CORTEX PHARMACEUTICALS INC/DE/
10QSB, 2000-02-14
PHARMACEUTICAL PREPARATIONS
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<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     December 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
                         (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.

           15,579,416 shares of Common Stock as of February 9, 2000

                                                                    Page 1 of 14
<PAGE>

                         CORTEX PHARMACEUTICALS, INC.
                                     INDEX

<TABLE>
<CAPTION>
                                                                     Page Number
                                                                     -----------
<S>                                                                  <C>
PART I.  FINANCIAL INFORMATION

     Item 1.   Financial Statements

               Balance Sheets -- December 31, 1999 and June 30, 1999........  3

               Statements of Operations -- Three months ended December 31,
               1999 and 1998; six months ended December 31, 1999 and 1998
               and period from inception (February 10, 1987) through
               December 31, 1999............................................  4

               Statements of Cash Flows -- Six months ended December 31,
               1999 and 1998 and period from inception (February 10, 1987)
               through December 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 on Senior Securities................................ 13

     Item 4    Submission of Matters to a Vote of Security Holders.......... 13

     Item 6.   Exhibits and Reports on Form 8-K............................. 14

SIGNATURES ................................................................. 14
</TABLE>

                                                                    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)
                                                               December 31, 1999             June 30, 1999
- ----------------------------------------------------------------------------------------------------------
<S>                                                            <C>                           <C>
Assets
Current assets:
    Cash and cash equivalents                                     $       95,624             $     909,337
    Other current assets                                                  52,306                    60,977
                                                                  --------------             -------------
       Total current assets                                              147,930                   970,314

Furniture, equipment and leasehold improvements, net                     464,880                   531,970
Other                                                                     46,737                    46,737
                                                                  --------------             -------------
                                                                  $      659,547             $   1,549,021
                                                                  ==============             =============

Liabilities and Stockholders' Deficit
Current liabilities:
    Accounts payable                                              $      671,168             $     523,474
    Accrued dividends                                                     24,750                    23,513
    Accrued wages, salaries and related expenses                          69,283                    67,497
    Unearned revenue                                                      99,157                    98,584
    Note payable to Alkermes, Inc.                                       529,057                   999,282
                                                                  --------------             -------------
       Total current liabilities                                       1,393,415                 1,712,350

Stockholders' deficit:
    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                                                27,500                    27,500
    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                                                43,405                    43,405
    Common stock, $0.001 par value; shares authorized:
       30,000,000; shares issued and outstanding:
       15,538,182 (December 31, 1999) and 15,519,382
       (June 30, 1999)                                                    15,538                    15,519
    Additional paid-in capital                                        38,954,884                38,811,100
    Deficit accumulated during the development stage                 (39,775,195)              (39,060,853)
                                                                  --------------             -------------
       Total stockholders' deficit                                      (733,868)                 (163,329)
                                                                  --------------             -------------
                                                                  $      659,547             $   1,549,021
                                                                  ==============             =============
</TABLE>

                           See accompanying notes.

Note:  The balance sheet as of June 30, 1999 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
                                                                                                         (February 10,
                                             Three months ended                 Six months ended         1987) through
                                                December 31,                      December 31,            December 31,
                                      ------------------------------        ------------------------      -------------
                                            1999             1998             1999             1998               1999
- -----------------------------------------------------------------------------------------------------------------------
<S>                                <C>              <C>              <C>               <C>                <C>
Revenues:
   Research and license revenue    $     961,528    $          --    $     1,729,417   $           --     $    8,510,823
   Grant revenue                          29,167               --             95,834               --            290,552
                                   -------------    -------------      -------------    -------------     --------------
     Total revenues                      990,695               --          1,825,251               --          8,801,375

Operating expenses:
   Research and development              913,771          619,582          1,665,571        1,458,863         31,398,165
   General and administrative            490,778          321,961            858,158          676,654         15,604,008
   Settlement with Alkermes, Inc.             --               --               --               --            1,227,977
                                   -------------    -------------      -------------    -------------     --------------
     Total operating expenses          1,404,549          941,543          2,523,729        2,135,517         48,230,150
                                   -------------    -------------      -------------    -------------     --------------
Loss from operations                    (413,854)        (941,543)          (698,478)      (2,135,517)       (39,428,775)
Interest income (expense), net            (9,305)          (4,045)           (15,864)           3,571          1,685,419
                                   -------------    -------------      -------------    -------------      -------------
Net loss before preferred stock
   accretion and dividends         $    (423,159)   $    (945,588)   $      (714,342)  $   (2,131,946)    $  (37,743,356)
                                   -------------    -------------      -------------     ------------      -------------

Preferred stock accretion
   and dividends:                          1,238            1,238              1,238            1,238          2,503,802
                                   -------------    -------------      -------------     ------------      -------------
Net loss applicable to common
   stock                           $    (424,397)   $    (946,826)    $     (715,580)  $   (2,133,184)    $  (40,247,158)
                                   =============    =============      =============     ============      =============

Weighted average common
    shares outstanding                15,528,182       12,427,694         15,525,217       11,332,410
                                   =============    =============      =============     ============
Net loss per share                 $       (0.03)   $       (0.08)    $        (0.05)  $        (0.19)
                                   =============    =============     ==============     ============
</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
                                                                                                     (February 10,
                                                                        Six months ended             1987) through
                                                                          December 31,                December 31,
                                                                 ------------------------------      -------------
                                                                         1999              1998               1999
- ------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>               <C>              <C>
Cash flows from operating activities:
    Net loss                                                    $    (714,342)    $  (2,131,946)   $   (37,743,356)
    Adjustments to reconcile net loss to
       net cash used in operating activities:
          Depreciation and amortization                                89,947           104,357          1,796,350
          Settlement with Alkermes, Inc.                                   --                --          1,227,977
          Changes in operating assets/liabilities:
              Accounts payable and accrued expenses                   150,053           274,554            839,608
              Accrued interest on U.S. government securities               --                --           (171,238)
              Other current assets                                      8,671            33,019            (52,306)
              Interest receivable from former officer                      --                --            (19,274)
          Realized loss on sale of U.S. government securities              --                --             54,317
          Stock option compensation expense                            32,490                --            588,299
          Warrants issued for debt restructuring                      105,500                --            138,978
          Stock issued for services                                        --                --             28,750
          Reduction in note receivable from former
              officer"compensation expense                                 --                --             22,600
          Changes in other assets and other liabilities              (196,967)           26,219             11,697
                                                                -------------     -------------    ---------------
    Net cash used in operating activities                            (524,648)       (1,693,797)       (33,277,598)
                                                                -------------     -------------    ---------------
Cash flows from investing activities:
    U.S. government securities"available-for-sale"
       Purchases                                                           --                --        (38,823,738)
       Proceeds from sales                                                 --                --         38,940,820
    Purchase of fixed assets                                          (22,857)           (4,110)        (2,232,706)
    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                             (22,857)           (4,110)        (2,244,506)
                                                                -------------     -------------    ---------------
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 convertible
       preferred stock                                                     --                --         13,074,007
    Proceeds from issuance of common stock                              7,050                --         21,930,031
    Proceeds from subordinated convertible note                            --                --            208,333
    Principal payments on note payable to Alkermes, Inc.             (273,258)               --           (473,258)
    Principal payments on capitalized leases                               --                --            (23,973)
                                                                -------------     -------------    ---------------
    Net cash provided by (used in) financing activities              (266,208)               --         35,617,728
                                                                -------------     -------------    ---------------

Increase (decrease) in cash and cash equivalents                     (813,713)       (1,697,907)            95,624
Cash and cash equivalents, beginning of period                        909,337         2,124,008                 --
                                                                -------------     -------------    ---------------
Cash and cash equivalents, end of period                        $      95,624     $     426,101    $        95,624
                                                                =============     =============    ===============
</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
                                                                                                      (February 10,
                                                                        Six months ended             1987) through
                                                                          December 31,                 December 31,
                                                                 ------------------------------      --------------
                                                                         1999              1998               1999
- -------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>               <C>              <C>
Supplemental schedule of non-cash investing and financing
activities:

    Accretion of preferred stock                                $          --     $          --    $       139,674

    Conversion of 9% preferred stock to common stock                       --            13,238          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          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 December 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 six-month periods ended
December 31, 1999 are not necessarily indicative of the results that may be
expected for the year ending June 30, 2000. For further information, refer to
the financial statements and notes thereto included in the Company's 1999 Annual
Report on Form 10-KSB. Certain previously reported amounts have been
reclassified to conform with the December 31, 1999 presentation.

Note 2 -- Development Stage Enterprise

From inception (February 10, 1987) through December 31, 1999, the Company has
generated only modest operating revenues and has incurred losses aggregating
$37,743,000. 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 that 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 advanced discussions with 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 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 7 of 14
<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 ("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. 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.

Subsequent to December 31, 1999, the Company received a quarterly research
support payment of $888,000. This amount is higher than the research support
received for some prior quarters, reflecting the increase in the Company's staff
dedicated to the collaboration. The increased research staff includes both full-
time and temporary employees. Future quarterly research support payments are
expected to average $750,000.

Note 4 -- Note Payable to Alkermes, Inc.

In connection with the settlement of a license dispute, in October 1995 the
Company issued to Alkermes, Inc. a $1,000,000 three-year promissory note
accruing interest semi-annually at the federal funds rate. In February 1998, the
terms of the note were restructured to include a principal payment of $200,000
upon signing of the new agreement. The balance of the note and accrued interest
was payable in October 1999 or upon consummation of a corporate partnership
between Cortex and a larger pharmaceutical company, whichever was earlier. With
the signing of the license agreement with Organon (Note 3), the note and accrued
interest became due and payable.

In July 1999, Alkermes agreed to restructure the terms of the note to include a
principal and interest payment of $250,000 and monthly payments of $50,000 from
August 1999 through January 2000. The balance of the note and accrued interest
are payable on or before February 28, 2000. Interest on the unpaid balance
accrues at a 1% to 3% premium to the prime lending rate, based upon the date of
payment. In connection with this restructuring agreement, the Company agreed to
issue to Alkermes a five-year warrant to purchase 100,000 shares of common stock
at an exercise price of $1.07, representing the average of the closing sale
prices of the Company's common stock for the 30 trading days preceding the
restructuring date. In accordance with the restructuring agreement, because the
balance of principal and accrued interest was not paid by December 31, 1999,
Cortex agreed to issue to Alkermes another five-year warrant to purchase 50,000
shares of common stock. The exercise price for this warrant is $0.76 per share,
representing the average of the closing sale prices of the Company's common
stock for the 30 trading days preceding December 31, 1999. The Company recorded
expense of $106,000 for the estimated fair value of these warrants.

If the Company needs to extend the term of the note, it has agreed to issue to
Alkermes another five-year warrant to purchase 50,000 shares of Cortex common
stock. The exercise price for this warrant will be derived from the fair market
value of the Company's common stock for the 30 trading days preceding February
28, 2000. In such event, the Company has agreed to continue to pay Alkermes
$50,000 each month, with the balance of the note and accrued interest due on May
31, 2000.

                                                                    Page 8 of 14
<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 1999 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 December 31, 1999, the Company's
revenue has consisted of (i) $8,511,000 of license fees and research and
development funding, (ii) net interest income aggregating $1,685,000, and (iii)
$291,000 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
a $2,000,000 up-front licensing payment. 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) and milestone payments, plus royalty payments on
worldwide sales.

                                                                    Page 9 of 14
<PAGE>

Subsequent to December 31, 1999, the Company received a quarterly research
support payment of $888,000. This amount exceeds the payments received for some
earlier quarters, reflecting the increase in the Company's staff dedicated to
the alliance. Future quarterly research support is expected to average $750,000.

From inception (February 10, 1987) through December 31, 1999, the Company has
sustained losses aggregating $37,743,000. 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 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.

The net loss for the three-month period ended December 31, 1999 of $423,000
compares with a net loss of $946,000 for the corresponding prior year period.
The net loss for the six-month period ended December 31, 1999 was $714,000
compared to a net loss of $2,132,000 for the corresponding prior year. Revenues
from the license and research collaboration with Organon were responsible for
the improvements in the current year period (Note 3).

Research and development expenses increased from $620,000 to $914,000, or by
47%, during the three-month period ended December 31, 1999 compared to the
corresponding prior year period. During the six-month period ended December 31,
1999, research and development expenses increased from $1,459,000 to $1,666,000,
or by 14% compared to the corresponding prior year period. The increases reflect
the expense for additional scientific employees hired in response to the Organon
research collaboration (Note 3).

For the three-month period ended December 31, 1999, general and administrative
expenses increased from $322,000 to $491,000, or by 52% compared to the
corresponding prior year period. During the six-month period ended December 31,
1999, general and administrative expenses increased from $677,000 to $858,000,
or by 27% compared to the corresponding prior year period. The increases include
the expense for the estimated value of warrants issued to Alkermes as part of a
restructuring agreement. The increases also reflect the addition of a business
development consultant and increased travel related to corporate partnering
activities.

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 December 31, 1999, Cortex has funded
its organizational and research and development activities primarily from the
issuance of equity securities, with net proceeds aggregating $35,618,000. An
additional $3,600,000 in research and license payments was received from
Alkermes, Inc. ("Alkermes") in 1992 and 1993 in connection

                                                                   Page 10 of 14
<PAGE>

with a development and license agreement with that firm. Net interest income
from inception through December 31, 1999 was $1,685,000.

Research and licensing payments received in connection with the agreement with
Organon (Note 3) totaled $4,880,000 through December 31, 1999. The agreement
includes an upfront payment of $2,000,000 and 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 based on clinical development of the
licensed technology and royalties on worldwide sales.

As of December 31, 1999, the Company had cash and cash equivalents totaling
$96,000 and a working capital deficit of $1,245,000. In comparison, as of June
30, 1999, the Company had cash and cash equivalents of $909,000 and a working
capital deficit of $742,000. The decreases represent amounts required to fund
operating losses. Subsequent to December 31, 1999, the Company received
quarterly research support of $888,000 related to its agreement with Organon.

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, 2000,
2001, 2002, 2003 and 2004 total $255,000, $310,000, $353,000, $368,000 and
$356,000, respectively. From inception (February 10, 1987) through December 31,
1999, expenditures for furniture, equipment and leasehold improvements
aggregated $2,233,000.

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. 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 was payable in October 1999 or upon the consummation of a
corporate partnership between Cortex and a larger pharmaceutical company,
whichever was earlier. With the signing of the license agreement with Organon,
the note and accrued interest became due and payable. In July 1999, the terms of
the note were restructured to include a principal and interest payment of
$250,000 and monthly payments of $50,000 from August 1999 through January 2000.
The balance of the note and accrued interest are payable on or before February
28, 2000.

If the Company needs to extend the due date of the note, the Company has agreed
to issue to Alkermes a five-year warrant to purchase 50,000 shares of Cortex
common stock. The exercise price for the warrant will be derived from the fair
market value of the stock for the 30 trading days preceding February 28, 2000.
Additionally, the Company has agreed to continue to pay Alkermes $50,000 per
month, with the balance of the note and accrued interest due on May 31, 2000.

As of December 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 from June 1990.
Accrued and unpaid dividends as of December 31, 1999 were $24,750.

Over the next twelve months the Company is committed to $611,000 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.

                                                                   Page 11 of 14
<PAGE>

As of December 31, 1999, Cortex had a total of 23 full-time research and
administrative employees. Neither significant increases to staffing nor
significant investments in plant or equipment are planned for the upcoming year.

Assuming that the Company extends the terms of the note payable to Alkermes,
Cortex anticipates that its existing cash and cash equivalents and the expected
research support payments from Organon will be sufficient to satisfy its capital
requirements into May 2000. Without any payments from the Organon agreement or
upfront payments from potential corporate partnerships, additional funds will be
required to continue operations beyond that time.

The Company anticipates receiving its first milestone payment from the Organon
agreement in or before May 2000. With receipt of the projected Organon quarterly
research support and the milestone payment during the estimated timeframe, the
Company expects to have sufficient cash to fund operations through calendar
2000.

In order to provide for both its immediate 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 is engaged in advanced 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.

Because there is no assurance that the milestone will be received from Organon
as estimated, or at all, or that the Company will secure additional corporate
partnerships, the Company may raise additional capital through the sale of debt
or equity securities. Given the current adverse market conditions for
biopharmaceutical companies, there is no assurance that funds will be available
on favorable terms, or at all. If equity securities are issued to raise
additional funds, dilution to existing shareholders 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 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

                                                                   Page 12 of 14
<PAGE>

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.

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 December 31, 1999, accrued and unpaid dividends on the 9% cumulative
convertible preferred stock were $24,750.

Item 4.  Submission of Matters to a Vote of Security Holders

On December 17, 1999, the Company held its Annual Meeting of Stockholders, with
stockholders holding 14,459,137 shares of common stock (representing 93% of the
total number of shares outstanding and entitled to vote) present in person or by
proxy at the meeting. Proxies for the meeting were solicited pursuant to
Regulation 14A of the Securities Exchange Act of 1934. Robert F. Allnutt,
Charles J. Casamento, Carl W. Cotman, Ph.D., Michael G. Grey, Vincent F. Simmon,
Ph.D. and Davis L. Temple, Jr., Ph.D. were listed as management's nominees in
the Proxy Statement and were elected as directors at the meeting. The votes for
each nominee were as follows:


                                     Number of          Number of       Votes
    Name                           Affirmative Votes  Negative Votes  Withheld
    ----                           -----------------  --------------  --------

    Robert F. Allnutt                     14,252,247              --   206,890
    Charles J. Casamento                  14,252,347              --   206,790
    Carl W. Cotman, Ph.D.                 14,252,347              --   206,790
    Michael G. Grey                       14,252,247              --   206,890
    Vincent F. Simmon, Ph.D.              14,252,287              --   206,850
    Davis L. Temple, Jr., Ph.D.           14,252,247              --   206,890

At the meeting, the Company also sought the ratification of the appointment of
Ernst & Young LLP as independent auditors of the Company for the fiscal year
ending June 30, 2000. This proposal was approved by 14,414,509 affirmative
votes. There were 33,035 negative votes and 11,593 abstentions.

                                                                   Page 13 of 14
<PAGE>

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
          December 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.



  February 14, 2000      By:            /s/ Maria S. Messinger
                                    --------------------------------
                                    Maria S. Messinger
                                    Vice President and Chief Financial Officer;
                                    Corporate Secretary

                                                                   Page 14 of 14

<TABLE> <S> <C>

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE BALANCE SHEET AS
OF DECEMBER 31, 1999, AND THE RELATED STATEMENTS OF OPERATIONS AND CASH FLOWS
FOR THE SIX MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          JUN-30-2000
<PERIOD-START>                             JUL-01-1999
<PERIOD-END>                               DEC-31-1999
<CASH>                                          95,624
<SECURITIES>                                         0
<RECEIVABLES>                                        0
<ALLOWANCES>                                         0
<INVENTORY>                                          0
<CURRENT-ASSETS>                               147,930
<PP&E>                                       2,236,201
<DEPRECIATION>                             (1,771,321)
<TOTAL-ASSETS>                                 659,547
<CURRENT-LIABILITIES>                        1,393,415
<BONDS>                                        529,057<F1>
                                0
                                     70,905
<COMMON>                                        15,538
<OTHER-SE>                                   (820,311)
<TOTAL-LIABILITY-AND-EQUITY>                   659,547
<SALES>                                              0
<TOTAL-REVENUES>                             1,825,251
<CGS>                                                0
<TOTAL-COSTS>                                        0
<OTHER-EXPENSES>                             2,523,729
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                              29,775
<INCOME-PRETAX>                              (714,342)
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                          (714,342)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                 (714,342)
<EPS-BASIC>                                     (0.05)
<EPS-DILUTED>                                   (0.05)
<FN>
<F1>PROMISSORY NOTE PAYABLE TO ALKERMES, INC. THIS AMOUNT IS INCLUDED IN CURRENT
LIABILITIES.
</FN>


</TABLE>


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