<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
* QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
-----
OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 1997
---------------------------
______ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________ TO
_________________
Commission file number 0-17951
Cortex Pharmaceuticals, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 33-0303583
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15241 Barranca Parkway, Irvine, California, 92618
(Address of principal executive offices, including zip code)
(714) 727-3157
(Issuers's telephone number)
NOT APPLICABLE
----------------------------------
(Former name, former address and former fiscal year,
if changed since last year)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports); and (2) has been
subject to such filing requirements for the past 90 days.
YES * NO
----- -----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
9,542,183 shares of Common Stock as of November 7, 1997
Page 1 of 12
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CORTEX PHARMACEUTICALS, INC.
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets-September 30, 1997 and June 30, 1997...... 3
Statements of Operations-Three months ended
September 30, 1997 and 1996; and period from
inception (February 10, 1987) through September 30, 1997. 4
Statements of Cash Flows-Three months ended
September 30, 1997 and 1996 and period from
inception (February 10, 1987) through September 30, 1997. 5
Notes to Financial Statements............................ 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................... 11
SIGNATURES......................................................... 12
</TABLE>
Page 2 of 12
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
Balance Sheets
<TABLE>
<CAPTION>
(Unaudited) (Note)
September 30, 1997 June 30, 1997
- ----------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $5,034,555 $7,568,803
U.S. government securities-available for sale 1,001,857 --
Other current assets 80,288 71,530
---------- ----------
Total current assets 6,116,700 7,640,333
Furniture, equipment and leasehold improvements, net 640,266 669,844
Other 23,130 23,130
---------- ----------
$6,780,096 $8,333,307
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 253,165 $ 501,603
Accrued dividends 23,625 74,250
Accrued wages, salaries and related expenses 48,069 58,683
Current obligations under capital leases -- 1,499
---------- ----------
Total current liabilities 324,859 636,035
Note payable to Alkermes, Inc. 1,106,708 1,092,265
Redeemable preferred stock:
Series A convertible preferred stock, $0.001
par value; $10,000 per share liquidation
preference; shares authorized: 400; shares
issued and outstanding: 387 (September 30, 1997)
and 400 (June 30, 1997) 3,808,776 3,936,720
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: 35,000 (September 30, 1997) and
110,000 (June 30, 1997) 35,000 110,000
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 86,810 86,810
Common stock, $0.001 par value; shares authorized:
20,000,000; shares issued and outstanding:
9,466,565 (September 30, 1997) and 9,394,249
(June 30, 1997) 9,467 9,394
Additional paid-in capital 34,898,318 34,643,526
Unrealized loss on available for sale
U.S. government securities (994) --
Deficit accumulated during the development stage (33,488,848) (32,181,443)
------------ -----------
Total stockholders' equity 1,539,753 2,668,287
------------ -----------
$ 6,780,096 $ 8,333,307
============ ===========
</TABLE>
See accompanying notes.
Note: The balance sheet as of June 30, 1997 has been derived from the audited
financial statements at that date.
Page 3 of 12
<PAGE>
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Period from
Three months ended inception
September 30, (February 10, 1987)
-------------------------------- through September 30,
1997 1996 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Research and license revenue under an agreement
with Alkermes, Inc. $ -- $ -- $ 3,600,000
Grant revenue -- -- 94,717
------------ ------------- ------------
Total revenues -- -- 3,694,717
Operating expenses:
Research and development expenses 947,737 793,547 23,293,133
General and administrative expenses 439,258 432,374 12,199,137
Settlement with Alkermes, Inc. -- -- 1,227,977
------------ ------------- ------------
Total operating expenses 1,386,995 1,225,921 36,720,247
------------ ------------- ------------
Loss from operations (1,386,995) (1,225,921) (33,025,530)
Interest income, net 79,590 34,393 1,568,521
------------ ------------- ------------
Net loss $ (1,307,405) $ (1,191,528) $(31,457,009)
============ ============= ============
Weighted average common shares outstanding 9,397,510 7,557,700
============ =============
Net loss per share $ (0.14) $ (0.16)
============ =============
</TABLE>
See accompanying notes.
Page 4 of 12
<PAGE>
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Period from
Three months ended inception
September 30, (February 10, 1987)
------------------------------ through September 30,
1997 1996 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,307,405) $(1,191,528) $(31,457,009)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 48,103 53,350 1,355,184
Settlement with Alkermes, Inc. -- -- 1,227,977
Changes in operating assets/liabilities:
Accounts payable and accrued expenses (259,052) 1,828 301,234
Accrued interest on U.S. government securities (1,499) -- (164,028)
Other current assets (8,758) (29,508) (80,288)
Interest receivable from former officer -- (19,274)
Realized loss on sale of U.S. government securities -- -- 54,317
Stock option compensation expense -- -- 555,809
Stock issued for services -- -- 28,750
Reduction in note receivable from former
officer-compensation expense -- -- 22,600
Other 14,443 15,457 114,697
----------- ----------- ------------
Net cash used in operating activities (1,514,168) (1,150,401) (28,060,031)
----------- ----------- ------------
Cash flows from investing activities:
U.S. government securities-available-for-sale-
Purchases (1,000,056) -- (38,083,799)
Proceeds from sales -- -- 37,190,820
Purchase of fixed assets (18,525) (4,086) (1,966,926)
Sale of fixed assets -- -- 10,988
Decrease (increase) in-
Other assets -- 626 (39,870)
Note receivable from former officer -- -- (100,000)
----------- ----------- ------------
Net cash used in investing activities (1,018,581) (3,460) (2,988,787)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of preferred stock -- -- 14,150,595
Proceeds from issuance of common stock -- 424 21,922,418
Proceeds from subordinated convertible note -- -- 208,333
Redemption of / dividends on preferred stock -- -- (174,000)
Principal payments on capitalized leases (1,499) (2,049) (23,973)
----------- ----------- ------------
Net cash provided by (used in) financing activities (1,499) (1,625) 36,083,373
----------- ----------- ------------
Increase (decrease) in cash and cash equivalents (2,534,248) (1,155,486) 5,034,555
Cash and cash equivalents, beginning of period 7,568,803 4,091,550 --
----------- ----------- ------------
Cash and cash equivalents, end of period $ 5,034,555 $ 2,936,064 $ 5,034,555
=========== =========== ============
</TABLE>
See accompanying notes.
(Continued ...)
Page 5 of 12
<PAGE>
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
Statements of Cash Flows
(Unaudited, Continued)
<TABLE>
<CAPTION>
Period from
Three months ended inception
September 30, (February 10, 1987)
-------------------------------- through September 30,
1997 1996 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental schedule of non-cash investing
and financing activities:
Accretion of preferred stock $ -- $ -- $ 139,674
Conversion of preferred stock to common stock 127,943 214,993 10,353,428
Capital lease obligation incurred to lease equipment -- -- 23,973
</TABLE>
See accompanying notes.
Page 6 of 12
<PAGE>
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
Notes to Financial Statements
Period from inception (February 10, 1987) through September 30, 1997
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-QSB and Item 310(b) of Regulation S-
B. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended September 30,
1997 are not necessarily indicative of the results that may be expected for the
year ending June 30, 1998. For further information, refer to the financial
statements and notes thereto included in the Company's 1997 Annual Report on
Form 10-KSB.
Note 2 - Development Stage Enterprise
From inception (February 10, 1987) through September 30, 1997, the Company has
generated only modest operating revenues and has incurred losses aggregating
$31,457,009. As of September 30, 1997, the Company had working capital of
$5,791,841. This amount is expected to enable the Company to maintain its
planned operations through calendar 1998. Continued operation beyond that time
will require additional capital. Over the longer term, successful completion of
the Company's development program and its transition, ultimately, to attaining
profitable operations is dependent upon obtaining additional financing adequate
to fulfill its research and development activities and achieving a level of
revenues adequate to support the Company's cost structure.
Page 7 of 12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations; Plan of Operation
The following discussion and analysis should be read in conjunction with the
Financial Statements and Notes thereto appearing elsewhere in this report and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations; Plan of Operation" presented in the Company's 1997 Annual Report on
Form 10-KSB.
Introductory Note
This Quarterly Report on Form 10-QSB contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 and the Company intends that such forward
looking statements be subject to the safe harbors created thereby. These
forward-looking statements relate to (i) future research plans and expenditures,
(ii) potential collaborative arrangements, and (iii) the need for, and
availability of, additional financing.
The forward-looking statements included herein are based on current expectations
that involve a number of risks and uncertainties. These forward-looking
statements are based on assumptions regarding the Company's business and
technology, which involve judgments with respect to, among other things, future
scientific, economic and competitive conditions, and future business decisions,
all of which are difficult or impossible to predict accurately and many of which
are beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could prove inaccurate and, therefore, there can be no assurance
that the results contemplated in forward-looking statements will be realized. In
light of the significant uncertainties inherent in the forward-looking
information included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved.
Results of Operations
From inception (February 10, 1987) through September 30, 1997, the Company's
revenue has consisted of (i) $3,600,000 of license fees and research and
development funding under an earlier agreement with Alkermes, Inc. ("Alkermes"),
(ii) net interest income aggregating $1,569,000, and (iii) $95,000 of grant
revenue.
From inception (February 10, 1987) through September 30, 1997, the Company has
sustained losses aggregating $31,457,000. 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.
Page 8 of 12
<PAGE>
The net loss for the three-month period ended September 30, 1997 of $1,307,000
compares with a net loss of $1,192,000 for the corresponding prior year period.
Costs related to the commencement of Phase I/IIa human clinical testing of
Ampalex(TM) were responsible for most of the current year increase.
Research and development expenses increased from $794,000 to $948,000, or by
$154,000 (19%), during the three-month period ended September 30, 1997 compared
to the corresponding prior year period. The increase was principally due to
higher outlays for clinical trials expenses and additions to the complement of
scientific employees, partially offset by lower spending for sponsored research,
technology payments and patent expenses.
General and administrative expenses of $439,000 for the three-month period ended
September 30, 1997 were materially consistent with those for the corresponding
prior year period.
The Company believes that inflation and changing prices have not had a material
impact on its ongoing operations to date.
Plan of Operations; Liquidity and Capital Resources
Cortex has funded its organizational and research and development activities
primarily from the issuance of equity securities, with net proceeds from
inception (February 10, 1987) through September 30, 1997 aggregating $36
million. An additional $3.6 million in research and license payments was
received from Alkermes between January 1992 and June 1993 in connection with a
development and license agreement with that firm. Interest income from inception
through September 30, 1997 was $1.8 million.
A private placement of Series A Preferred Stock in June 1997 included the
issuance of special purchase rights that, under certain circumstances, allow the
investors to purchase additional shares of common stock at the conversion price
in effect at the time of conversion of the Series A Preferred. These rights are
only exercisable at the time of such conversion and expire to the extent they
are not utilized. If fully exercised, of which there can be no assurance, the
special purchase rights would provide approximately $3.9 million of additional
working capital.
As of September 30, 1997, Cortex had outstanding 35,000 shares of 9% cumulative
convertible preferred stock, which accrue cumulative semi-annual dividends at an
annual rate of $0.09 per share. To conserve capital for operations, the Company
has not distributed the dividends that have accrued from June 15, 1990. Accrued
and unpaid dividends as of September 30, 1997 were $23,625.
The Company leases approximately 30,000 square feet of research laboratory,
office 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.
The commitments under the lease agreement for the years ending June 30, 1998 and
1999 are $243,000 and $229,000, respectively. From inception (February 10, 1987)
through September 30, 1997, net expenditures for furniture, equipment and
leasehold improvements aggregated $2 million.
In connection with the settlement of a license dispute with Alkermes, the
Company issued to Alkermes a $1,000,000 three-year promissory note accruing
interest semi-annually at the then federal
Page 9 of 12
<PAGE>
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 next twelve months, the Company plans to conduct additional preclinical
and Phase I/II clinical studies on its Ampakine compounds. These planned
research and development activities involve a twelve-month expenditure of
approximately $1.3 million. Significant investments in plant or equipment or
substantial changes to staffing levels are not contemplated under current
spending plans for the upcoming year. As of September 30, 1997, Cortex had 20
full-time employees.
Cortex anticipates that its existing cash, cash equivalents and short-term
investments of $6 million as of September 30, 1997 will be sufficient to satisfy
its capital requirements through calendar 1998 under current spending plans.
Over the longer term, the Company will require substantial additional funds to
maintain and expand its research and development activities and to ultimately
commercialize, with or without the assistance of corporate partners, any of its
proposed products. 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, the 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. 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, or
that revenues that may be generated thereby will offset operating expenses
sufficiently to reduce the Company's short- or long-term funding requirements.
Additional equity or debt financings will be required, and there can be no
assurance that funds will be available from such financings on favorable terms,
or at all. If additional funds are raised by issuing equity securities, and
dependent on the nature and timing of such issuances, dilution to then existing
stockholders is likely to result.
The Company's proposed products are in the preclinical or early clinical stage
of development and will require significant further research, development,
clinical testing and regulatory clearances. They are subject to the risks of
failure inherent in the development of products based on innovative
technologies. These risks include the possibilities that any or all of the
proposed products will be found to be ineffective or toxic, or otherwise fail to
receive necessary regulatory clearances, that the proposed products, although
effective, will be uneconomical to market, that third parties may now or in the
future hold proprietary rights that preclude the Company from marketing them or
that third parties will market a superior or equivalent product. Accordingly,
the Company is unable to predict whether its research and development activities
will result in any commercially viable products or applications. Further, due to
the extended testing and regulatory review process required before marketing
clearances 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 licenses. There can be no assurance that the
Company's proposed products will prove to be safe or effective or receive
regulatory approvals that are required for commercial sale.
Page 10 of 12
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
---------------------------------------------------------------------
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September
30, 1997.
Page 11 of 12
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CORTEX PHARMACEUTICALS, INC.
November 10, 1997 By: /s/ D. Scott Hagen
--------------------------------------------
D. Scott Hagen
Vice President and Chief Financial Officer;
Corporate Secretary
(Principal Financial and Accounting Officer)
Page 12 of 12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 30, 1997 AND THE RELATED STATEMENTS OF OPERATIONS AND
CASH FLOWS FOR THE THREE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,034,555
<SECURITIES> 1,001,857
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,116,700
<PP&E> 1,970,421
<DEPRECIATION> 1,330,155
<TOTAL-ASSETS> 6,780,096
<CURRENT-LIABILITIES> 324,859
<BONDS> 1,106,708<F1>
3,808,776
121,810
<COMMON> 9,467
<OTHER-SE> 1,408,476
<TOTAL-LIABILITY-AND-EQUITY> 6,780,096
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,386,995
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,461
<INCOME-PRETAX> (1,307,405)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,307,405)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,307,405)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
<FN>
<F1> PROMISSORY NOTE PAYABLE TO ALKERMES, INC.
</FN>
</TABLE>
