<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 1999
-----------------------
[_] 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)
(949) 727-3157
(Issuer'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 [X] NO [_]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
15,517,882 shares of Common Stock as of May 11, 1999
Page 1 of 14
<PAGE>
CORTEX PHARMACEUTICALS, INC.
INDEX
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets -- March 31, 1999 and June 30, 1998...... 3
Statements of Operations -- Three months ended
March 31, 1999 and 1998; nine months ended March 31,
1999 and 1998; and period from inception (February 10,
1987) through March 31, 1999............................ 4
Statements of Cash Flows -- Nine months ended
March 31, 1999 and 1998; and period from inception
(February 10, 1987) through March 31, 1999.............. 5
Notes to Financial Statements........................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Plan of Operation....................................... 9
PART II. OTHER INFORMATION
Item 3. Defaults upon Senior Securities......................... 14
Item 6. Exhibits and Reports on Form 8-K........................ 14
SIGNATURES........................................................... 14
Page 2 of 14
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
Balance Sheets
<TABLE>
<CAPTION>
(Unaudited) (Note)
March 31, 1999 June 30, 1998
- ------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,447,747 $ 2,124,008
Other current assets 64,971 71,566
------------ ------------
Total current assets 1,512,718 2,195,574
Furniture, equipment and leasehold improvements, net 510,653 655,419
Other 23,853 23,853
------------ ------------
$ 2,047,224 $ 2,874,846
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 624,181 $ 408,047
Accrued dividends 22,275 26,775
Accrued wages, salaries and related expenses 59,957 62,475
Unearned revenue 72,222 --
Current portion of note payable to Alkermes, Inc. 987,515 --
------------ ------------
Total current liabilities 1,766,150 497,297
Note payable to Alkermes, Inc., less current portion -- 948,253
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: 0 (March 31, 1999)
and 250 (June 30, 1998) -- 2,460,450
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: 27,500 (March 31, 1999) and
35,000 (June 30, 1998) 27,500 35,000
Series B convertible preferred stock, $0.001 par
value; $0.6667 per share liquidation preference;
shares authorized: 3,200,000; shares issued and
outstanding: 75,000 (March 31, 1999) and 150,000
(June 30, 1998) 43,405 86,810
Common stock, $0.001 par value; shares authorized:
20,000,000; shares issued and outstanding:
15,517,882 (March 31, 1999) and 10,237,126
(June 30, 1998) 15,517 10,237
Additional paid-in capital 38,786,777 36,276,202
Deficit accumulated during the development stage (38,592,125) (37,439,403)
------------ ------------
Total stockholders' equity 281,074 (1,031,154)
------------ ------------
$ 2,047,224 $ 2,874,846
============ ============
</TABLE>
See accompanying notes.
Note: The balance sheet as of June 30, 1998 has been derived from the audited
financial statements at that date.
Page 3 of 14
<PAGE>
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Period from
inception
Three months ended Nine months ended (February 10,
March 31, March 31, 1987) through
------------------------ -------------------------- March 31,
1999 1998 1999 1998 1999
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Research and license revenue $2,427,778 $ 80,000 $ 2,427,778 $ 130,000 $ 6,157,778
Grant revenue 33,333 -- 33,333 -- 128,050
---------- ----------- ----------- ----------- ------------
Total revenues 2,461,111 80,000 2,461,111 130,000 6,285,828
Operating expenses:
Research and development 1,065,810 1,182,507 2,524,673 3,155,076 28,877,535
General and administrative 417,071 395,431 1,093,725 1,240,567 14,437,973
Settlement with Alkermes, Inc. -- -- -- -- 1,227,977
---------- ----------- ----------- ----------- ------------
Total operating expenses 1,482,881 1,577,938 3,618,398 4,395,643 44,543,485
---------- ----------- ----------- ----------- ------------
Income (loss) from operations 978,230 (1,497,938) (1,157,287) (4,265,643) (38,257,657)
Interest income, net 994 39,784 4,565 179,908 1,697,371
---------- ----------- ----------- ----------- ------------
Net income (loss) before preferred
stock accretion and
dividends $ 979,224 $(1,458,154) $(1,152,722) $(4,085,735) $(36,560,286)
---------- ----------- ----------- ----------- ------------
Preferred stock accretion
and dividends: -- -- 1,238 1,575 2,501,327
---------- ----------- ----------- ----------- ------------
Net income (loss) applicable to
Common stock $ 979,224 $(1,458,154) $(1,153,960) $(4,087,310) $(39,061,613)
========== =========== =========== =========== ============
Weighted average common
shares outstanding 15,517,882 9,573,067 12,707,200 9,495,196
========== =========== =========== ===========
Basic and diluted earnings
(loss) per share $ 0.06 $ (0.15) $ (0.09) $ (0.43)
========== =========== =========== ===========
</TABLE>
See accompanying notes.
Page 4 of 14
<PAGE>
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Period from
inception
Nine months ended (February 10,
March 31, 1987) through
-------------------------- March 31,
1999 1998 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,152,722) $(4,085,735) $(36,560,286)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 155,248 148,353 1,663,989
Settlement with Alkermes, Inc. -- -- 1,227,977
Changes in operating assets/liabilities:
Accounts payable and accrued expenses 325,100 (73,912) 795,622
Accrued interest on U.S. government securities -- (4,921) (171,238)
Other current assets 6,595 (17,371) (64,971)
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
Changes in other assets and other long term liabilities -- 76,721 188,997
----------- ----------- ------------
Net cash used in operating activities (665,779) (3,956,865) (32,277,708)
----------- ----------- ------------
Cash flows from investing activities:
U.S. government securities -- available for sale:
Purchases -- (2,239,643) (38,823,738)
Proceeds from sales -- 1,500,000 38,940,820
Purchase of fixed assets (10,482) (179,967) (2,146,118)
Sale of fixed assets -- -- 10,988
Decrease (increase) in:
Other assets -- (39,870)
Note receivable from former officer -- -- (100,000)
------- ---------- -----------
Net cash used in investing activities (10,482) (919,610) (2,157,918)
------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of 9% preferred stock -- -- 1,076,588
Redemption of 9% preferred stock -- -- (63,750)
Payment of 9% preferred stock dividends -- -- (110,250)
Proceeds from issuance of Series B
convertible preferred stock -- -- 1,841,108
Proceeds from issuance of Series C
convertible preferred stock -- -- 3,576,543
Proceeds from issuance of Series D
convertible preferred stock -- 3,719,636
Proceeds from issuance of Series A
convertible preferred stock -- -- 3,936,720
Proceeds from issuance of common stock 21,922,418
Proceeds from subordinated convertible note -- -- 208,333
Principal payments on note payable to Alkermes, Inc. -- (200,000) (200,000)
Principal payments on capitalized leases -- (1,499) (23,973)
---------- ----------- -----------
Net cash provided by (used in) financing activities -- (201,499) 35,883,373
---------- ----------- -----------
Increase (decrease) in cash and cash equivalents (676,261) (5,077,974) 1,447,747
Cash and cash equivalents, beginning of period 2,124,008 7,568,803 --
---------- ----------- -----------
Cash and cash equivalents, end of period $1,447,747 $ 2,490,829 $ 1,447,747
========== =========== ===========
</TABLE>
See accompanying notes. (Continued ...)
Page 5 of 14
<PAGE>
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
Statements of Cash Flows
(Unaudited, Continued)
<TABLE>
<CAPTION>
Period from
inception
Nine months ended (February 10,
March 31, 1987) through
------------------------- March 31,
1999 1998 1999
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental schedule of non-cash investing
and financing activities:
Accretion of 9% preferred stock $ -- $ -- $ 139,674
Conversion of 9% preferred stock to common stock 13,238 125,625 1,450,549
Conversion of Series B preferred stock
to common stock 43,405 -- 1,797,678
Conversion of Series C preferred stock
to common stock -- -- 3,576,543
Conversion of Series D preferred stock
to common stock -- -- 3,719,636
Conversion of Series A preferred stock
to common stock 2,460,450 344,462 3,936,720
Capital lease obligation incurred to lease equipment -- -- 23,973
</TABLE>
See accompanying notes.
Page 6 of 14
<PAGE>
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
Notes to Financial Statements
Period from Inception (February 10, 1987) through March 31, 1999
(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 and nine-month periods
ended March 31, 1999 are not necessarily indicative of the results that may be
expected for the year ending June 30, 1999. For further information, refer to
the financial statements and notes thereto included in the Company's 1998 Annual
Report on Form 10-KSB. Certain previously reported amounts have been
reclassified to conform with the June 30, 1998 and March 31, 1999 presentation.
Note 2 -- Development Stage Enterprise
From inception (February 10, 1987) through March 31, 1999, the Company has
generated only modest operating revenues and has incurred losses aggregating
$36,560,000. 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. There can be no assurance that the Company will be successful in
these areas.
In January 1999, the Company entered into a research collaboration and exclusive
worldwide license agreement with NV Organon ("Organon"), a subsidiary of Akzo
Nobel (Note 3). The agreement will enable Organon to develop or commercialize
the Company's Ampakine(R) technology for the treatment of schizophrenia and,
upon Organon's election, for the treatment of depression. The Company is seeking
collaborative arrangements with other pharmaceutical companies for other
applications of the Ampakines compounds, under which such companies would
provide additional capital to the Company in exchange for exclusive or non-
exclusive license or other rights to the technologies and products the Company
is developing. Competition for corporate partnering with major pharmaceutical
companies is intense, with a large number of biopharmaceutical companies
attempting to arrive at such arrangements. Accordingly, although the Company is
in discussions with a number of candidate companies, there is no assurance that
an agreement will arise from these discussions in a timely manner, or at all, or
that an agreement that may arise from these discussions will successfully reduce
the Company's short or longer-term funding requirements.
To supplement its existing resources, the Company may need to raise additional
capital through the sale of debt or equity. There can be no assurance that such
capital 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.
<PAGE>
Note 3 -- Research and License Agreement with NV Organon
In January 1999, the Company entered into a research collaboration and exclusive
worldwide license agreement with NV Organon, a pharmaceutical business unit of
Akzo Nobel (The Netherlands). The agreement will enable Organon to develop and
commercialize the Company's proprietary Ampakine(R) technology for the treatment
of schizophrenia and, upon Organon's election, for the treatment of depression.
In connection with the agreement, the Company received an up-front license
payment of $2,000,000, and a quarterly research support payment of $500,000.
Subsequent to March 31, 1999, the Company received a second quarterly research
support payment of $650,000. Future research support payments are expected to
increase as the Company increases its scientific staff.
The agreement includes research support payments of up to $3,000,000 per year
for two years (subject to Cortex providing agreed-upon levels of research),
milestone payments, plus royalty payments on worldwide sales.
Note 4 -- Earnings per Share
Diluted earnings per share for the three-month period ended March 31, 1999 does
not include outstanding options to purchase 160,334 shares of common stock at a
weighted average exercise price of $1.09 per share. The options were excluded
from the computation because the exercise prices are greater than the average
market price of the common shares.
Preferred stock convertible into 11,025 shares of common stock was also excluded
from the computation because it is convertible at a weighted average effective
conversion price of $6.98 per share, which is greater than the average market
price of the common shares.
<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
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" presented in the Company's 1998 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, expenditures and
results, (ii) potential collaborative arrangements, (iii) the potential utility
of the Company's proposed products and (iv) the need for, and availability of,
additional financing.
The forward-looking statements included herein are based on current
expectations, which involve a number of risks and uncertainties and assumptions
regarding the Company's business and technology. These assumptions 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 and actual
results may differ materially. 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 March 31, 1999, the Company's revenue
has consisted of (i) $6,158,000 of license fees and research and development
funding, (ii) net interest income aggregating $1,697,000, and (iii) $128,000 of
grant revenue.
In January 1999, the Company entered into a research collaboration and exclusive
worldwide license agreement with NV Organon ("Organon"), a pharmaceutical
business unit of Akzo Nobel (The Netherlands). The agreement will allow Organon
to develop and commercialize the Company's proprietary Ampakine(R) technology
for the treatment of schizophrenia and, upon Organon's election, for the
treatment of depression. In connection with the agreement, the Company received
$2,500,000, representing a $2,000,000 up-front licensing payment and a $500,000
quarterly research support payment.
Subsequent to March 31, 1999, the Company received a second quarterly research
support payment of $650,000, with future payments expected to increase as the
Company increases its scientific staff. The agreement includes research support
payments of up to $3,000,000 per year for two years
<PAGE>
(subject to Cortex providing agreed-upon levels of research) and milestone
payments, plus royalty payments on worldwide sales.
From inception (February 10, 1987) through March 31, 1999, the Company has
sustained losses aggregating $36,560,000. Continuing losses are anticipated over
the next several years, as the Company's ongoing operating expenses will only be
offset, if at all, by research support payments and possible milestone payments
from its research collaboration with Organon, or under planned strategic
alliances that the Company is seeking with other pharmaceutical companies for
the later stages of clinical development, manufacturing and marketing of its
products. The nature and timing of payments to Cortex under the Organon
agreement or other planned strategic alliances, if and when entered into, are
likely to significantly affect the Company's operations and financing activities
and to produce substantial period-to-period fluctuations in reported financial
results. Over the longer term, the Company will require successful commercial
development of its products by Organon or its other prospective partners to
attain profitable operations from royalties or other product-based revenues.
Net income for the three-month period ended March 31, 1999 of $979,000 compares
with a net loss of $1,458,000 for the corresponding prior year period. The net
loss for the nine-month period ended March 31, 1999 was $1,153,000, compared to
a net loss of $4,086,000 for the corresponding prior year period. Revenues from
the license and research collaboration with NV Organon were responsible for the
improvements in the current year periods (Note 3).
Research and development expenses decreased from $1,183,000 to $1,066,000, or by
10%, during the three-month period ended March 31, 1999 compared to the
corresponding prior year period. During the nine-month period ended March 31,
1999, research and development expenses decreased from $3,155,000 to $2,525,000,
or by 20%, compared to the corresponding prior year period. The decreases
resulted from the timing of earlier commenced Phase I/IIa human clinical testing
of Ampalex(R). The decreases also reflect reduced salary expenses due to earlier
decreases in scientific employees and a resultant decrease in lab supplies
spending. Expenditures for both salaries and supplies are expected to increase
as the Company increases its research staff in connection with the Organon
agreement.
For the three-month period ended March 31, 1999, general and administrative
expenses of $417,000 were materially consistent with expenses of $395,000 for
the corresponding prior year period. For the nine-month period ended March 31,
1999, general and administrative expenses decreased from $1,241,000 to
$1,094,000, or by 12% compared to the corresponding prior year period. The
decrease includes reduced spending for office supplies, travel and the annual
report. The decrease also reflects the prior year period expense for the
estimated value of a warrant issued as part of a note payable restructuring.
The Company believes that inflation and changing prices have not had a material
impact on its ongoing operations to date.
Liquidity and Capital Resources; Plan of Operation
From inception (February 10, 1987) through March 31, 1999, Cortex has funded its
organizational and research and development activities primarily from the
issuance of equity securities, with net
<PAGE>
proceeds aggregating $36 million. An additional $3.6 million in research and
license payments was received from Alkermes, Inc. in 1992 and 1993 in connection
with a development and license agreement with that firm. Net interest income
from inception through March 31, 1999 was $1.7 million.
During the quarter ended March 31, 1999, the Company received $2,500,000 in
connection with a research collaboration and licensing agreement with NV Organon
(Note 3). Additional amounts, representing quarterly research support payments,
are expected over the next two years. The agreement also includes milestone
payments based on clinical development of the licensed technology and royalties
on worldwide sales.
As of March 31, 1999, the Company had cash and cash equivalents totaling
$1,448,000 and working capital of $(253,000). In comparison, as of June 30,
1998, the Company had cash and cash equivalents of $2,124,000 and working
capital of $1,698,000. The decreases represent amounts required to fund
operating losses.
The Company leases approximately 30,000 square feet of research laboratory,
office and expansion space under an operating lease that expires May 31, 2004.
The commitments under the lease agreement for the years ending June 30, 1999,
2000, 2001, 2002 and 2003 total $266,000, $325,000, $339,000, $353,000 and
$368,000, respectively. From inception (February 10, 1987) through March 31,
1999, expenditures for furniture, equipment and leasehold improvements
aggregated $2,146,000.
In connection with the settlement in October 1995 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 funds rate. The Company also
agreed to pay Alkermes a graduated royalty on calpain inhibitor development
proceeds, as defined and subject to certain limitations. In February 1998, the
terms of the note were restructured to include a principal payment of $200,000
upon signing of the restructuring agreement. The balance of the note and accrued
interest were payable in October 1999 or upon the consummation of a corporate
partnership between Cortex and a larger pharmaceutical company, whichever is
earlier. With the signing of the license agreement with Organon, the note and
accrued interest became due and payable. In order to conserve cash resources,
the Company may propose one of several restructuring or disposition options.
There is no assurance that Alkermes will accept any of the Company's proposals.
As of March 31, 1999, Cortex had 27,500 outstanding 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 elected not to distribute the dividends that have accrued since 1989.
Accrued and unpaid dividends as of March 31, 1999 were $22,275.
Over the next twelve months the Company is committed to $637,000 of funding for
sponsored research in academic laboratories. Remaining commitments for current
Phase I/IIa clinical studies on the Company's Ampakine compounds are not
significant.
As of March 31, 1999, Cortex had a total of 15 full-time research and
administrative employees. As a result of the agreement with Organon, the Company
plans to nearly double its research staff from current levels. Significant
investments in plant or equipment are not planned for the upcoming year.
<PAGE>
Assuming successful restructuring of the note payable to Alkermes, Cortex
anticipates that its existing cash, cash equivalents and short-term investments
and the expected research support payments from Organon will be sufficient to
satisfy its capital requirements into the spring of 2000. Without any milestone
payments from the Organon agreement, additional funds will be required to
continue operations beyond that time.
The Company's common stock was previously quoted on the Nasdaq SmallCap Market
under the symbol "CORX." Listing standards for the Nasdaq SmallCap Market
include a net tangible asset, market capitalization or net income test. Nasdaq
also requires a minimum bid price of $1.00 per common share. The Company does
not meet the current listing standards and as a result, its common stock is no
longer eligible for listing on the Nasdaq SmallCap Market. Effective March 18,
1999, Cortex common stock began trading in the over-the-counter market on the
NASD's "Electronic Bulletin Board."
The Company may raise additional capital through the sale of debt or equity
securities. Given the current adverse market conditions for biopharmaceutical
companies, if the Company proceeds with a debt or equity financing, there is no
assurance that funds will be available on favorable terms, or at all. If equity
securities are issued to raise additional funds, substantial dilution to
existing shareholders is likely to result.
In order to provide for both its short and longer-term spending requirements,
the Company is presently seeking additional collaborative or other arrangements
with larger pharmaceutical companies. Under these agreements, it is intended
that such companies would provide capital to the Company in exchange for
exclusive or non-exclusive license or other rights to certain of the
technologies and products that the Company is developing. Competition for such
arrangements is intense, however, with a large number of biopharmaceutical
companies attempting to secure alliances with more established pharmaceutical
companies. Although the Company has been engaged in discussions with candidate
companies, there is 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 and longer-term funding requirements.
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 superior or equivalent products. 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 current or prospective corporate partners or licensees. There can be
no assurance that the Company's proposed products will prove to be safe or
effective or receive regulatory approvals that are required for commercial sale.
<PAGE>
Year 2000 Compliance
The Company has completed a preliminary assessment of the impact of the Year
2000 as it relates to the Company's computers and operating systems. Some of the
Company's computer programs were written using two digits rather than four to
define the applicable year. As a result, those computer programs recognize a
date using "00" as the year as 1900 rather than as the year 2000. This may cause
a system failure or otherwise disrupt operations. The Company will be required
to update some of its software so that its computer systems will continue to
function properly. Completion of the upgrade is expected by June 1999, prior to
any anticipated impact on its operating systems. The associated cost is
anticipated to be less than $35,000.
The Company has not yet completed its assessment of its laboratory equipment for
Year 2000 compliance. However, the Company has initiated contact with the
manufacturers and vendors of such equipment regarding Year 2000 compliance. The
Company anticipates that any necessary replacements or upgrades would be
completed by June 1999. The Company does not expect that its Year 2000-related
expenditures with respect to its laboratory equipment will be significant.
The Company is unable to control whether its suppliers and service providers
will be Year 2000 compliant. However, the Company has initiated communications
with its significant vendors to determine the extent to which the Company's
operations may be vulnerable to a failure by those third parties to properly
address Year 2000 issues. The Company's operations may be affected to the extent
that its vendors are unable to provide services or ship products. As of yet, the
Company has not received responses from all of its significant vendors and
cannot complete its assessment of their compliance.
Although the Company expects its internal systems to be Year 2000 compliant as
described above, the Company intends to prepare a contingency plan that will
specify what it plans to do if it or its significant vendors are not Year 2000
compliant in a timely manner. The Company expects to prepare its contingency
plan in calendar year 1999 following the anticipated completion of its internal
remediation and the assessment of the compliance of the Company's significant
vendors. Management does not believe that the Year 2000 changes affecting it and
its significant vendors will have a material impact on its business, financial
condition or results of operations.
Notwithstanding the foregoing, there can be no assurances (a) that the
representations provided by its third party vendors with respect to Year 2000
compliance will be accurate, or (b) that the Company will have any recourse
against such vendors if the representations prove to be inaccurate. Furthermore,
there can be no assurances that Year 2000-related failure caused by third
parties, such as utility providers, transportation companies or others, will not
have a material adverse effect on the Company.
<PAGE>
PART II. OTHER INFORMATION
Item 3. Defaults upon Senior Securities
In order to conserve capital for operations, the Board of Directors of the
Company elected not to distribute the semi-annual dividends that have accrued
from June 15, 1990 on the Company's 9% cumulative convertible preferred stock.
As of March 31, 1999, accrued and unpaid dividends on the 9% cumulative
convertible preferred stock were $22,275.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
-----------------------------------------------------------------------
10.64 Research and Collaboration and License Agreement between the
Company and N.V. Organon, dated January 13, 1999,
incorporated by reference to Exhibit 10.64 of the Company's
quarterly report on Form 10-QSB as filed on February 16,
1999. (Portions of this Exhibit were omitted and 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.)
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March
31, 1999.
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.
May 12, 1999 By: /s/ Vincent F. Simmon, Ph.D.
----------------------------
Vincent F. Simmon, Ph.D.
President and Chief Executive Officer;
Acting Chief Financial Officer,
Corporate Secretary
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 1999, AND THE RELATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 1,447,747
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,512,718
<PP&E> 2,149,613
<DEPRECIATION> (1,638,960)
<TOTAL-ASSETS> 2,047,224
<CURRENT-LIABILITIES> 1,766,150
<BONDS> 987,515<F1>
0
70,905
<COMMON> 15,517
<OTHER-SE> 194,652
<TOTAL-LIABILITY-AND-EQUITY> 2,047,224
<SALES> 0
<TOTAL-REVENUES> 2,461,111
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,618,398
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,262
<INCOME-PRETAX> (1,152,722)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,152,722)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,152,722)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
<FN>
<F1>PROMISSORY NOTE PAYABLE TO ALKERMES, INC. THIS AMOUNT IS INCLUDED IN CURRENT
LIABILITIES.
</FN>
</TABLE>
