprise)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Period from Period from
(Unaudited) inception inception
Three months ended (February 10, (February 10,
September 30, 1987) through Years ended June 30, 1987) through
------------------------- September 30, --------------------------- June 30,
1995 1994 1995 1995 1994 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
NET LOSS $(954,610) $(1,455,885) $(22,015,987) $(6,835,532) $ (4,704,991) $(21,061,337)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 58,173 45,522 936,971 208,928 164,636 878,798
Settlement with Alkermes, Inc. -- -- 1,227,977 1,227,977 -- 1,227,977
Changes in operating assets/
liabilities:
Accounts payable and accrued
expenses 32,341 (109,689) 445,153 (131,886) 347,234 412,812
Accrued interest on U.S. Govt.
securities (21,080) (5,858) (39,041) 52,014 (69,975) (17,961)
Other current assets 50,934 (30,438) (41,278) 26,677 (43,297) (92,212)
Interest receivable from former
officer -- -- (19,274) -- -- (19,274)
Realized loss on sale of U.S. Govt.
securities 551 23,085 53,598 53,047 -- 53,047
Stock option compensation expense 14,139 14,138 527,839 56,092 158,825 513,700
Stock issued for services -- -- 28,750 -- -- 28,750
Reduction in note receivable from
former officer -- compensation
expense -- -- 22,600 -- -- 22,600
Other -- -- 7,989 4,769 1,253 7,989
--------- ---------- ------------ ---------- ----------- ------------
NET CASH USED IN OPERATING ACTIVITIES (819,552) (1,519,125) (18,864,703) (5,337,914) (4,146,315) (18,045,151)
--------- ---------- ------------ ---------- ---------- ------------
Cash flows from investing activities:
U.S. Government securities -- available
for sale
Purchases -- (3,853,748) (16,847,670) (3,868,775) (12,978,895) (16,847,670)
Sales 749,418 5,863,594 13,854,041 9,642,408 3,462,215 13,104,623
Purchase of fixed assets -- (135,134) (1,778,540) (401,912) (202,074) (1,778,540)
Sale of fixed assets 2,777 -- 10,236 -- 3,600 7,459
Decrease (increase) in --
Other assets (529) 1,092 (40,399) 1,092 (8,835) (39,870)
Note receivable from former officer -- -- (100,000) -- -- (100,000)
--------- ---------- ------------ ---------- ----------- ------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 751,666 1,875,804 (4,902,332) 5,372,813 (9,723,989) (5,653,998)
--------- ---------- ------------ ---------- ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 9,839 -- 20,913,098 24,034 12,879,636 20,903,259
Redemption of 9% preferred stock -- (63,750) (63,750) (63,750) -- (63,750)
Principal payments on capitalized leases (1,859) -- (8,118) (6,259) -- (6,259)
Proceeds from issuance of Series B
convertible preferred stock -- -- 1,841,108 -- -- 1,841,108
Proceeds from issuance of 9% preferred
stock -- -- 1,076,588 -- -- 1,076,588
Proceeds from subordinated convertible
note -- -- 208,333 -- -- 208,333
Payment of 9% preferred stock dividends -- -- (110,250) -- -- (110,250)
--------- ---------- ------------ ---------- ----------- ------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 7,980 (63,750) 23,857,009 (45,975) 12,879,636 23,849,029
--------- ---------- ------------ ---------- ----------- ------------
Increase (decrease) in cash and cash
equivalents (59,906) 292,929 89,974 (11,076) (990,668) 149,880
Cash and cash equivalents, beginning
of period 149,880 160,956 -- 160,956 1,151,624 --
--------- ---------- ------------ ---------- ----------- ------------
Cash and cash equivalents, end
of period $ 89,974 $ 453,885 $ 89,974 $ 149,880 $ 160,956 $ 149,880
--------- ---------- ------------ ---------- ----------- ------------
--------- ---------- ------------ ---------- ----------- ------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-8
<PAGE>
CORTEX PHARMACEUTICALS, INC.
(A development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
Period from inception (February 10, 1987) through September 30, 1995
ALL INFORMATION AS OF SEPTEMBER 30, 1995, FOR THE THREE-MONTH PERIODS ENDED
SEPTEMBER 30, 1995 AND 1994, AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 10,
1987) THROUGH SEPTEMBER 30, 1995 IS UNAUDITED. 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 FISCAL YEAR ENDING
JUNE 30, 1996.
NOTE 1 -- BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS -- Cortex Pharmaceuticals, Inc. (the "Company") was formed to engage
in the discovery and development of diagnostic and therapeutic products for
age-related diseases and disorders of the brain, such as Alzheimer's disease
and stroke. Since its formation in 1987, the Company has been engaged in
organizational activities and in internal and sponsored research and
development activities.
BASIS OF PRESENTATION; DEVELOPMENT STAGE ENTERPRISE -- From inception through
September 30, 1995, the Company has generated only modest operating revenues
and has incurred losses aggregating $22,015,947. As of September 30, 1995,
the Company had working capital of $2,596,343. Under current spending plans,
it is anticipated that this amount will be sufficient to meet the Company's
capital requirements through June 30, 1996. This planned spending
incorporates a reduction in personnel that was effected in June 1995 and a
continuing reduced level of effort in the Company's program to develop a
therapeutic for the treatment of the underlying pathology of Alzheimer's
disease. Successful completion of the Company's development plan 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. There can be no assurance that the Company will
be successful in these areas.
REVERSE STOCK SPLIT; AUTHORIZED SHARES -- 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
from 50,000,000 to 20,000,000, with no change in the par value of $0.001 per
share. The accompanying financial statements and all references to the number
of shares and per share amounts have been adjusted to reflect the effect of
the reverse split.
CASH EQUIVALENTS -- The Company considers all highly liquid short-term
investments with maturities of less than three months when acquired to be
cash equivalents.
INVESTMENTS IN DEBT SECURITIES -- Effective July 1, 1993, the Company adopted
FAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Implementation has not had a material effect on the results of
operations or the financial position of the Company. At September 30, 1995
and June 30, 1995, the Company's investments in debt securities consisted of
$2,972,598 and $3,689,356 of U.S. Government securities, respectively, with
maturities of six months or less. These securities are classified as
available for sale, and are carried at fair value, which is determined using
quoted market rates. Under FAS No. 115 guidelines, the amortized cost of debt
securities classified as available for sale is adjusted for amortization of
premiums and accretions of discounts to maturity. Such amortization and
accretion, as well as realized gains and losses, are included in net interest
income, while unrealized gains and losses are reported as a separate
component of stockholders' equity.
INCOME TAXES -- Effective July 1, 1993, the Company adopted FAS No. 109,
"Accounting for Income Taxes," which is an asset and liability approach that
requires the recognition of deferred assets and liabilities for expected
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. As permitted under the new standard,
financial statements for prior years have not been restated. The cumulative
effect of adopting FAS No. 109 as of July 1, 1993 was immaterial to the
Company.
F-9
<PAGE>
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS -- Furniture, equipment and
leasehold improvements are recorded at cost and are being 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.
NET LOSS PER SHARE -- Net loss per share is computed based on the weighted
average number of common shares outstanding during the period, and
incorporates preferred stock dividends that accrued during the period. Shares
issuable upon conversion of preferred stock and upon exercise of outstanding
stock options and warrants are not included since the effects would be
anti-dilutive.
RESEARCH AND DEVELOPMENT COSTS -- All costs related to research and
development activities are treated as expenses in the period incurred.
RECLASSIFICATIONS -- Certain previously reported amounts have been
reclassified to conform with the 1995 presentations.
NOTE 2 -- FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
September 30, 1995 June 30, 1995 June 30, 1994
-------------------------------------------------------
<S> <C> <C> <C>
Laboratory equipment $ 960,391 $ 963,169 $ 803,374
Leasehold improvements 575,367 575,367 315,367
Furniture and equipment 89,773 89,773 88,433
Computers and software 158,700 158,700 153,951
---------- ---------- ----------
1,784,231 1,787,009 1,361,125
Accumulated depreciation (913,386) (855,215) (646,287)
---------- ---------- ----------
$ 870,845 $ 931,794 $ 714,838
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
NOTE 3 -- PREFERRED STOCK
The Company has authorized a total of 5,000,000 shares of preferred stock,
par value $0.001 per share, of which 1,250,000 shares have been designated as
9% Cumulative Convertible Preferred Stock (non-voting, "9% Preferred");
3,200,000 shares have been designated as Series B Convertible Preferred Stock
(non-voting, "Series B Preferred"); and 550,000 shares are presently
undesignated and may be issued with such rights and powers as the Board of
Directors may designate.
The 9% Cumulative Convertible Preferred Stock as of September 30, 1995, June
30, 1995 and June 30, 1994 consisted of 110,000, 370,000 and 433,750 shares,
respectively, of an original 1,250,000 shares of 9% Preferred issued in
connection with a May 1988 private placement. Each share of 9% Preferred is
convertible into approximately 0.1333 shares of common stock at an effective
conversion price of $7.50 per share of common stock, as adjusted and subject
to further adjustment under certain circumstances, such as stock splits or
stock dividends. Cash dividends on shares of 9% Preferred accrue semiannually
on June 15th and December 15th at the rate of $0.09 per share per annum. In
order to conserve capital for operations, the Company has elected not to
distribute the dividends that have accrued from June 15, 1990. Upon
conversion of 9% Preferred, accrued and unpaid dividends are credited to
additional paid-in capital. Accrued and unpaid dividends as of September 30,
1995, June 30, 1995 and June 30, 1994 were $54,450, $183,150 and $175,669,
respectively. In July 1994, holders of 63,750 shares of 9% Preferred elected
to redeem their shares, for $1.00 per share, pursuant to a mandatory
redemption feature that has since expired. The Company may redeem the 9%
Preferred at any time at a price of $1.00 per share upon not less than 30 nor
more than 60 days' notice.
Series B Convertible Preferred Stock as of September 30, 1995, June 30, 1995
and June 30, 1994 consisted of 150,000, 525,000 and 525,000 shares,
respectively, of Series B Preferred issued in connection with a May 1991
private placement. The Company sold 42.4167 Units, with each Unit consisting
of 75,000 shares of Series B Preferred (for an aggregate of 3,181,253 shares)
and 25,000 Class C warrants (for an aggregate of 1,060,417 warrants; Note 4).
Each share of Series B Preferred is convertible into approximately 0.09812
shares of common
F-10
<PAGE>
stock at an effective conversion price of $6.795 per share of common stock,
as adjusted and subject to further adjustment under certain circumstances
such as stock splits or stock dividends. The Series B Preferred may be
redeemed by the Company at a price of $0.6667 per share upon 30 days' notice
at any time after May 1, 1996. The liquidation preference of the Series B
Preferred is subordinate to that of the 9% Preferred.
NOTE 4 -- COMMON STOCK AND COMMON STOCK PURCHASE WARRANTS
In July 1989, the Company completed an initial public offering of 1,100,000
Units, with each Unit consisting of 0.6 shares of common stock and two
redeemable Class A warrants, for an aggregate of 660,000 shares of common
stock and 2,200,000 Class A warrants. Each Class A warrant entitles the
holder to purchase 0.26 shares of common stock and one redeemable Class B
warrant at a price of $10.62 per share of common stock, as adjusted and
subject to further adjustment. The Class A warrants are separately
transferable from the common stock. Each Class B warrant entitles the holder
to purchase 0.26 shares of common stock at a price of $16.415 per share, as
adjusted and subject to further adjustment. The Class A warrants and Class B
warrants are redeemable by the Company at any time on 30 days' written
notice, at $0.25 per warrant, provided that the average closing bid price of
the common stock as reported by the National Association of Securities
Dealers, Inc. Automated Quotation ("Nasdaq") system for 30 consecutive
trading days ending within 15 days of the date on which notice of redemption
is given exceeds $21.25 per share and $30.00 per share, respectively. The
Class A warrants and Class B warrants were to expire on April 17, 1995 and
July 17, 1995, respectively. On February 27, 1995, the Company extended the
expiration dates of the Class A and Class B warrants to December 31, 1995.
During the year ended June 30, 1992, ten Class A warrants were exercised;
therefore, 2,199,990 Class A warrants and ten Class B warrants were
outstanding as of September 30, 1995, June 30, 1995 and June 30, 1994.
In connection with its May 1991 private placement (Note 3), the Company
issued 1,060,417 Class C warrants. Each Class C warrant entitles the holder
to purchase 0.26 shares of common stock at a price of $9.185 per share, as
adjusted and subject to further adjustment. The Class C warrants are
redeemable by the Company at any time on 30 days' written notice, at $0.10
per warrant, provided that the average closing bid price of the common stock
as reported by the Nasdaq system for 30 consecutive trading days ending
within 15 days of the date on which notice of redemption is given exceeds
$23.56 per share. On February 27, 1995, the expiration date for the Class C
warrants was extended from April 30, 1995 to December 31, 1995. As of
September 30, 1995, all of the originally issued Class C warrants remained
outstanding.
In connection with its agreement with Alkermes, Inc. ("Alkermes"; Note 6),
the Company sold Alkermes 150,000 shares of common stock and issued
non-redeemable warrants to Alkermes to purchase an additional 400,000 shares
of common stock, for total consideration of $1,500,000. Under the warrant
agreements, 200,000 shares of common stock were purchasable by Alkermes
through January 6, 1995 for $12.50 per share. These warrants have since
expired. Another 200,000 shares of common stock may be purchased by Alkermes
at any time through January 6, 1996 for $37.50 per share, as adjusted and
subject to further adjustment under certain circumstances such as stock
splits or stock dividends. Alkermes was also granted certain registration
rights under the Federal securities laws.
In October 1993, the Company sold 103,577 shares of its common stock at a
price of $6.40 per share, resulting in net proceeds of $510,811. The shares
were acquired by four non-U.S. purchasers in a private placement transaction
pursuant to Regulation S of the Securities and Exchange Commission.
In December 1993, the Company completed a private placement of 2,750,000
shares of its common stock at a price of $5.00 per share, resulting in net
proceeds of $12,363,361. The shares were acquired by 39 institutional and
accredited individual purchasers in a private placement transaction pursuant
to Regulation D of the Securities and Exchange Commission. Vector Securities
International, Inc. ("Vector") acted as placement agent for the transaction
and was issued warrants in connection therewith (Note 8).
As of September 30, 1995, 29,384 shares of common stock were reserved for
issuance upon conversion of outstanding 9% Preferred and Series B Preferred
(Note 3); 1,419,706 shares were reserved for issuance upon exercise of the
Class A Class B and Class C warrants; 200,000 shares were reserved for
issuance upon exercise of warrants held by Alkermes; 369,200 shares were
reserved for issuance upon exercise of warrants held by
F-11
<PAGE>
Vector; 274,371 shares were reserved for issuance upon exercise of
outstanding stock options (Note 5); and 209,510 shares were reserved for
issuance under Unit Purchase Options (Note 8).
NOTE 5 -- STOCK OPTION AND STOCK PURCHASE PLANS
EMPLOYEE/DIRECTOR OPTION PLAN -- The Company's 1989 Incentive Stock Option,
Nonqualified Stock Option and Stock Purchase Plan provides for the granting
by the Company of options and rights to purchase up to an aggregate of
500,000 shares of the Company's authorized but unissued common stock (subject
to adjustment under certain circumstances, such as stock splits,
recapitalizations and reorganizations) to directors, officers and other
employees of the Company. The exercise price of nonqualified stock options
and the purchase price of stock offered under this plan, which terminates
February 2, 1999, must be at least 85% of the fair market value of the common
stock on the date of grant. The exercise price of incentive stock options
must be at least equal to the fair market value of the common stock on the
date of grant. Each non-employee director (other than those who serve on the
Board of Directors to oversee an investment in the Company) is automatically
granted options to purchase 15,000 shares of Common Stock upon commencement
of service as a director and additional options to purchase 2,500 shares of
Common Stock on the date of each Annual Meeting of Stockholders. These
nonqualified options 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
in equal increments of 25% on the anniversary dates of the dates of grant.
Non-employee directors who serve on the Board of Directors to oversee an
investment in the Company receive options to purchase 5,000 shares of common
stock upon commencement of service as a director and additional options to
purchase 1,000 shares of common stock on the date of each Annual Meeting of
Stockholders. These nonqualified options 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 in equal increments of 25% on the last day of each
calendar quarter following the dates of grant. The foregoing formula grant
program for non-employee directors is subject to approval by the Corporation's
stockholders. On March 23, 1995, options to purchase 100,000 shares of
common stock at an exercise price of $8.75 per share previously granted to
the Company's President and Chief Executive Officer, Alan A. Steigrod, were
canceled and reissued as options to purchase 100,000 shares of common stock
at $3.50 per share, the then fair market value of the common stock. As of
September 30, 1995 and June 30, 1995, options to purchase an aggregate of
402,187 and 424,061 shares of common stock, respectively, were outstanding
under this plan, and an additional 68,274 and 49,594 shares of common stock,
respectively, were reserved for future option grants.
CONSULTANT PLAN -- The Company's 1989 Special Nonqualified Stock Option and
Stock Purchase Plan provides for the granting by the Company of options and
rights to purchase up to an aggregate of 300,000 shares of the Company's
authorized but unissued common stock (subject to adjustment under certain
circumstances, such as stock splits, recapitalizations and reorganizations)
to consultants to the Company. The exercise price of nonqualified stock
options and the purchase price of stock offered under this plan, which
terminates February 2, 1999, must be at least 50% of the fair market value of
the common stock on the date of grant. On May 24, 1995, options to purchase
an aggregate of 51,000 shares of common stock previously granted to several
consultants to the Company were repriced from a weighted average exercise
price of $7.19 per share to $3.125 per share, the then fair market of the
common stock. As of September 30, 1995 and June 30, 1995, options to purchase
an aggregate of 215,207 and 219,207 shares of common stock, respectively,
were outstanding under this plan, and an additional 49,026 and 45,026 shares
of common stock, respectively, were reserved for future option grants.
EXECUTIVE STOCK PLAN -- In 1991, in connection with his election as Chairman
of the Board, Harvey S. Sadow, Ph.D. was granted an option to purchase 10,000
shares of common stock at an exercise price of $2.19 per share, representing
50% of the fair market value of the common stock on the date of grant. In
1993, in connection with his appointment as President and Chief Executive
Officer, Alan A. Steigrod was granted an option to purchase 80,000 shares of
common stock at an exercise price of $4.375 per share, representing 50% of
the then fair market value of the common stock. In December 1993, Mr.
Steigrod was issued additional options to purchase 95,600 shares of common
stock at $9.375 per share, the then fair market value of the common stock, in
accordance with anti-dilution provisions contained in his employment
agreement. These latter options were canceled on March 23, 1995 and reissued
as options to purchase 65,560 shares of common stock at $3.50 per share, the
then fair market value of the common stock, and options to purchase 30,040
shares of common stock at an exercise price of $4.50 per share. As of
September 30, 1995 and June 30, 1995, options to purchase an aggregate of
185,600 shares of common stock were outstanding under the Executive Stock
Plan, and an additional 157,071 shares of common stock were reserved for
future option grants.
As of September 30, 1995 and June 30, 1995, options to purchase an aggregate
of 350,219 and 340,632 shares of common stock, respectively, were exercisable
under the Company's stock option plans. During the years ended June 30,
F-12
<PAGE>
1995 and 1994 and the period from inception (February 10, 1987) through June
30, 1995, options to purchase 0, 0, and 261,289 shares of common stock,
respectively, were issued to certain directors, officers and consultants of
the Company with exercise prices below the fair market value of the common
stock on the dates of grant. No such below-market options have been issued
since June 30, 1995. The aggregate difference between the fair market value
on the date of grant and the exercise price of the options granted is being
recorded as compensation expense over the vesting period of the options. In
February 1994, an option to purchase 14,000 shares of common stock that was
previously issued to an officer was extended for three years. The aggregate
difference between fair market value at the time of the extension and the
exercise price of the options was recorded as compensation expense at the
time of the extension. Stock option compensation expense related to these
transactions, aggregating $14,139, $14,138, $527,839, $56,092, $158,825 and
$513,700 for the three-month periods ended September 30, 1995 and 1994, the
period from inception (February 10, 1987) through September 30, 1995, the
years ended June 30, 1995 and 1994 and the period from inception (February
10, 1987) through June 30, 1995, respectively, has been recorded in the
accompanying statements of operations.
Stock option transactions under the Company's stock option plans for the two
years ended June 30, 1995 and the three-month period ended September 30, 1995
are summarized below:
<TABLE>
<CAPTION>
Number Exercise price
of shares per share
------------------------------
<S> <C> <C>
Outstanding as of June 30, 1993 342,797 $ 0.95 - 10.95
Granted 210,653 6.25 - 9.40
Exercised (3,401) 1.55 - 3.15
Forfeited (382) 1.90
-------- --------------
Outstanding as of June 30, 1994 549,667 0.95 - 10.95
Granted 556,970 1.75 - 5.00
Exercised (11,272) 1.56 - 3.13
Forfeited (266,497) 1.88 - 9.38
-------- --------------
Outstanding as of June 30, 1995 828,868 $ 0.95 - 10.95
-------- --------------
Granted 4,746 2.63 - 5.75
Exercised (3,194) 1.88 - 4.53
Forfeited (27,426) 1.88 - 9.06
-------- --------------
Outstanding as of September 30, 1995 802,994 $ 0.95 - 10.95
-------- --------------
-------- --------------
Available for future grant 274,371
--------
--------
</TABLE>
NOTE 6 -- AGREEMENT WITH ALKERMES, INC.; LEGAL PROCEEDINGS
In January 1992, the Company entered into a development and license agreement
with Alkermes, Inc. ("Alkermes") for the development, clinical testing and
commercialization of the Company's calpain inhibitor products, which was
subsequently amended in October 1992 (the "Alkermes Agreement"). Under the
Alkermes Agreement, the Company granted to Alkermes an exclusive worldwide
license to commercialize calpain inhibitor products for the prevention and
treatment of acute and chronic neurodegenerative diseases and disorders of
the central and peripheral nervous systems. Under the Alkermes Agreement,
which involved the sale of common stock and the issuance of common stock
purchase warrants to Alkermes (Note 4), the Company received an aggregate of
$3,100,000 in research payments over the 18-month period ended June 30, 1993,
and a $500,000 payment in October 1992 in connection with a limited expansion
of Alkermes' commercial rights. In October 1993, Alkermes notified the
Company that Alkermes believed that it had rights under the Alkermes
Agreement to the development and commercialization of the Company's calpain
inhibitors for cerebral vasospasm. In November 1993, Alkermes filed an action
in U.S. District Court in Massachusetts alleging that the Company had
breached the Alkermes Agreement by developing calpain inhibitors for cerebral
vasospasm. On October 5, 1995, the Company and Alkermes agreed to a
settlement of the dispute. Alkermes agreed to dismiss its action against the
Company and to relinquish all rights previously granted them by the Company,
as well as rights to related technologies developed by Alkermes subsequent to
October 6, 1992. In return, the Company issued to Alkermes a $1,000,000
non-transferable, three-year promissory note accruing interest semi-annually
at the federal funds rate. The Company also committed to pay Alkermes a
graduated royalty on calpain inhibitor development proceeds, as defined and
subject to certain limitations.
F-13
<PAGE>
NOTE 7 -- COMMITMENTS
The Company leases its offices and research laboratories under an operating
lease that expires May 31, 1999, with an additional five-year option at 95%
of the then fair market rental rate. Rent expense under this lease for the
three-month periods ended September 30, 1995 and 1994, the period from
inception (February 10, 1987) through September 30, 1995, the years ended
June 30, 1995 and 1994 and the period from inception (February 10, 1987)
through June 30, 1995 was $43,000, $54,000, $1,274,000, $232,000, $193,000
and $1,231,000, respectively. Commitments under the lease 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 through May 1996 under a
noncancelable sublease.
As of June 30, 1995, the Company was obligated to two officers under
employment agreements expiring through February 1996 that involve annual
salary payments aggregating $325,000 and that provide for bonuses under
certain circumstances. Also as of June 30, 1995, the Company was committed
under scientific consulting and external research agreements to annual
payments aggregating approximately $665,000.
In the fiscal years ending June 30, 1991 and June 30, 1993, the Company
entered agreements with two academic institutions that provide the Company
exclusive rights to certain of the technologies that it is developing. Under
the terms of the agreements, the Company is committed to royalty payments,
including minimum annual royalties of $85,000, $95,000, $95,000, $95,000 and
$105,000 for the years ending June 30, 1996, 1997, 1998, 1999 and 2000,
respectively. Thereafter, minimum annual royalties are $105,000 for the
remaining life of the patents covering the subject technologies. One of the
agreements commits the Company to pay up to an additional $875,000 dependent
upon achieving clinical testing and regulatory approval milestones.
NOTE 8 -- RELATED PARTY TRANSACTIONS
From inception (February 10, 1987) through June 30, 1991, the Company made
payments aggregating $1,319,112 to a founding stockholder for commissions and
underwriting fees for private and public offerings and for interest payments
on a note formerly held by such stockholder. No such payments have been made
since June 30, 1991.
From inception (February 10, 1987) through June 30, 1993, the Company paid or
accrued scientific and other consulting fees to stockholders aggregating
$606,993. In the years ended June 30, 1995 and 1994, such consulting fees
aggregated $106,583 and $129,821, respectively. In addition, the Company is
obligated to make royalty payments to certain of its scientific consultants,
some of whom are stockholders, and to one officer, upon successful
commercialization of certain of its products by the Company or its licensees.
In 1988, the Company provided to a former officer a relocation loan in the
amount of $100,000, bearing interest at 5% per annum, originally due in June
1991 and subsequently extended to December 1992. The Board of Directors
reduced the principal amount of the loan to $90,000 as of January 1, 1990 and
to $77,400 as of July 1, 1991, with the reductions recorded as salary
expense. The outstanding principal and accrued interest on this loan
aggregating $96,674 was paid off by the former officer in September 1992 by
surrender of 12,627 shares of common stock at the then fair market value.
In connection with its initial public offering in July 1989, the Company
entered into an agreement granting a then related party entity a five-year
right of first refusal to act as underwriter or agent for public and private
offerings. The Company also sold to the related party entity and certain of
its affiliates, for nominal consideration, Unit Purchase Options to acquire
110,000 Units, with each Unit consisting of 0.60 shares of common stock and
two Class A warrants, at a price of $46.50 per Unit. The Unit Purchase
Options were originally exercisable over the period from July 18, 1991
through July 17, 1994. In connection with subsequent issuances of securities
by the Company, the number of Units purchasable under the Unit Purchase
Options has been adjusted to 29,930 and the per Unit purchase price has been
adjusted to $34.95, in accordance with anti-dilution provisions of the Unit
Purchase Options. In July 1993, the formerly related party entity agreed to
surrender its right of first refusal to act as underwriter or agent in future
private and public offerings of securities by the Company, in exchange for a
cash payment of $66,000, possible future cash payments of up to $14,000, and
an extension of its Unit Purchase Option through January 17, 1996.
On July 23, 1993, the Company entered into an agreement with Vector
Securities International, Inc. ("Vector"), under which Vector agreed to serve
as exclusive financial advisor to the Company in connection with corporate
finance transactions and corporate partnering of the Company's cognition
enhancement and Alzheimer's disease programs. In connection with the
agreement, the Company paid a $50,000 cash retainer and issued to Vector a
five-year non-
F-14
<PAGE>
redeemable warrant to acquire 10,000 shares of common stock at an exercise
price of $7.75 per share, subject to adjustment under certain circumstances.
The Company also granted Vector a right of first refusal to act as
co-managing underwriter in any public offering or as placement agent in any
private placement completed prior to December 1, 1995.
In connection with its services as placement agent in the private placement
that was completed December 1, 1993 (Note 4), Vector was paid a placement
agent's fee of $1,096,800 and was issued a five-year non-redeemable warrant
to purchase 274,200 shares of the Company's common stock at $9.375 per share,
subject to adjustment under certain circumstances. In connection with
Vector's assistance in reaching the settlement with Alkermes (Note 6), this
warrant was canceled and reissued as a new warrant to purchase 210,000 shares
of the Company's common stock at $6.00 per share, at any time through January
15, 2000. The value of this new warrant was computed utilizing the
Black-Scholes option pricing model, and was recorded with the expense of the
settlement with Alkermes in the accompanying statement of operations.
As consideration for its agreement to provide financial advisory services
related to corporate finance transactions and corporate partnering
activities, as amended and extended November 29, 1994, Vector was paid an
additional cash retainer of $50,000 and was issued a six-year non-redeemable
warrant to purchase 35,000 shares of the Company's common stock at $5.00 per
share, subject to adjustment under certain circumstances. Warrants to
purchase 5,000 shares of the Company's common stock vested immediately, and
warrants to purchase 15,000 shares of the Company's common stock shall vest
upon the consummation of each strategic alliance when and as secured by
Vector. Such strategic alliances may include, but are not limited to, joint
ventures, partnerships, licenses or other contracts for the research,
development, manufacture, distribution, sale or other activity relating to
the Company's present or future products, the sale of any of the Company's
assets or any rights in respect to its products or technology, or commitments
to provide funding for all or part of the Company's research and development
activities. For an expansion of its financial advisory assistance to include
the Company's calpain inhibitor technology, in January 1995 the Company paid
a $20,000 cash retainer and issued to Vector a five-year non-redeemable
warrant to acquire 50,000 shares of the Company's common stock at $3.00 per
share, subject to adjustment under certain circumstances. The Company may be
required to make additional payments of up to $500,000 for each strategic
alliance secured by Vector prior to May 29, 1997. If a sale of the Company as
presented by Vector is consummated before November 29, 1997, Vector will
receive a fee of up to 3% of the aggregate consideration received by the
Company.
NOTE 9 -- INCOME TAXES
As of June 30, 1995, the Company had federal and California tax net operating
loss carryforwards of approximately $19,168,000 and $3,539,000, respectively.
The difference between the federal and California tax loss carryforwards is
primarily attributable to the capitalization of research and development
expenses for California franchise tax purposes and the fifty percent
limitation on California loss carryforwards. The federal and California tax
loss carryforwards will begin expiring in 2003 and 1995, respectively. The
Company also has federal and California research and development tax credit
carryforwards totaling $665,000 and $152,000, respectively, which will begin
expiring in 2003. Utilization of the net operating losses and tax credit
carryforwards from the tax years ended on or before June 30, 1992 is subject
to an annual limitation of approximately $1,500,000, due to ownership change
limitations provided by the Internal Revenue Code of 1986 and similar state
provisions. In the event that there should be future substantial changes of
ownership, these annual limitations may become more restrictive. Pursuant to
Internal Revenue Code Sections 382 and 383, use of the Company's net
operating loss carryforwards may be limited if a cumulative change in
ownership of more than 50% occurs within any three year period.
Significant components of the Company's deferred tax assets as of June
30,1995 are shown below. A valuation allowance of $9,079,000, of which
$2,964,000 is related to fiscal 1995, has been recognized to offset the
deferred tax assets, as realization is uncertain.
F-15
<PAGE>
Deferred tax assets:
<TABLE>
<CAPTION>
June 30,
1995 1994
---------------------------
<S> <C> <C>
Net operating loss carryforwards $ 6,836,000 $ 5,069,000
Research and development credits 817,000 433,000
Capitalized research and development costs 980,000 613,000
Settlement with Alkermes, Inc. 430,000 --
Other-net 16,000 --
Net deferred tax assets 9,079,000 6,115,000
----------- -----------
Valuation allowance for deferred tax assets (9,079,000) (6,115,000)
----------- -----------
Total deferred tax assets $ -- $ --
----------- -----------
----------- -----------
</TABLE>
F-16
<PAGE>
F-17
<PAGE>
[This page intentionally left blank]
<PAGE>
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH
THE OFFERING MADE HEREBY TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY,
THE SELLING STOCKHOLDERS OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE ANY OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR BY
ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
--------------------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . .
Use of Proceeds. . . . . . . . . . . . .
Price Range of Common Stock. . . . . . .
Dividend Policy. . . . . . . . . . . . .
Capitalization . . . . . . . . . . . . .
Selected Financial Data. . . . . . . . .
Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . .
Business . . . . . . . . . . . . . . . .
Management . . . . . . . . . . . . . . .
Certain Transactions . . . . . . . . . .
Principal Stockholders . . . . . . . . .
Description of Securities. . . . . . . .
Selling Stockholders . . . . . . . . . .
Plan of Distribution . . . . . . . . . .
Legal Matters. . . . . . . . . . . . . .
Experts. . . . . . . . . . . . . . . . .
Index to Financial Statements. . . . . . F-1
Report of Independent Auditors . . . . . F-2
Financial Statements . . . . . . . . . . F-3
--------------------------------------
1,350,000 SHARES
CORTEX PHARMACEUTICALS,
INC.
COMMON STOCK
--------------------------------------
PROSPECTUS
--------------------------------------
November _____, 1995
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law makes provision for the
indemnification of officers and directors in terms sufficiently broad as to
include indemnification under certain circumstances for liabilities
(including reimbursement for expenses incurred) arising under the Securities
Act of 1933, as amended (the "Act"). The Restated Certificate of
Incorporation of the Company provides that the Company shall indemnify
officers and directors to the fullest extent permitted by statute.
In addition, as permitted by Section 102(b)(7) of the Delaware Corporation
Law, the Restated Certificate of Incorporation of the Company provides that a
director of the Company shall not be liable to the Company or its
stockholders for monetary damages for breach of the director's fiduciary duty
of care. However, as provided by Delaware law, such limitation of liability
will not act to limit liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for any acts or omissions
not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) arising under the provision of the Delaware General
Corporation Law relating to unlawful distributions, or (iv) for any
transaction from which the director derived an improper benefit.
The Company has entered into indemnification agreements with each of its
directors and officers, which provide for the indemnification of directors
and officers of the Company against any and all expenses, judgements, fines,
penalties and amounts paid in settlement, to the fullest extent permitted by
law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses of this offering
(excluding commissions). All of the amounts shown are estimates except the
Securities and Exchange Commission registration fee.
<TABLE>
<CAPTION>
Amount
---------
<S> <C>
SEC Registration Fee $ 11,283 *
Accounting Fees and Expenses 32,500 **
Legal Fees and Expenses 42,500 **
Miscellaneous 85,000 **
---------
$171,283
---------
---------
</TABLE>
* Previously paid.
** These amounts have been partially paid previously.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following consists of information relating to unregistered securities
sold by the Company during the past three years. Numbers of shares have been
revised to reflect a one-for-five reverse stock split that was effected
January 11, 1995.
1. On July 23, 1993, the Company issued a warrant to purchase 10,000
shares of Common Stock to Vector Securities International, Inc.
("Vector") in connection with the appointment of Vector as exclusive
financial advisor to the Company.
2. On October 22, 1993, the Company sold an aggregate of 103,577 shares
of Common Stock to four overseas investors for an aggregate of $662,891.
3. On December 1, 1993, the Company sold an aggregate of 2,750,000
shares of Common Stock to 39 accredited investors for an aggregate of
$13,750,000, and issued a warrant to purchase 274,200 shares of Common
Stock to Vector, who acted as placement agent for the transaction.
II-1
<PAGE>
4. On November 29, 1994, the Company issued a warrant to purchase
35,000 shares of Common Stock to Vector, in connection with Vector's
assistance with corporate partnering activities.
5. On January 20, 1995, the Company issued a warrant to purchase
50,000 shares of Common Stock to Vector, in connection with their
assistance in negotiating a resolution to the dispute with Alkermes, Inc.
The foregoing sales of securities described in paragraphs 2-4 above were made
in reliance upon the exemption from the registration provisions of the
Securities Act of 1933 set forth in Section 4(2) thereof as transactions by
an issuer not involving any public offering. The Company has reason to
believe that all of the foregoing purchasers were familiar with or had access
to information concerning the operations and financial condition of the
Company, and each of the purchasers acquiring securities in exchange for cash
consideration represented that it was acquiring the shares for investment and
not with a view to the distribution thereof. At the time of issuance, all of
the foregoing shares of Common Stock were deemed to be restricted securities
for purposes of the Securities Act of 1933 and the certificates representing
such securities bear legends to that effect. The foregoing sale of securities
described in paragraph 1 above was made pursuant to Regulation S under the
Securities Act of 1933.
ITEM 27. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- -------------------------------------------------------------------------------
3.1 Restated Certificate of Incorporation of the Company, as filed with the
Delaware Secretary of State on April 11, 1989. *
3.2 By-Laws of the Company, as currently in effect. *
3.3 Certificate of Amendment of Certificate of Incorporation, as filed with
the Delaware Secretary of State on June 27, 1989. *
3.4 Certificate of Designation, Preferences and Rights of Series B
Convertible Preferred Stock, as filed with the Delaware Secretary
of State on April 29, 1991, incorporated by reference to
Exhibit 3.4 to the Company's Current Report on Form 8-K filed
May 8, 1991.
3.5 Certificate of Correction, as filed with the Delaware Secretary of
State on May 1, 1991, incorporated by reference to Exhibit 3.5 to
the Company's Current Report on Form 8-K filed May 8, 1991.
3.6 Certificate of Amendment of Certificate of Designation, Preferences and
Rights of Series B Convertible Preferred Stock, as filed with the
Delaware Secretary of State on June 13, 1991, incorporated by
reference to Exhibit 3.6 to the Company's Annual Report on 10-K
filed September 30, 1991.
3.7 Certificate of Amendment of Restated Certificate of Incorporation as
filed with the Delaware Secretary of State on January 11, 1995,
incorporated by reference to Exhibit 3.1 to the Company's Current
Report on Form 8-K filed February 22, 1995.
5.1 Opinion of Stradling, Yocca, Carlson & Rauth (previously filed)
10.2 Consulting Agreement, dated October 30, 1987, between the Company and
Carl W. Cotman, Ph.D. * **
10.3 Consulting Agreement, dated as October 30, 1987, between the Company
and Gary S. Lynch, Ph.D. * **
10.8 1989 Incentive Stock Option, Nonqualified Stock Option and Stock
Purchase Plan. * **
10.9 1989 Special Nonqualified Stock Option and Stock Purchase Plan. * **
10.17 Unit Purchase Option, dated July 25, 1990, issued by the Company to D.
H. Blair & Co., Inc., together with a schedule identifying additional
Unit Purchase Options in the same form, incorporated by reference to
Exhibit 10.17 of the Company's Annual Report on Form 10-K filed
September 28, 1990.
10.18 License Agreement, dated February 11, 1991 between the Company and
Georgia Tech Research Corporation, incorporated by reference to
Exhibit 10.18 of the Company's Amendment on Form 8 filed
November 27, 1991 to the Company's Annual Report on Form 10-K filed
September 30, 1991. (Portions of this Exhibit are omitted and were
filed separately with the Secretary of the Commission pursuant to the
Company's application requesting confidential treatment under Rule
24b-2 under the Securities Exchange Act of 1934).
10.19 License Agreement dated March 27, 1991 between the Company and the
Regents of the University of California, incorporated by reference
to Exhibit 10.19 of the Company's Amendment on Form 8 filed
November 27, 1991 to the Company's Annual Report on Form 10-K filed
September 30, 1991. (Portions
II-2
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------------------------------------------------------------------------------
of this Exhibit are omitted and were filed separately with the
Secretary of the Commission pursuant to the Company's application
requesting confidential treatment under Rule 24b-2 under the
Securities Exchange Act of 1934).
10.23 Common Stock and Warrant Purchase Agreement dated January
7, 1992 between the Company and Alkermes, incorporated by reference
to Exhibit 4.1 of the Company's Current Report on Form 8-K filed
January 15, 1992.
10.25 Warrant for the Purchase of shares of common stock (at $7.50 per
share) dated January 7, 1992 issued to Alkermes, incorporated by
reference to Exhibit 4.3 of the Company's Current Report on Form
8-K filed January 15, 1992.
10.26 Registration Rights Agreement dated January 7, 1992 between the
Company and Alkermes, incorporated by reference to Exhibit 4.4 of
the Company's Current Report on Form 8-K filed January 15, 1992.
10.27 Development and License Agreement dated January 7, 1992 between the
Company and Alkermes, incorporated by reference to Exhibit 10.27 of
the Company's Registration Statement in Form S-1, No. 33-45639,
effective April 30, 1992 (Portions of this Exhibit are omitted and
were filed separately with the Secretary of the Commission pursuant
to the Company's application requesting confidential treatment
under Rule 406 of the Securities Act of 1933).
10.28 Amendment to 1989 Incentive Stock Option, Nonqualified Stock Option
and Stock Purchase Plan adopted October 22, 1992, incorporated by
reference to Exhibit 10.28 of the Company's Annual Report on Form
10-K filed September 16, 1992. **
10.29 Amendment dated October 6, 1992 to Development and License Agreement
dated January 7, 1992 between the Company and Alkermes,
incorporated by reference to Exhibit 10.29 of the Company's Annual
Report on Form 10-K filed May 14, 1992.
10.30 Employment Agreement dated February 4, 1993 between the Company and
Alan A. Steigrod, incorporated by reference to Exhibit 10.30 of the
Company's Quarterly Report on Form 10-Q filed May 14, 1992. **
10.31 License Agreement dated June 25, 1993 between the Company and the
Regents of the University of California, incorporated by reference
to the Company's Amendment of Annual Report on Form 10-KSB/A filed
November 26, 1993. (Portions of this Exhibit are omitted and were
filed separately with the Secretary of the Commission pursuant to
the Company's application requesting confidential treatment under
Rule 24b-2 of the Securities Exchange Act of 1934).
10.32 Warrant Agreement (for Class A Warrants and Class B Warrants), dated
July 18, 1989, among the Company, D. H. Blair & Co., Inc. and
American Stock Transfer and Trust Company, incorporated by
reference to Exhibit 4.1 of the Company's Registration Statement on
Form 8-A (File No. 0-17951), as filed with the Commission on August
24, 1989.
10.32.1 Amendment to Warrant Agreement (for Class A Warrants and Class B
Warrants) dated March 22, 1994, incorporated by reference to
Exhibit 10.32.1 of the Company's Quarterly Report on Form 10-QSB
filed May 16, 1994.
10.32.2 Second Amendment to Warrant Agreement (for Class A Warrants and Class
B Warrants), dated March 14, 1995, incorporated by reference to
Exhibit 10.32.2 of the Company's Annual Report on Form 10-KSB filed
October 13, 1995.
10.33 Warrant Agreement (for Class C Warrants), dated May 1, 1991, among
the Company, D. H. Blair & Co., Inc. and American Stock Transfer &
Trust Company, incorporated by reference to Exhibit 4.3 of the
Company's Current Report on Form 8-K filed May 8, 1991.
10.33.1 Amendment to Warrant Agreement (for Class C Warrants) dated March 22,
1994, incorporated by reference to the Company's Quarterly Report
on Form 10-QSB filed May 16, 1994.
10.33.2 Second Amendment to Warrant Agreement (for Class C Warrants) dated
March 14, 1995, incorporated by reference to Exhibit 10.33.2 of the
Company's Annual Report on Form 10-KSB filed October 13, 1995.
10.34 Warrant for the Purchase of shares of common stock dated July 23,
1993 issued to Vector Securities International, Inc., incorporated
by reference to Exhibit 10.34 of the Company's Annual Report on
Form 10-KSB filed October 13, 1993.
II-3
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------------------------------------------------------------------------------
10.35 Engagement letter with Vector Securities International, Inc. dated
July 23, 1993, incorporated by reference to Exhibit 10.35 of the
Company's Annual Report on Form 10-KSB filed October 13, 1993.
10.36 Amended and Restated Employment Agreement between the Company and D.
Scott Hagen, dated September 1, 1993, incorporated by reference to
Exhibit 10.36 of the Company's Annual Report on Form 10-KSB filed
October 13, 1993. **
10.36.1 Amendment No. 1, dated January 1, 1995, to the Amended and Restated
Employment Agreement between the Company and D. Scott Hagen, dated
September 1, 1993.
10.40 Warrant for purchase of shares of common stock dated December 1, 1993
issued to Vector Securities International, Inc., incorporated by
reference to Exhibit 10.40 of the Company's Amendment No. 4 to
Registration Statement on Form SB-2 filed March 7, 1994.
10.41 Amendment to 1989 Incentive Stock Option, Nonqualified Stock Option
and Stock Purchase Plan adopted December 13, 1993, incorporated by
reference to Exhibit 4.9 of the Company's Registration Statement on
Form S-8 filed January 28, 1994. **
10.42 Amendment to 1989 Special Nonqualified Stock Option and Stock
Purchase Plan adopted December 13, 1993, incorporated by reference
to Exhibit 4.8 of the Company's Registration Statement on Form S-8
filed January 28, 1994. **
10.43 Amendment to Executive Stock Plan adopted December 13, 1993,
in corporated by reference to Exhibit 4.7 of the Company's
Registration Statement on Form S-8 filed January 28, 1994. **
10.44 Lease Agreement, dated January 31, 1994, for the Company's facilities
in Irvine, California, incorporated by reference to Exhibit 10.44
of the Company's Quarterly Report on Form 10-QSB filed May 16, 1994.
10.45 Amendment to 1989 Incentive Stock Option, Nonqualified Stock Option
and Stock Purchase Plan adopted December 15, 1994, incorporated by
reference to Exhibit 4.10 of the Company's Registration Statement
on Form S-8 filed February 8, 1995. **
10.46 Amendment to 1989 Special Nonqualified Stock Option and Stock
Purchase Plan adopted December 1994, incorporated by reference to
Exhibit 4.9 of the Company's Registration Statement on Form S-8.
10.47 Amendment to Executive Stock Plan adopted September 9, 1994,
incorporated by reference to the same numbered Exhibit to the
Company's Annual Report on Form 10-KSB filed October 13, 1995. **
10.48 Amendment to the Non-Employee Director Formula Grant Plan, adopted
December 15, 1994, incorporated by reference to the same numbered
Exhibit to the Company's Annual Report on Form 10-KSB filed October
13, 1995. **
10.49 Settlement Agreement between the Company and Alkermes, Inc., dated
October 5, 1995, incorporated by reference to the same numbered
Exhibit to the Company's Annual Report on Form 10-KSB filed October
13, 1995. (Portions of this Exhibit are omitted and were filed
separately with the Secretary of the Commission pursuant to the
Company's Application requesting confidential treatment under Rule
406 of the Securities Act of 1933).
21 Subsidiaries of the Registrant.
23.1 Consent of Stradling, Yocca, Carlson & Rauth (included in Exhibit
5.1)
23.2 Consent of Ernst & Young LLP.
24 Power of Attorney (included on Signature Page).
- ------------------
* Incorporated by reference to the same numbered exhibit of the Company's
Registration Statement on Form S-1, No. 33-28284, effective on
July 18, 1989.
** Indicates management contract or compensatory plan or arrangement.
II-4
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
For purposes of determining any liability under the Securities Act, the
Registrant will treat the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant under Rule
424(b)(1), or (4) or 497(h) under the Securities Act as part of this
registration statement as of the time the Commission declared it effective;
and will treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered in the
registration statement, and that offering of the securities at that time as
the initial bona fide offering of those securities.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Irvine, State of California, on the
9 day of November, 1995.
CORTEX PHARMACEUTICALS, INC.
By: /s/ D. Scott Hagen
-----------------------------------------
D. Scott Hagen
Acting President and Chief Operating Officer
We, the undersigned directors and officers of Cortex Pharmaceuticals, Inc.,
do hereby constitute and appoint Jerome M. Arnold and D. Scott Hagen, or
either of them, our true and lawful attorneys and agents, to do any and all
acts and things in our name and behalf in our capacities as directors and
officers and to execute any and all instruments for us and in our names in
the capacities indicated below, which said attorneys and agents, or either of
them, may deem necessary or advisable to enable said corporation to comply
with the Securities Act of 1933, as amended, and any rules, regulations, and
requirements of the Securities and Exchange Commission, in connection with
this Registration Statement, including specifically, but without limitation,
power and attorney to sign for us or any of us in our names and in the
capacities indicated below, any and all amendments (including post-effective
amendments) hereto or any related registration statement that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933, as amended; and we do hereby ratify and confirm all that the said
attorneys and agents, or either of them, shall do or cause to be done by
virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
--------- ----- ----
/s/ Jerome M. Arnold Director November 9, 1995
- -------------------------
Jerome M. Arnold
/s/ Carl W. Cotman, Ph.D. Director November 9, 1995
- -------------------------
Carl W. Cotman, Ph.D.
/s/ Michael G. Grey Director November 9, 1995
- -------------------------
Michael G. Grey
/s/ D. Scott Hagen Acting President and Chief November 9, 1995
- -------------------------- Operating Officer; Vice
D. Scott Hagen President and Chief
(Principal Executive Officer Financial Officer;
Principal Financial and Corporate Secretary
Accounting Officer)
S-1
<PAGE>
/s/ Gary S. Lynch, Ph.D. Director November 9, 1995
- --------------------------
Gary S. Lynch, Ph.D.
/s/ Harvey S. Sadow, Ph.D. Chairman of the Board November 9, 1995
- -------------------------- and Director
Harvey S. Sadow, Ph.D.
/s/ Alan A. Steigrod Director November 9, 1995
- --------------------------
Alan A. Steigrod
/s/ Davis L. Temple, Jr., Ph.D. Director November 9, 1995
- --------------------------
Davis L. Temple, Jr., Ph.D.
S-2
<PAGE>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- -------------------------------------------------------------------------------
3.1 Restated Certificate of Incorporation of the
Company, as filed with the Delaware Secretary of
State on April 11, 1989. * --
3.2 By-Laws of the Company, as currently in effect. * --
3.3 Certificate of Amendment of Certificate of
Incorporation, as filed with the Delaware
Secretary of State on June 27, 1989. * --
3.4 Certificate of Designation, Preferences and
Rights of Series B Convertible Preferred Stock, as filed
with the Delaware Secretary of State on April 29, 1991,
incorporated by reference to Exhibit 3.4 to the Company's
Current Report on Form 8-K filed May 8, 1991. --
3.5 Certificate of Correction, as filed with the
Delaware Secretary of State on May 1, 1991, incorporated
by reference to Exhibit 3.5 to the Company's Current
Report on Form 8-K filed May 8, 1991. --
3.6 Certificate of Amendment of Certificate of
Designation, Preferences and Rights of Series B
Convertible Preferred Stock, as filed with the Delaware
Secretary of State on June 13, 1991, incorporated by
reference to Exhibit 3.6 to the Company's Annual Report
on 10-K filed September 30, 1991. --
3.7 Certificate of Amendment of Restated Certificate of
Incorporation as filed with the Delaware Secretary of
State on January 11, 1995, incorporated by reference
to Exhibit 3.1 to the Company's Current Report on
Form 8-K filed February 22, 1995. --
5.1 Opinion of Stradling, Yocca, Carlson & Rauth
(previously filed). --
10.2 Consulting Agreement, dated October 30, 1987,
between the Company and Carl W. Cotman, Ph.D. * ** --
10.3 Consulting Agreement, dated as October 30,
1987, between the Company and Gary S. Lynch, Ph.D. * ** --
10.8 1989 Incentive Stock Option, Nonqualified Stock
Option and Stock Purchase Plan. * ** --
10.9 1989 Special Nonqualified Stock Option and Stock
Purchase Plan. *** --
10.17 Unit Purchase Option, dated July 25, 1990,
issued by the Company to D. H. Blair & Co., Inc.,
together with a schedule identifying additional Unit
Purchase Options in the same form, incorporated by
reference to Exhibit 10.17 of the Company's Annual Report
on Form 10-K filed September 28, 1990. --
10.18 License Agreement, dated February 11, 1991
between the Company and Georgia Tech Research
Corporation, incorporated by reference to Exhibit 10.18
of the Company's Amendment on Form 8 filed November 27,
1991 to the Company's Annual Report on Form 10-K filed
September 30, 1991. (Portions of this Exhibit are omitted
and were filed separately with the Secretary of the
Commission pursuant to the Company's application
requesting confidential treatment under Rule 24b-2 under
the Securities Exchange Act of 1934). --
10.19 License Agreement dated March 27, 1991 between
the Company and the Regents of the University of
California, incorporated by reference to Exhibit 10.19 of
the Company's Amendment on Form 8 filed November 27, 1991
to the Company's Annual Report on Form 10-K filed
September 30, 1991. (Portions of this Exhibit are omitted
and were filed separately with the Secretary of the
Commission pursuant to the Company's application
requesting confidential treatment under Rule 24b-2 under
the Securities Exchange Act of 1934). --
10.23 Common Stock and Warrant Purchase Agreement
dated January 7, 1992 between the Company and Alkermes,
incorporated by reference to Exhibit 4.1 of the Company's
Current Report on Form 8-K filed January 15, 1992. --
10.25 Warrant for the Purchase of shares of common
stock (at $7.50 per share) dated
EXH-1
<PAGE>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- -------------------------------------------------------------------------------
January 7, 1992 issued to Alkermes, incorporated
by reference to Exhibit 4.3 of the Company's Current
Report on Form 8-K filed January 15, 1992. --
10.26 Registration Rights Agreement dated January 7,
1992 between the Company and Alkermes, incorporated by
reference to Exhibit 4.4 of the Company's Current Report
on Form 8-K filed January 15, 1992. --
10.27 Development and License Agreement dated January
7, 1992 between the Company and Alkermes, incorporated by
reference to Exhibit 10.27 of the Company's Registration
Statement in Form S-1, No. 33-45639, effective April 30,
1992 (Portions of this Exhibit are omitted and were filed
separately with the Secretary of the Commission pursuant
to the Company's application requesting confidential
treatment under Rule 406 of the Securities Act of 1933). --
10.28 Amendment to 1989 Incentive Stock Option, Nonqualified
Stock Option and Stock Purchase Plan adopted
October 22, 1992, incorporated by reference to Exhibit
10.28 of the Company's Annual Report on Form 10-K filed
September 16, 1992. ** --
10.29 Amendment dated October 6, 1992 to Development
and License Agreement dated January 7, 1992 between the
Company and Alkermes, incorporated by reference to
Exhibit 10.29 of the Company's Annual Report on Form 10-K
filed May 14, 1992. --
10.30 Employment Agreement dated February 4, 1993
between the Company and Alan A. Steigrod, incorporated by
reference to Exhibit 10.30 of the Company's Quarterly
Report on Form 10-Q filed May 14, 1992. ** --
10.31 License Agreement dated June 25, 1993 between
the Company and the Regents of the University of
California, incorporated by reference to the Company's
Amendment of Annual Report on Form 10-KSB/A filed
November 26, 1993. (Portions of this Exhibit are omitted
and were filed separately with the Secretary of the
Commission pursuant to the Company's application
requesting confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934). --
10.32 Warrant Agreement (for Class A Warrants and Class B
Warrants),dated July 18, 1989, among the Company,
D. H. Blair & Co., Inc. and American Stock Transfer and
Trust Company, incorporated by reference to Exhibit 4.1
of the Company's Registration Statement on Form 8-A
(File No. 0-17951), as filed with the Commission on
August 24, 1989. --
10.32.1 Amendment to Warrant Agreement (for Class A Warrants and
Class B Warrants) dated March 22, 1994, incorporated by
reference to Exhibit 10.32.1 of the Company's Quarterly
Report on Form 10-QSB filed May 16, 1994. --
10.32.2 Second Amendment to Warrant Agreement (for Class A Warrants
and Class B Warrants), dated March 14, 1995, incorporated
by reference to the same numbered Exhibit to the Company's
Annual Report on Form 10-KSB filed October 13, 1995. --
10.33 Warrant Agreement (for Class C Warrants), dated
May 1, 1991, among the Company, D. H. Blair & Co., Inc.
and American Stock Transfer & Trust Company, incorporated
by reference to Exhibit 4.3 of the Company's Current
Report on Form 8-K filed May 8, 1991. --
10.33.1 Amendment to Warrant Agreement (for Class C Warrants)
dated March 22, 1994, incorporated by reference to the
Company's Quarterly Report on Form 10-QSB filed May 16, 1994. --
10.33.2 Second Amendment to Warrant Agreement (for Class C
Warrants) dated March 14, 1995, incorporated by reference
to the same numbered Exhibit to the Company's Annual Report
on Form 10-KSB filed October 13, 1995. --
10.34 Warrant for the Purchase of shares of common
stock dated July 23, 1993
EXH-2
<PAGE>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
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issued to Vector Securities International, Inc.,
incorporated by reference to Exhibit 10.34 of the
Company's Annual Report on Form 10-KSB filed
October 13, 1993. --
10.35 Engagement letter with Vector Securities International,
Inc. dated July 23, 1993, incorporated by reference to
Exhibit 10.35 of the Company's Annual Report on Form 10-KSB
filed October 13, 1993. --
10.36 Amended and Restated Employment Agreement between the
Company and D. Scott Hagen, dated September 1, 1993,
incorporated by reference to Exhibit 10.36 of the Company's
Annual Report on Form 10-KSB filed October 13, 1993. ** --
10.36.1 Amendment No. 1, dated January 1, 1995, to the Amended
and Restated Employment Agreement between the Company and
D. Scott Hagen, dated September 1, 1993. --
10.40 Warrant for purchase of shares of common stock dated
December 1, 1993 issued to Vector Securities International,
Inc., incorporated by reference to Exhibit 10.40 of the
Company's Amendment No. 4 to Registration Statement on Form
SB-2 filed March 7, 1994. --
10.41 Amendment to 1989 Incentive Stock Option, Nonqualified
Stock Option and Stock Purchase Plan adopted December 13,
1993, incorporated by reference to Exhibit 4.9 of the
Company's Registration Statement on Form S-8 filed January
28, 1994. ** --
10.42 Amendment to 1989 Special Nonqualified Stock Option and
Stock Purchase Plan adopted December 13, 1993, incorporated
by reference to Exhibit 4.8 of the Company's Registration
Statement on Form S-8 filed January 28, 1994. ** --
10.43 Amendment to Executive Stock Plan adopted December
13, 1993, incorporated by reference to Exhibit 4.7 of the
Company's Registration Statement on Form S-8 filed January
28, 1994. ** --
10.44 Lease Agreement, dated January 31, 1994, for
the Company's facilities in Irvine, California,
incorporated by reference to Exhibit 10.44 of the Company's
Quarterly Report on Form 10-QSB filed May 16, 1994. --
10.45 Amendment to 1989 Incentive Stock Option, Nonqualified
Stock Option and Stock Purchase Plan adopted December 15,
1994, incorporated by reference to Exhibit 4.10 of the
Company's Registration Statement on Form S-8 filed February
8, 1995. ** --
10.46 Amendment to 1989 Special Nonqualified Stock Option and
Stock Purchase Plan adopted December 1994, incorporated by
reference to Exhibit 4.9 of the Company's Registration
Statement on Form S-8. --
10.47 Amendment to Executive Stock Plan adopted September 9,
1994, incorporated by reference to the same numbered
Exhibit to the Company's Annual Report on Form 10-KSB filed
October 13, 1995. ** --
10.48 Amendment to the Non-Employee Director Formula Grant Plan,
adopted December 15, 1994, incorporated by reference to the
same numbered Exhibit to the Company's Annual Report on
Form 10-KSB filed October 13, 1995 ** --
10.49 Settlement Agreement between the Company and Alkermes,
Inc., dated October 5, 1995, incorporated by reference to
the same numbered Exhibit to the Company's Annual Report on
Form 10-KSB filed October 13, 1995. (Portions of this
Exhibit are omitted and were filed separately with the
Secretary of the Commission pursuant to the Company's
Application requesting confidential treatment under Rule
406 of the Securities Act of 1933). --
21 Subsidiaries of the Registrant.
23.1 Consent of Stradling, Yocca, Carlson & Rauth
(included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP.
EXH-3
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EXHIBIT SEQUENTIALLY
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24 Power of Attorney (included on Signature Page).
- ----------------------
* Incorporated by reference to the same numbered exhibit of the Company's
Registration Statement on Form S-1, No. 33-28284, effective on July 18,
1989.
** Indicates management contract or compensatory plan or arrangement.
EXH-4
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Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
None
<PAGE>
Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report dated August 15, 1995, except
for Note 6 as to which the date is October 5, 1995 in Post-Effective Amendment
No. 2 to the Registration Statement (Form SB-2 No. 33-71894), and related
Prospectus of Cortex Pharmaceuticals, Inc. for the registration of shares of
common stock.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
San Diego, California
November 8, 1995
