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As filed with the Securities and Exchange Commission on October 27, 2000
Registration No. 333-29493
--------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
POST-EFFECTIVE AMENDMENT NO. 4 TO
FORM SB-2
REGISTRATION STATEMENT
under the Securities Act of 1933
----------------------------
CORTEX PHARMACEUTICALS, INC.
(Name of small business issuer in its charter)
Delaware 2834 33-0303583
(State or jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
15241 Barranca Parkway, Irvine, California 92618
(949) 727-3157
(Address and telephone number of principal executive offices
and principal place of business)
Vincent F. Simmon, Ph.D., President and Chief Executive Officer
15241 Barranca Parkway, Irvine, California 92618
(949) 727-3157
(Name, address and telephone number of agent for service)
Copies to:
Nick E. Yocca, Esq.
Lawrence B. Cohn, Esq.
Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660
(949) 725-4000
-------------------------------
Approximate date of proposed sale to the public: From time to time after this
Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering:__________.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration for the same
offering:__________.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(d) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering:__________.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box:__________.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: X .
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
<S> <C> <C> <C> <C>
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Aggregate Offering Aggregate Offering Amount of
Securities to be Registered Registered (1) Price(2) Price Registration Fee
------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share 4,600,537 shares $2.937 $13,511,777 $4,095*
====================================================================================================================================
</TABLE>
/(1)/ The number of shares of Common Stock registered hereunder represents
the Company's good faith estimate of the number of shares which may be issuable
upon conversion of the Company's Series A Preferred Stock, the additional
purchase rights or upon the exercise of warrants, as the case may be. Pursuant
to Rule 416, the Registration Statement also covers an indeterminate number of
additional shares of Common Stock which may become issuable upon conversion of
the Series A Preferred Stock and the additional purchase rights by reason of
reductions of the conversion price in accordance with the terms of the
Certificate of Designation of Series A Preferred Stock.
/(2)/ The offering price is estimated solely for the purpose of calculating
the registration fee in accordance with Rule 457(c), using the average of the
high and low bid price for the Common Stock as reported on the Nasdaq SmallCap
Market on June 16, 1997, which was $2.937 per share.
* Previously paid.
================================================================================
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PROSPECTUS
[LOGO]
CORTEX PHARMACEUTICALS, INC.
460,114 Shares of Common Stock
(Par Value $0.001 Per Share)
The stockholders listed in this Prospectus under the section entitled
"Selling Stockholders" may offer and sell a total of 460,114 shares of our
company's common stock, par value $0.001 per share (the "Common Stock"), which
they own or have the right to acquire from time to time. The shares of Common
Stock included in this offering consist of shares of Common Stock issuable upon
exercise of warrants.
----------------------
The Selling Stockholders may sell the shares of Common Stock described in
this Prospectus in public or private transactions, on or off the OTC Bulletin
Board, at prevailing market prices, or at privately negotiated prices. The
Selling Stockholders may sell shares directly to purchasers or through brokers
or dealers. Brokers or dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders. We will not
receive any proceeds from the Selling Stockholders' sale of the shares of Common
Stock. More information is provided in the section titled "Plan of
Distribution."
----------------------
Our Common Stock is currently traded on the OTC Bulletin Board under the
symbol "CORX."
----------------------
Investing in the Common Stock involves a high degree of risk. See "Risk
Factors" beginning on page 5 of this Prospectus.
----------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
----------------------
The date of this Prospectus is ________ __, 2000.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file with the SEC at its public reference facilities at 450
Fifth Street, N.W., Washington, D.C. 20549, 7 World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. You can also obtain copies of the documents
at prescribed rates by writing to the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-
0330 for further information on the operation of the public reference
facilities.
We "incorporate by reference" into this Prospectus the information we file
with the SEC, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this Prospectus and information that we file subsequently
with the SEC will automatically update this Prospectus. We incorporate by
reference the documents listed below and any future filings we make with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of
1934:
- Annual Report on Form 10-KSB for the year ended June 30, 2000.
You may request a copy of these filings (other than an exhibit to a filing
unless that exhibit is specifically incorporated by reference into that filing)
at no cost, by writing to or telephoning us at the following address:
Investor Relations
Cortex Pharmaceuticals, Inc.
15241 Barranca Parkway
Irvine, California 92618
(949) 727-3157
This Prospectus constitutes part of a Registration Statement we filed with
the SEC. You should rely only on the information incorporated by reference or
provided in this Prospectus. We have not authorized anyone else to provide you
with different information. You should not assume that the information in this
Prospectus is accurate as of any date other than the date on the front of the
document.
FORWARD-LOOKING STATEMENTS
This Prospectus contains 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, including statements regarding the Company's capital
needs, drug development programs, clinical trials, receipt of regulatory
approval, intellectual property, expectations and intentions. Forward-looking
statements necessarily involve risks and uncertainties, and the Company's actual
results could differ materially from those anticipated in the forward-looking
statements due to a number of factors, including those set forth under the
section entitled "Risk Factors" and elsewhere in this Prospectus. You should
carefully read the factors set forth in the section entitled "Risk Factors" and
other cautionary statements made in this Prospectus and understand that those
factors and statements are applicable to all related forward-looking statements
wherever they appear in this Prospectus.
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<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. This
summary is not complete and may not contain all of the information that you
should consider before investing in the Common Stock. You should read the entire
prospectus carefully.
Cortex Pharmaceuticals, Inc.
We are a biopharmaceutical company located in Irvine, California. Our goal
is to develop proprietary drugs designed to treat neurodegenerative diseases and
other neurological and psychiatric disorders. We were formed in Delaware in 1987
and since that date, we have devoted our resources to research and development
activities relating to several products that are at various developmental
stages. We have several license agreements with various research institutions,
which own approved and pending patents covering certain drugs and therapeutic
technologies.
Since 1993, we have focused our research and development on the AMPA
receptor, a complex of proteins that is involved in most "excitatory"
communication between nerve cells in the human brain. We are developing several
chemical compounds, known as Ampakines(R), to enhance the activity of the AMPA
receptor. We believe that Ampakines may effectively treat deficiencies brought
on by a variety of diseases and disorders. In October 1994, we initiated human
safety studies with CX516 (Ampalex(R)). CX516 is a drug that has shown
potential for treating deficits of memory and cognition. These studies have
involved healthy young adult and elderly volunteers and, more recently, patients
with Alzheimer's disease and with schizophrenia. We are also investigating the
use of Ampakines to treat other disorders, such as depression, mild cognitive
impairment (MCI) and Attention Deficit Hyperactivity Disorder.
We believe that the quality of our science and technology provides us with
an advantage over our competitors in the discovery of innovative
pharmaceuticals. We do not, however, have the resources or expertise for later-
stage clinical development, manufacturing and worldwide marketing. Our
commercial development plans therefore involve partnering with larger
pharmaceutical companies for later-stage clinical testing, manufacturing and
global marketing of our proposed products. If we are successful in the pursuit
of this business strategy, we should be able to cover our costs over the next
few years, to maintain our focus on the research and development of innovative
pharmaceuticals and to eventually participate directly in the commercial
development of our products in the United States. Currently, we are seeking
collaborative or licensing arrangements with larger pharmaceutical companies
that will permit our proprietary products to complete clinical development and
that will provide access to the clinical trials management, manufacturing and
marketing expertise of those companies.
In January 1999, we entered an exclusive license agreement with NV Organon
("Organon") of the Netherlands. In return for an upfront payment, we issued
Organon a license to develop and commercialize our proprietary Ampakine
technology for the treatment of schizophrenia. We also issued Organon an option
to explore the use of our Ampakines as a treatment for depression. We are
entitled to receive up to $3,000,000 per year for two years from the agreement
date, as long as we provide the agreed-upon levels of research. In May 2000, we
achieved our first milestone under the agreement when Organon selected an
Ampakine compound to pursue in Phase I clinical testing. We are entitled to
receive additional milestone payments and royalty payments on any worldwide
sales by Organon.
In April 2000, we entered an exclusive option agreement with Shire
Pharmaceuticals Group plc ("Shire") under which Shire will evaluate the use of
our Ampakine CX516 for the treatment of Attention Deficit Hyperactivity Disorder
("ADHD"). In exchange for the option, we received $1,000,000 and issued 254,353
shares of common stock to Shire. If the study proves effective, Shire has the
right to convert its option into an exclusive worldwide license for the
Ampakines for ADHD under a negotiated development and licensing agreement. If
Shire elects to execute this agreement, they will bear all future developmental
costs. We would receive a license fee, research support for additional Ampakines
and potential milestone payments and royalties on worldwide sales.
In October 2000, we entered into a research collaboration and exclusive
license agreements with Servier. The agreements will enable Servier to develop
and commercialize Cortex's proprietary Ampakine technology for the
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treatment of declines in cognitive performance associated with aging and
neurodegenerative diseases. The indications covered include, but are not limited
to, Alzheimer's disease, Mild Cognitive Impairment, sexual dysfunction, multiple
sclerosis and Lou Gehrig's disease. The agreement includes an up-front payment
by Servier of $5,000,000, research support payments of up to $2,025,000 per year
for three years and milestone payments, plus royalty payments on sales in
licensed territories.
Our offices and laboratories are located at 15241 Barranca Parkway, Irvine,
California, 92618 and our telephone number is (949) 727-3157.
We hold registered trademarks on the names Ampalex and Ampakine. This
Prospectus also includes registered trademarks of other companies.
Risk Factors
An investment in the shares of Common Stock being offered by the Selling
Stockholders is very risky. Information regarding the risks involved is provided
in the section titled "Risk Factors."
4
<PAGE>
Selected Financial Information
The following table depicts selected financial information concerning our
business and operations and should be read in conjunction with the more detailed
financial statements (including the notes thereto) appearing elsewhere in this
Prospectus.
Statements of Operations Data:
Years ended June 30,
2000 1999
-------------------------
Total revenues $ 5,508,487 $ 3,151,407
Total operating expenses 5,711,259 4,781,334
----------- -----------
Loss from operations (202,772) (1,629,927)
Interest income, net 5,370 8,477
----------- -----------
Net loss $ (197,402) $(1,621,450)
=========== ===========
Weighted average common
shares outstanding 15,795,595 13,407,945
----------- -----------
Net loss per share $ (0.01) $ (0.12)
=========== ===========
Balance Sheet Data:
June 30,
---------------------------
2000 1999
---------------------------
Total current assets $ 3,056,063 $ 970,314
Total assets 3,488,040 1,549,021
Total current liabilities 1,134,724 1,712,350
Accumulated deficit (39,258,255) (39,060,853)
Total stockholders' equity $ 2,353,316 $ (163,329)
Common shares outstanding 16,576,174 15,519,382
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RISK FACTORS
Investing in the Common Stock being offered by the Selling Stockholders is
very risky. You should be able to bear a complete loss of your investment. You
should carefully consider the following factors, in addition to the other
information contained in this Prospectus before making an investment decision.
Need for Additional Funds
Without further injections of capital, we anticipate that we have
sufficient funds to maintain our operations through fiscal year 2002. We will
require additional funds to continue our operations beyond that time. We cannot
say with any amount of certainty that we will be able to obtain the additional
needed funds on reasonable terms, or at all. If we decide to raise additional
funds by issuing more of our securities, stockholders at the time of issuance
will experience a dilution to the value of their securities.
Should Shire elect to exercise its option to license the Ampakine
technology for the treatment of ADHD, the negotiated agreement includes an up-
front fee, research support payments, milestone payments and royalties on sales.
Additional funds may result from milestone payments related to the Company's
agreement with Organon and Servier. There is no assurance that Shire will
exercise its license option or that Cortex will receive milestone payments from
Organon or Servier within the desired time frame, or at all.
If we are unable to obtain additional funds, we could lose our key
employees and could be required to abandon one or more of our product
development programs. In addition, we may be unable to meet our research
spending obligations under existing licensing agreements and may be unable to
continue our business operations.
We are presently seeking collaborative or other arrangements with larger
pharmaceutical companies to provide for both our immediate and longer-term
funding requirements. These agreements would potentially provide us with
additional funds in exchange for exclusive or non-exclusive license or other
rights to the technologies and products that we are currently developing.
Competition between biopharmaceutical companies for these types of arrangements
is intense. Although we have been engaged in discussions with candidate
companies for some time, we cannot give any assurance that these discussions
will result in an agreement or agreements in a timely manner, or at all.
Additionally, we cannot assure you that any resulting agreement will generate
sufficient revenues to offset our operating expenses and longer-term funding
requirements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Reliance on Organon and Servier
We are dependent on future payments from Organon and Servier to continue
the development and commercialization of our Ampakine technology. Under the
agreement with Organon that we entered into in January 1999, we share the
research efforts. Organon has primary responsibility for developing and
commercializing Ampakines for use in the treatment of schizophrenia, with an
option to extend the rights to the treatment of depression. The agreement
provides an up-front payment by Organon of $2,000,000 and research support
payments of up to $3,000,000 per year for two years (subject to us providing
agreed-upon levels of research). The agreement also includes milestone payments,
plus royalty payments on a worldwide basis. Cortex achieved the first milestone
from the agreement in May 2000, which triggered a $2,000,000 payment to Cortex
from Organon. Under the terms of the agreement, Organon has the right at any
time to terminate the agreement upon four months' prior notice. In addition,
Organon has the right to terminate the research and development related to the
agreement upon 30 days' prior notice in the event that we materially breach the
agreement and do not cure the breach within 60 days of receipt of a notice of
breach from Organon. If Organon were to discontinue its financial support, we
might not be able to continue the development of our Ampakine technology as a
potential treatment for patients with schizophrenia.
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Under the agreement with Servier that we entered into in October 2000, we
share the research efforts. Servier has primary responsibility for developing
and commercializing Ampakines for use in the treatment of memory impairment
associated with aging, and of neurodegenerative diseases such as Alzheimer's
disease. The agreement includes an up-front payment of $5,000,000 and research
support payments of up to $2,025,000 per year for three years (subject to us
providing agreed-upon levels of research). The agreement also includes milestone
payments, plus royalty payments on sales in licensed territories. Under the
terms of the agreement, Servier has the right to terminate the agreement in the
case of a merger or acquisition involving Cortex and a third party. Servier also
has the right to terminate the agreement upon six months' prior notice at any
time after the research phase of the collaboration. The agreement defines the
research phase as a minimum of three years. In addition, Servier has the right
to terminate the research and development related to the agreement in the event
that we materially breach the agreement. If Servier were to discontinue its
financial support, we might not be able to continue the development of our
Ampakine technology for the applications licensed to Servier and our financial
condition could be seriously impaired. See "Description of Business;"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
History of Losses
Since our formation on February 10, 1987 through June 30, 2000, we have
generated only modest operating revenues and we have incurred net losses
aggregating $37,226,000. As of June 30, 2000, we had an accumulated deficit of
$39,258,000. We will require substantial additional funds to advance our
research and development programs, particularly if we decide to independently
conduct later-stage clinical testing and apply for regulatory approval of any of
our proposed products. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
Dependence on Strategic Alliances and Third Parties for Clinical Testing,
Manufacturing and Marketing
We do not have the resources, and do not presently intend, to conduct
later-stage human clinical trials or to manufacture our proposed products.
Therefore, in addition to our agreements with Organon, Shire and Servier, we are
seeking other pharmaceutical company partners to conduct such activities for
most or all of our proposed products. In connection with our efforts to secure
corporate partners, we will seek to retain certain co-promotional rights to our
proposed products. These co-promotional rights will allow us to market our
products to selected medical specialists while our corporate partner markets our
products to the general medical market. We cannot assure you that we will be
able to enter into any partnering arrangements on this or any other basis. In
addition, we cannot assure you that we, Organon, Shire, Servier or our
prospective corporate partners, can successfully introduce our proposed
products. We also face the risks that our products will be rejected by patients,
health care providers or insurance companies, or that our products cannot be
manufactured and marketed at prices that would permit us to operate profitably.
See "Business."
Technological Uncertainty; Early Stage of Product Development; No Assurance of
Regulatory Approvals
We cannot assure you that our research and development activities will
enable us to produce any products able to withstand competition. Our development
of each product is subject to the risks of failure commonly experienced in the
development of products based upon innovative technologies and the expense and
difficulty of obtaining approvals from regulatory agencies. All of our proposed
products are in the preclinical or early clinical stage of development and will
require significant additional funding for research, development and clinical
testing before we are able to submit them to any of the regulatory agencies for
clearances for commercial use. We cannot assure you that we will be able to
license any technologies or proposed products, other than those licensed to
Organon or Servier. We cannot assure you that we will be able to complete
successfully any of our research and development activities. Even if we do
complete them, we cannot assure you that we will be able to market successfully
any of the products or that we will be able to obtain the necessary regulatory
approvals or that customers will like our products. We also face the risk that
any or all of our products will not work as intended or that they will be toxic,
or that, even if they do work and are safe, that our
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products will be uneconomical to manufacture and market on a large scale. We
also face the risk that the rights of other persons or entities will stop us
from marketing any of our products or that other persons or entities might
develop and market a superior or equivalent product. Due to the extended testing
and regulatory review process required before we can obtain marketing clearance,
we do not expect to be able to commercialize any therapeutic drug for at least
five years, either directly or through our corporate partners or licensees. See
"Business."
Limited Proprietary Rights; Uncertainty Associated With Patent Protection
Under our agreements with the Regents of the University of California, we
have exclusive rights to our Ampakine compounds for all applications. These
rights are secured by patents or patent applications owned wholly by others or
by others as co-owners with us. Our existing agreements require us to make
certain minimum annual payments, meet certain milestones or diligently seek to
commercialize the underlying technology. Our failure to meet any of these
requirements could allow the other party to terminate that particular agreement.
Our success will depend, in part, on our ability to get patent protection
for our products and processes in the United States and elsewhere. We have filed
and intend to continue to file patent applications as we need them. We cannot
assure you, however, that any additional patents will issue from any of these
applications or, if patents do issue, that the claims allowed will be
sufficiently broad to protect our technology. Also, we cannot assure you that
any patents issued to us or licensed by us can withstand challenges made by
others or that we will be able to protect our rights.
If we are unable to obtain sufficient protection of our proprietary rights
in our products or processes prior to or after obtaining regulatory clearances,
our competitors may be able to obtain regulatory clearance and market competing
products by demonstrating the equivalency of their products to our products. If
they are successful at demonstrating the equivalency between the products, our
competitors would not have to conduct the same lengthy clinical tests that we
have conducted.
We also rely on trade secrets and confidential information that we try to
protect by entering into confidentiality agreements with other parties. We
cannot assure you that any of the confidentiality agreements will be honored,
or, if breached, that we would have enough remedies to protect the confidential
information. Further, we cannot assure you that our competitors will not
independently learn our trade secrets or develop similar or superior
technologies. To the extent that our consultants, key employees or others apply
technological information independently developed by them or by others to our
projects, disputes may arise regarding the proprietary rights to such
information. We cannot assure you that such disputes will be resolved in favor
of the Company. See "Business -- Patents and Proprietary Rights."
Shares Eligible for Future Sale; Dilution
If all outstanding warrants and options are exercised prior to their
expiration, approximately 2.6 million additional shares of Common Stock could
become freely tradable without restriction. A total of 7,346 shares of Common
Stock are issuable upon conversion of currently outstanding 9% Preferred Stock
and Series B Preferred Stock. On issuance such shares will be freely tradable.
Sales of substantial amounts of Common Stock in the public market could
adversely affect the prevailing market price of the Common Stock. See
"Description of Securities."
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Intense Competition
Our business is characterized by intensive research efforts. Our
competitors include many companies, research institutes and universities that
are working in a number of pharmaceutical or biotechnology disciplines to
develop therapeutic products similar to those we are currently investigating.
Most of these competitors have substantially greater financial, technical,
manufacturing, marketing, distribution and/or other resources than us. In
addition, many of our competitors have experience in performing human clinical
trials of new or improved therapeutic products and obtaining approvals from the
FDA and other regulatory agencies. We have no experience in conducting and
managing later-stage clinical testing or in preparing applications necessary to
obtain regulatory approvals. Accordingly, it is possible that our competitors
may succeed in developing products that are safer or more effective than those
that we are developing and may obtain FDA approvals for their products faster
than we can. We expect that competition in this field will continue to
intensify. See "Business--Competition."
Dependence Upon Key Personnel
We are highly dependent upon key management and technical personnel.
Competition for qualified employees among pharmaceutical and biotechnology
companies is intense. The loss of any of our key management or technical
personnel, or our inability to attract, retain and motivate the additional
highly-skilled employees and consultants that our business requires, could
substantially hurt our business and prospects. We cannot assure you that we will
be able to retain our existing personnel or attract additional qualified
employees when we need them. See "Business" and "Management."
Dependence on Relationships with Consultants and the University of California,
Irvine
We depend upon our relationships with academic consultants, particularly
Dr. Gary S. Lynch of the University of California, Irvine ("UCI"). Dr. Lynch
plays a role in guiding our research. In addition, we sponsor preclinical
research in Dr Lynch's laboratories at UCI that is part of our product
development and corporate partnering profile. If our relationship with Dr. Lynch
or UCI was disrupted, our AMPA receptor research program could be adversely
affected. Our agreements with Dr. Lynch and our other consultants are generally
terminable by the consultant on short notice. See "Management."
Government Regulation
The FDA and other similar agencies in foreign countries have substantial
requirements for therapeutic products. Such requirements often involve lengthy
and detailed laboratory, clinical and post-clinical testing procedures. It often
takes companies many years to satisfy these requirements, depending on the
complexity and novelty of the product. The review process is also extensive
which may delay the approval process even more. As of yet, we have not obtained
any approvals to market our products. Further, we cannot assure you that the FDA
or other regulatory agency will grant us approval for any of our products on a
timely basis, if at all. Even if regulatory clearances are obtained, a marketed
product is subject to continual review, and later discovery of previously
unknown problems may result in restrictions on marketing or withdrawal of the
product from the market. See "Business--Government Regulation."
Lack of Listing on an Exchange or on the Nasdaq System; Restrictions on Our
Stock
Our Common Stock is not listed on any exchange or on the Nasdaq System.
Our Common Stock is reported on the OTC Bulletin Board. Because our shares are
not listed on any exchange or on the Nasdaq System, they are subject to the
regulations regarding trading in "penny stocks," which are those securities
trading for less than $5.00 per share. The following is a list of the
restrictions on the sale of penny stocks:
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. Prior to the sale of penny stock by a broker-dealer to a new
purchaser, the broker-dealer must determine whether the purchaser is
suitable to invest in penny stocks. To make that determination, a
broker-dealer must obtain, from a prospective investor, information
regarding the purchaser's financial condition and investment
experience and objectives. Subsequently, the broker-dealer must
deliver to the purchaser a written statement setting forth the basis
of the suitability finding.
. A broker-dealer must obtain from the purchaser a written agreement to
purchase the securities. This agreement must be obtained for every
purchase until the purchaser becomes an "established customer."
. The Exchange Act requires that prior to effecting any transaction in
any penny stock, a broker-dealer must provide the purchaser with a
"risk disclosure document" that contains, among other things, a
description of the penny stock market and how it functions and the
risks associated with such investment. These disclosure rules are
applicable to both purchases and sales by investors.
. A dealer that sells penny stock must send to the purchaser, within ten
days after the end of each calendar month, a written account statement
including prescribed information relating to the security.
As a result of our securities not being listed on an exchange or the Nasdaq
System and the rules regarding penny stock transactions, your ability to sell to
a third party may be limited. We make no guarantee that our current market-
makers will continue to make a market in our securities, or that any market for
our securities will continue.
Product Liability and Insurance
Clinical testing, manufacturing and marketing of our products may expose us
to product liability claims. Although we have never been subject to a product
liability claim, we cannot assure you that there will not be any claims brought
against us in the future. Further, we cannot assure you that the coverage limits
of our insurance policies will be adequate or that one or more successful claims
brought against us would not have a material adverse effect upon our business,
financial condition and results of operations.
Volatility of Stock Price
We are in the biopharmaceutical industry and the market price of securities
of life sciences companies in general has been very unpredictable. See "Market
for Common Equity and Related Stockholder Matters." Announcements by us or our
competitors concerning technological innovations, new products, proposed
governmental regulations or actions, developments or disputes relating to
patents or proprietary rights, public concern over the safety of therapeutic
products and other factors that affect the market generally could significantly
impact our business and the market price of our securities.
Dividends
Since our formation in 1987, we have not paid cash dividends on our Common
Stock. We do not anticipate paying any dividends on our Common Stock in the
future. Furthermore, the terms of the 9% Preferred Stock do not allow for the
payment of cash dividends unless we have paid the accrued and unpaid dividends
on the 9% Preferred Stock in full. As of June 30, 2000, accrued and unpaid
dividends on the 9% Preferred Stock were $25,988. See "Dividend Policy."
Anti-Takeover Provisions
Certain provisions of our Certificate of Incorporation could make it more
difficult for a third party to acquire control of our business, even if such
change in control would be beneficial to our stockholders. Our Certificate of
Incorporation allows our Board of Directors to issue up to 549,100 shares of
preferred stock without stockholder approval. Any such issuance could make it
more difficult for a third party to acquire our business and may adversely
affect the rights of our stockholders. See "Description of Securities."
10
<PAGE>
USE OF PROCEEDS
We will not receive any of the proceeds from the Selling Stockholder's sale of
their shares of Common Stock.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock (OTC symbol: CORX) is not currently listed on
any exchange or on the Nasdaq System, but is reported on the OTC Bulletin Board.
Prior to March 17, 1999, the Company's Common Stock was listed on the Nasdaq
SmallCap Market. The following table presents quarterly information on the high
and low sale prices of the Common Stock for the fiscal years ended June 30, 2000
and 1999.
High Low
----- ---
Fiscal Year ending June 30, 2001
Second Quarter (through October 26, 2000)............ $ 3-5/8 $ 2-13/16
First Quarter........................................ 4-1/2 2-15/32
Fiscal Year ending June 30, 2000
Fourth Quarter....................................... $ 5-1/16 $ 2-1/4
Third Quarter........................................ 8-1/8 11/16
Second Quarter....................................... 7/8 21/32
First Quarter........................................ 1-1/32 19/32
Fiscal Year ended June 30, 1999
Fourth Quarter....................................... $ 1-27/32 $ 9/32
Third Quarter........................................ 15/16 1/4
Second Quarter....................................... 1-3/8 9/32
First Quarter........................................ 2-1/8 1
Information for the periods referenced above has been furnished by Nasdaq
and the OTC Bulletin Board. The quotations furnished by the OTC Bulletin Board
reflect inter-dealer prices, without mark-up, mark-down or commission and may
not represent actual transactions.
As of September 30, 2000, there were 573 stockholders of record of the
Company's Common Stock, and approximately 8,300 beneficial owners. The high and
low sale prices for the Company's Common Stock on October 26, 2000, as reported
by the OTC Bulletin Board, were $ 3-1/4 and $ 2-7/8, respectively.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying such dividends in the foreseeable future. The Company
currently intends to retain any future earnings for use in the Company's
business. The outstanding shares of 9% Preferred Stock bear a fixed dividend of
$0.09 per share per annum, which accrues in equal semi-annual installments on
June 15th and December 15th of each year, which dividends must be paid in full
before any dividends can be paid on the Common Stock. As of September 30, 2000,
accrued and unpaid dividends on the 9% Preferred Stock were $25,988. The payment
of future dividends, if any, will
11
<PAGE>
be determined by the Board of Directors in light of conditions then existing,
including the Company's financial condition and requirements, future prospects,
restrictions in financing agreements, business conditions and other factors
deemed relevant by the Board of Directors.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 2000. This table should be read in conjunction with the financial statements
(including the notes thereto) appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
June 30, 2000 (1)
-------------
<S> <C>
Stockholders' equity:
9% cumulative convertible preferred stock,
$0.001 par value; $1.00 per share liquidation
preference; authorized: 1,250,000 shares;
issued and outstanding: 27,500 shares $ 27,500
Series B convertible preferred stock, $0.001 par
value; $0.6667 per share liquidation preference;
authorized: 3,200,000 shares; issued and
outstanding: 37,500 shares 21,703
Common stock, $0.001 par value; authorized:
30,000,000 shares; issued and outstanding:
16,576,174 shares 16,575
Deferred compensation (92,000)
Additional paid-in capital 41,637,793
Accumulated deficit (39,258,255)
------------
Total stockholders' equity and total capitalization $ 2,353,316
============
</TABLE>
___________________________
(1) Excludes an aggregate of approximately 2.6 million shares of
Common Stock reserved for issuance upon possible exercise of
outstanding warrants and options and an aggregate of 7,346
shares of Common Stock reserved for issuance upon conversion of
outstanding 9% Cumulative Convertible Preferred Stock and Series
B Convertible Preferred Stock. See "Description of Securities"
and Notes 3, 4 and 6 of Notes to Financial Statements.
12
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below for the fiscal years ended and
as of June 30, 2000 and 1999 are derived from and should be read in conjunction
with the more detailed financial statements (including the notes thereto) of the
Company, which have been audited by Ernst & Young LLP, independent auditors,
whose report thereon is included elsewhere herein and in the Registration
Statement. The selected financial data for the years ended and as of June 30,
1998, 1997 and 1996 are derived from audited financial statements that are not
included in this Prospectus.
Statements of Operations Data:
<TABLE>
<CAPTION>
Years ended June 30,
-------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues:
Research/license revenue $ 5,369,488 $ 3,051,406 $ 130,000 $ -- $ --
Grant revenue 138,999 100,001 -- -- --
----------- ----------- ----------- ----------- -----------
Total operating revenues 5,508,487 3,151,407 130,000 -- --
----------- ----------- ----------- ----------- -----------
Operating expenses:
Research & development 3,896,627 3,379,732 4,007,466 3,376,284 2,677,577
General & administrative 1,814,632 1,401,602 1,584,369 1,709,320 1,643,732
----------- ----------- ----------- ----------- -----------
Total operating expenses 5,711,259 4,781,334 5,591,835 5,085,604 4,321,309
----------- ----------- ----------- ----------- -----------
Loss from operations (202,772) (1,629,927) (5,461,835) (5,085,604) (4,321,309)
Interest income, net 5,370 8,477 203,875 155,624 163,062
----------- ----------- ----------- ----------- -----------
Net loss $ (197,402) $(1,621,450) $(5,257,960) $(4,929,980) $(4,158,247)
=========== =========== =========== =========== ===========
Weighted average common
shares outstanding 15,795,595 13,407,945 9,575,663 8,252,047 6,532,884
=========== =========== =========== =========== ===========
Net loss per share $ (0.01) $ (0.12) $ (0.55) $ (0.83) $ (0.64)
=========== =========== =========== =========== ===========
</TABLE>
______________________________
Balance Sheet Data:
<TABLE>
<CAPTION>
June 30,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital $ 1,921,339 $ (742,036) $ 1,698,277 $ 7,004,298 $ 3,849,649
Total assets 3,488,040 1,549,021 2,874,846 8,333,307 5,013,920
Total liabilities 1,134,724 1,712,350 1,445,550 1,728,300 1,369,157
Redeemable preferred stock -- -- 2,460,450 3,936,720 --
Accumulated deficit (39,258,255) (39,060,853) (37,439,403) (32,181,443) (25,359,298)
Stockholders' equity $ 2,353,316 $ (163,329) $ (1,031,154) $ 2,668,287 $ 3,644,763
Common shares outstanding 16,576,174 15,519,382 10,237,126 9,394,249 7,495,576
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Financial Statements and Notes thereto appearing elsewhere in this report and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' in the Company's 2000 Annual Report on Form 10-KSB.
Introductory Note
This discussion and analysis 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 is 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 June 30, 2000, the Company's
revenue has consisted of (i) $12,151,000 of license fees and research and
development funding, (ii) net interest income aggregating $1,707,000 and (iii)
$334,000 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,
during the year ended June 30, 1999, the Company received an up-front payment of
$2,000,000 and research support of $1,150,000. During the year ended June 30,
2000, the Company received research support of $3,368,000, reimbursement for
study drug of $75,000 and a milestone payment of $2,000,000 from its agreement
with Organon. The milestone was triggered by Organon's selection of a compound
to pursue in Phase I clinical testing.
Subsequent to June 30, 2000, the Company received further research support
of $735,000. The agreement includes research support of up to $3,000,000 per
research year for two years (subject to Cortex providing agreed-upon levels of
research personnel) and milestone payments, plus royalty payments on worldwide
sales.
In April 2000, the Company entered into an option agreement with Shire
Pharmaceuticals Group, plc ("Shire") under which Shire will evaluate the use of
the Company's Ampakine CX516 for the treatment of Attention Deficit
Hyperactivity Disorder ("ADHD"). In exchange for the option, Cortex received
$130,000 and issued to Shire 254,353 shares of common stock for $870,000. Shire
will be responsible for all costs associated with the clinical trial.
14
<PAGE>
If the study proves effective, Shire has the right to convert its option
into an exclusive worldwide license for the Ampakines for ADHD under a
development and licensing agreement. Should Shire elect to execute this
agreement, Shire will bear all future developmental costs. Cortex would receive
an up-front fee, milestone payments based upon successful clinical and
commercial development, research support for additional Ampakines and royalties
on sales.
In October 2000, the Company entered into a research collaboration and
exclusive license agreement with Les Laboratoires Servier ("Servier"). The
agreement will allow Servier to develop and commercialize the Company's Ampakine
technology for the treatment of declines in cognitive performance associated
with aging and neurodegenerative diseases. The indications covered include, but
are not limited to, Alzheimer's disease, Mild Cognitive Impairment, sexual
dysfunction, multiple sclerosis and Lou Gehrig's disease. The agreement includes
an up-front payment by Servier of $5,000,000 and research support payments of up
to $2,025,000 per year for three years (subject to Cortex providing agreed-upon
levels of research personnel). The agreement also includes milestone payments,
plus royalty payments on sales in licensed territories.
From inception (February 10, 1987) through June 30, 2000, the Company
sustained losses aggregating $37,226,000. Due to projected fluctuations in
funding, continuing losses are possible 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
collaborations with Organon and Servier, by possible payments on exercise of its
option agreement with Shire, 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, Servier and Shire agreements 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, Servier, Shire or its other prospective partners to
attain sustained profitable operations from royalties or other product-based
revenues.
The Company believes that inflation and changing prices have not had a material
impact on its ongoing operations to date.
Fiscal Years ended June 30, 2000 and 1999
For the year ended June 30, 2000, the Company's loss from operations was
$203,000 compared to a loss from operations of $1,630,000 for the prior year,
with the improvement attributable to increased revenues from the research
collaboration with Organon.
Research and development expenses increased to $3,897,000, or by 15%,
during the year ended June 30, 2000 compared to the prior year. Most of the
increase related to additional scientific personnel dedicated to the Organon
alliance.
General and administrative expenses were $1,815,000 for the year ended June
30, 2000, increasing 29% from the prior year. Most of the increase represents
non-cash charges for the estimated value of warrants issued with a restructured
note payable agreement. The increase also includes consulting fees related to
business development.
Plan of Operation; Liquidity and Capital Resources
Cortex has funded its organizational and research and development
activities to date primarily from the issuance of equity securities, with net
proceeds from inception (February 10, 1987) through June 30, 2000 aggregating
$38,516,000. An additional $3,600,000 in research and license payments was
received from Alkermes in 1992 and 1993 in connection with a development and
license agreement with that firm (see Note 7 of Notes to Financial Statements).
Net interest income from inception through June 30, 2000 was $1,707,000.
15
<PAGE>
During the year ended June 30, 2000, the Company received $5,443,000
related to its research and licensing agreement with Organon (See Note 5 of
Notes to Financial Statements). The amount received includes research support
and a $2,000,000 milestone payment triggered by Organon's selection of an
Ampakine compound to pursue in Phase I clinical testing. Subsequent to June 30,
2000, the Company received $735,000 of additional research support from Organon,
with the final scheduled support payment expected to be $550,000. The agreement
includes additional milestone payments based on clinical development of the
licensed technology and royalties on worldwide sales.
As of June 30, 2000, the Company had cash, cash equivalents and short-term
investments totaling $2,705,000 and working capital of $1,921,000. As of June
30, 1999, the Company had cash, cash equivalents and short-term investments of
$909,000 and a working capital deficit of $742,000. The increases reflect the
full-year of research support received from Organon and the option fee received
from Shire. The improvement in working capital also reflects the payment of the
note and accrued interest due to Alkermes.
In connection with the settlement of a license dispute (see Note 7 of Notes
to Financial Statements), in October 1995 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. The terms of the note were subsequently restructured a
number of times, with Cortex issuing warrants to Alkermes in exchange for such
restructured agreements. With the proceeds from the exercise of warrants to
purchase shares of Cortex common stock, during the month of March 2000, the
Company paid Alkermes the remaining balance of principal and interest. The
warrants exercised were previously issued in connection with the Company's
private placement of Series A Preferred Stock in June 1997.
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, 2001,
2002, 2003 and 2004 are $262,000, $274,000, $358,000 and $343,000, respectively.
From inception (February 10, 1987) through June 30, 2000, net expenditures for
furniture, equipment and leasehold improvements aggregated $2,249,000.
As of June 30, 2000, 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 June 30, 2000 were $25,988.
Over the next twelve months the Company is committed to $496,000 for
sponsored research in academic laboratories. Remaining commitments for Phase
I/IIa clinical studies on the Company's Ampakine compounds are not significant.
As of June 30, 2000, Cortex had 23 full-time employees. This amount
includes an increase in the Company's research staff, in response to the
agreement with Organon. Neither significant investments in plant or equipment
nor increases to staffing levels are contemplated under current spending plans
for the upcoming fiscal year.
In October 2000, the Company entered into a research collaboration and
exclusive license agreement with Servier. The agreement will enable Servier to
develop and commercialize the Company's Ampakine technology for the treatment of
memory impairment associated with aging and neurodegenerative diseases such as
Alzheimer's disease. In connection with the agreement, the Company will receive
an up-front payment of $5,000,000. The agreement includes research support of up
to $2,025,000 per year for three years, milestone payments and royalty payments
on sales in licensed territories.
Cortex anticipates that its cash and cash equivalents -- and the scheduled
research support payments from its agreements with Organon and Servier -- will
be sufficient to satisfy the Company's capital requirements through June 30,
2002. Additional funds will be required to continue operations beyond that time.
Should Shire elect to exercise its option to license the Ampakine technology for
the treatment of ADHD, the negotiated agreement includes an up-front fee,
16
<PAGE>
research support payments, milestone payments and royalties on sales. Cortex may
also receive milestone payments from the Organon and Servier agreements. There
is no assurance that Shire will exercise its license option or that the Company
will receive milestone payments from Organon or Servier within the desired
timeframe, or at all. See "Risk Factors -- Need for Additional Capital."
In order to provide for both its immediate and longer-term spending
requirements, the Company is presently seeking collaborative or other
arrangements with larger pharmaceutical companies. Under these agreements, it is
intended that 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. 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.
Because there is no assurance that the Company will secure additional
corporate partnerships, the Company may raise additional capital through the
sale of debt or equity securities. 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 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.
See "Risk Factors."
17
<PAGE>
BUSINESS
Overview
Cortex Pharmaceuticals, Inc. ("Cortex" or the "Company") was organized in
1987 to engage in the discovery, development and commercialization of innovative
pharmaceuticals for the treatment of neurodegenerative diseases and other
neurological and psychiatric disorders. Since 1993, the primary effort at Cortex
has been centered on developing products that affect the AMPA-type glutamate
receptor, a complex of proteins that is involved in most "excitatory"
communication between nerve cells in the human brain. Cortex is developing a
family of chemical compounds, known as Ampakines/a/, that enhance the activity
of this receptor. Cortex believes that Ampakines hold promise for correcting
deficits brought on by a variety of diseases and disorders that are known, or
thought, to involve depressed functioning of pathways in the brain that use
glutamate as a neurotransmitter.
The Ampakine program addresses large potential markets. The Company's
commercial development plan involves partnering with larger pharmaceutical
companies for research, development, clinical testing, manufacturing and global
marketing of many of its proposed products. The Company may retain the right to
eventually market or co-promote Ampakines for selected indications in the United
States. If the Company is successful in the pursuit of this partnering strategy,
it may be in a position to contain its costs over the next few years, to
maintain its focus on the research and early development of novel
pharmaceuticals (where it believes that it has the ability to compete) and
eventually to participate more fully in the commercial development of its
proposed products in the United States.
In January 1999, the Company entered a research collaboration and exclusive
worldwide license agreement with NV Organon ("Organon"), a subsidiary of Akzo
Nobel (The Netherlands). The agreement will enable Organon to develop and
commercialize the Company's Ampakine technology for the treatment of
schizophrenia and, upon Organon's election, for the treatment of depression. In
April 2000, the Company entered into an option agreement with Shire
Pharmaceuticals, plc ("Shire") under which Shire will evaluate the use of the
Company's Ampakine CX516 for the treatment of Attention Deficit Hyperactivity
Disorder ("ADHD"). In October 2000, the Company entered into a research
collaboration and license agreement with Les Laboratoires Servier ("Servier").
The agreements will allow Servier to develop and commercialize the Company's
Ampakine technology as a treatment for memory impairment associated with aging
and neurodegenerative diseases. The indications covered include, but are not
limited to, Alzheimer's disease, Mild Cognitive Impairment, sexual dysfunction,
multiple sclerosis and Lou Gehrig's disease.
Cortex continues to seek collaborative or licensing arrangements with other
pharmaceutical companies. These arrangements may permit other applications of
the Ampakines to be advanced into later stages of clinical development and may
provide access to the extensive clinical trials management, manufacturing and
marketing expertise of such companies. The Company may not be able to secure
such arrangements on favorable terms, or at all, and its products may not be
successfully developed and approved for marketing by government regulatory
agencies.
In the fiscal years ended June 30, 2000 and 1999, the Company's expenditures on
research and development were $3,896,627 and $3,379,732, respectively, with the
increase attributable to expenses related to the alliance with Organon.
AMPA Receptor Program
In June 1993, Cortex licensed a new class of compounds -- the Ampakines --
from the University of California. Cortex has subsequently been working to
develop and patent new Ampakine molecules and to demonstrate efficacy and safety
in a number of potential indications. Ampakines facilitate the activity of the
AMPA receptor, which binds the neurotransmitter glutamate. The Ampakines
interact in a highly specific manner with the AMPA receptor in the brain,
lowering the amount of neurotransmitter required to generate a response, and
increasing the magnitude of the response to any given amount of glutamate. It is
hoped that this selective amplification of the normal
18
<PAGE>
glutamate signal will eventually find utility in the treatment of neurological
diseases and disorders characterized by depressed functioning of brain pathways
that utilize glutamate as a neurotransmitter.
It is well known that synaptic connections, including those that utilize
glutamate, decline with age. Thus, disorders such as mild cognitive impairment
associated with aging may be amenable to treatment with Ampakines. Two prominent
diseases that may benefit from AMPA receptor-directed therapeutics are
Alzheimer's disease and schizophrenia. A recently completed study with Ampakines
in patients with schizophrenia indicated improvement in a number of symptoms
also common to patients with ADHD. Additionally, the Company and its
collaborators have obtained encouraging preliminary results in animal models of
depression, sexual dysfunction and depressed endocrine function.
Deficits of Memory and Cognition -- Mild Cognitive Impairment and Alzheimer's
Disease
Impairment of memory and cognition is a serious health care problem that is
growing as the elderly population continues to increase. While not fatal (except
when associated with diseases such as Alzheimer's disease), the incidence and
prevalence of cognitive deficits increase inexorably with age. Many elderly
individuals are confined to nursing homes because of psychological
disorientation and functional difficulties. Pharmaceuticals to alleviate
deficits in memory and cognition could potentially enable these elderly
individuals to remain independent longer. Cognitive deficit is also associated
with a number of other neurodegenerative diseases, including multiple sclerosis,
Amyotrophic Lateral Sclerosis and Huntington disease.
Although disease and physiological malfunctions are thought to be the
fundamental cause of severe mental decline, age itself is a contributory factor,
with the human brain losing about 10% of its weight over a normal life span. In
the cerebral cortex, a great deal of the communication between neurons is
mediated by receptors for the neurotransmitter glutamate, including a subtype
known as the AMPA receptor. AMPA receptors and synapses decline in number with
aging, on average by 25-30% between the ages of 25 and 65, making it more
difficult for information to pass through and between areas of the cerebral
cortex. Therefore a potential corrective approach to alleviate age-related
cognitive deficits is to enhance the activity of the remaining functional AMPA
receptors. Ampakines amplify glutamate currents and have been shown to alleviate
memory deficits in experiments in both elderly animals and humans.
Patients with mild cognitive impairment ("MCI") represent the earliest
clinically-defined group with memory impairment beyond that expected for normal
individuals of the same age and education, but such patients do not meet the
clinical criteria for Alzheimer's disease. It is estimated that each year,
approximately 15% to 20% of patients with MCI will progress to Alzheimer's
disease.
Alzheimer's disease is the best known destroyer of memory, currently
afflicting some four million Americans. With the aging of our population, the
number of people in the U.S. with Alzheimer's disease is expected to double over
the next two decades unless a treatment is found. According to the Alzheimer's
Association, Alzheimer's disease is already the third most expensive disease in
the U.S. (after heart disease and cancer), with an estimated annual cost to
society of $100 billion and a lifetime cost per patient of $174,000. The impact
of an effective treatment, even a symptomatic one, would be enormous.
It is in the early stages of Alzheimer's disease -- the first few years --
that Cortex believes Ampakines may play a valuable role, enhancing the
effectiveness of the brain cells that have not yet succumbed to the disease.
This may help to alleviate the memory and cognitive deficits that make up the
early symptoms. There is also a possibility that treatment with Ampakines may
slow the progression of Alzheimer's disease. The reason for this is that brain
cells, or neurons, require continued input from other brain cells to remain
alive. As neurons die, other neurons begin to lose their inputs, hastening their
own death. Ampakines may slow the rate at which functional levels of input from
other neurons are lost. Research also suggests that Ampakines may increase the
production of neurotrophic factors that are known to be protective for nerve
cells.
19
<PAGE>
One of the most compelling of the animal studies conducted to date with the
Ampakines involved an assessment of the effects on memory performance in middle-
aged rats. A number of researchers have demonstrated that healthy middle-aged
rats have significant deficits in memory performance when compared to younger
animals. This provides an animal model for age-associated memory impairment in
humans. In a study published in Synapse, the authors conducted research
involving a maze task with middle-aged and young adult rats. The middle-aged
rats showed striking deficits in performance when compared with the young adult
animals. When given an Ampakine, the performance of the middle-aged rats
improved to levels equivalent to those found in young animals.
Three human clinical safety studies have been completed with CX516
("Ampalex") in healthy volunteers. In all three studies, CX516 was safe and
well-tolerated on acute oral administration and, importantly, statistically-
significant positive effects on memory performance were seen in healthy
volunteers.
The initial study, conducted by AFB Parexel in Berlin involved single
administrations of drug or placebo to a total of 48 healthy young adult
volunteers, ranging in age from 18 to 35. The trial was double-blinded and
placebo-controlled, and involved administering a single dose of drug, in capsule
form, to each volunteer. Several dosages of drug were tested and at all dosage
levels, the drug was safe and well-tolerated. In addition, analysis of
psychological data that was collected revealed a highly statistically
significant positive effect on a test of memory performance that involved recall
of a list of nonsense syllables.
The second trial, at the same clinical site in Berlin, involved 30 healthy
elderly volunteers, aged 65 to 76, each of whom was administered a single oral
dose of drug or placebo. In this double-blinded trial, Ampalex was again found
to be safe and well-tolerated. The elderly volunteers were also given the same
nonsense syllable memory test that had been given to the young volunteers in the
first study. In the absence of drug, the elderly volunteers' memory was
substantially worse than that of the young volunteers. In the presence of drug,
a statistically significant positive effect on memory performance was observed.
Several of the elderly volunteers receiving the highest dosage of Ampalex scored
at or above the average score achieved by the young volunteers in the earlier
study.
The third study, at the Karolinska Hospital in Stockholm, Sweden, involved
administration of CX516 to healthy young adults under double-blind, placebo-
controlled conditions. This five-day study involved administration of placebo on
days 1, 4 and 5 and drug on days 2 and 3, with psychological testing conducted
on each day. Ampalex was safe and well-tolerated by all volunteers receiving
drug, with no adverse events reported. Statistically significant improvements in
performance on several measures of learning and memory were noted in the group
that received CX516.
After these encouraging results, Cortex initiated a Phase I/IIa study in
patients experiencing deficits of memory and cognition due to Alzheimer's
disease. The double-blind, placebo-controlled dose escalation study, which is
being conducted at the National Institutes of Health in Bethesda, Maryland,
involves administration of CX516 to an eventual total of 16 to 20 patients for
up to 28 consecutive days. To date, 15 patients have been enrolled in this
study, with enrollment of an additional five patients anticipated.
In June 2000, Cortex received $247,300 from the Institute for the Study of
Aging (the "Institute"), a non-profit foundation based in New York City
dedicated to the improvement in quality of life for the elderly. The funds will
support a study of Ampakines for effects in psychometric tests of memory and
cognition in elderly patients with MCI. Data from this study may support the
concept of AMPA modulation as a treatment for MCI, and would justify additional,
larger trials. In the event that Cortex enters an Ampakine into Phase III
clinical studies as a treatment for Alzheimer's disease, Cortex has agreed to
repay the funds to the Institute to allow them to assist other biotechnology
companies.
In October 2000, the Company entered into a research collaboration and
exclusive license agreement with Servier. The agreements will enable Servier to
develop and commercialize Cortex's proprietary Ampakine technology for the
treatment of declines in cognitive performance associated with aging and of
neurodegenerative diseases. The indications covered include, but are not limited
to, Alzheimer's disease, Mild Cognitive Impairment, sexual
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dysfunction, multiple sclerosis and Lou Gehrig's disease. The territory covered
by the exclusive license excludes North America, allowing Cortex to retain
commercialization rights in its domestic market. The territory covered by the
agreement also excludes South America (except Argentina, Brazil and Venezuela),
Australia and New Zealand. The agreement includes an up-front payment by Servier
of $5,000,000, research support payments of up to $2,025,000 per year for three
years and milestone payments, plus royalty payments on sales in licensed
territories.
While the clinical testing of Ampakines initiated by Cortex provided
preliminary indications of desired effects on memory and cognition,
psychological testing of patients with Alzheimer's disease is subject to a high
level of variability. Full-scale Phase II studies designed to achieve
significance on broad psychological scales will require larger numbers of
patients. Cortex intends that further clinical studies of Ampakines as a
treatment for Alzheimer's disease will be conducted in collaboration with its
corporate partner, Servier.
Schizophrenia
Schizophrenia is a major health care problem. The worldwide incidence of
the disease is approximately one percent, regardless of ethnic, cultural or
socioeconomic status. On any given day, approximately 100,000 of the estimated
two million U.S. patients with schizophrenia are in public mental hospitals.
Schizophrenia typically develops in late adolescence or early adulthood and
is best understood as a syndrome, or collection of symptoms. These are generally
characterized as positive symptoms (delusions and hallucinations), negative
symptoms (social withdrawal and loss of emotional responsiveness) and cognitive
symptoms (disordered thought and attention deficits).
The first "wonder drugs" for schizophrenia, the so-called neuroleptics or
conventional anti-psychotics, were developed in the 1950s and 1960s. These
drugs, such as chlorpromazine and haloperidol, helped to reduce the positive
symptoms of the disease and greatly reduced the need for chronic
hospitalization. However, these drugs, which are still in use today, are
characterized by troublesome and occasionally life-threatening side effects. One
of the most common side effects of conventional anti-psychotics is EPS or
"extrapyramidal signs," which include restlessness and tremors. EPS side effects
have a strongly negative impact on quality of life and tend to lead to poor
patient compliance with medication.
More recently, a new type of anti-psychotic agent, referred to as atypical
due to the virtual lack of EPS side effects, has been developed. Clozapine was
the first such drug. It was initially studied in the 1970s, but clinical trials
were halted due to the risk of a fatal blood disorder known as agranulocytosis
and a dose-dependent risk of seizures. Clozapine was reintroduced in the 1980s,
with approval by the FDA for use in patients who cannot be adequately treated
with typical neuroleptics, either because of lack of efficacy or side effects.
Risperidone and olanzapine are other recent clozapine-like anti-psychotics
without agranulocytosis side effects.
The newer atypical agents achieve good control of positive symptoms,
partial control of negative symptoms and better patient compliance with
medication due to lower levels of EPS side effects. However, schizophrenia
clinicians agree that there are still substantial side effects and that the
cognitive symptoms of schizophrenia are not greatly improved by any available
agent. The persistence of cognitive symptoms prevents many patients with
schizophrenia from successfully reintegrating into society.
Schizophrenia has long been thought to have its biochemical basis in an
overactivity of dopamine pathways projecting into an area of the brain known as
the striatum. More recently, a developing body of evidence suggests that
schizophrenia also involves an underactivity of glutamate pathways projecting
into the same area. Cortex is therefore studying whether Ampakines, which
increase current flow through the AMPA subtype of glutamate receptor, might have
relevance to the treatment of schizophrenia.
In late 1995, Cortex announced the discovery that an Ampakine reduced
stereotypic behavior (mechanical repetition of posture or movement) in rats that
had been injected with methamphetamine. Reduction of
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methamphetamine-induced stereotypic behavior is widely used for initial
screening of anti-psychotic drugs. Scientists at both the University of
California, Irvine and Cortex have since extended this finding to include
additional Ampakines. Further, Cortex scientists have demonstrated that
Ampakines in combination with either conventional or atypical anti-psychotic
drugs have additive or synergistic effects in this model system.
In January 1999, the Company entered into an exclusive worldwide license
agreement with Organon. The agreement will enable Organon to develop and
commercialize Cortex's proprietary Ampakine technology for the treatment of
schizophrenia and to explore it in the area of depression. The agreement
includes an upfront payment of $2,000,000, research and development payments of
up to $3,000,000 per year for two years, and milestone payments, plus royalty
payments on worldwide sales. The Company believes that the agreement with
Organon will provide an accelerated program to bring the Ampakines to market for
schizophrenia and possibly depression, if proven safe and effective in clinical
trials.
Shortly thereafter, in April 1999 the Company reported preliminary results
from a study with CX516 in patients with schizophrenia being treated with
clozapine. This Phase I/IIa clinical trial, conducted at Massachusetts General
Hospital, was designed primarily as a safety study. Extensive clinical and
psychological testing was also included in an attempt to obtain a preliminary
indication that CX516 may effect the psychological parameters that likely
contribute to symptoms of the disease, particularly the cognitive symptoms that
have thus far been resistant to treatment. Preliminary results indicate that
CX516 is reasonably safe in combination with clozapine and improves performance
on a number of tests of verbal learning, memory, problem solving and
distractability. Interestingly, the improvements noted in CX516-treated patients
appeared to persist for a period of time after cessation of treatment.
Further clinical testing of the Ampakines in patients with schizophrenia
will be conducted by the Company's corporate partner, Organon. Data obtained
from the testing performed at Massachusetts General Hospital should be very
helpful in the design of such trials. In May 2000, Cortex achieved its first
milestone under the agreement when Organon selected a licensed compound to
pursue in Phase I clinical testing, triggering a $2,000,000 payment to Cortex.
Based upon the progress and results of the Phase I trials, an additional
milestone payment from the agreement may occur during fiscal 2001.
Attention Deficit Hyperactivity Disorder
Attention Deficit Hyperactivity Disorder is the most commonly diagnosed
disorder of children. The National Institute of Mental Health estimates that
ADHD affects three to five percent of school-age children, with about one child
in every classroom in the United States in need of help for this disorder.
Additional national public school spending on behalf of students with ADHD may
have exceeded $3 billion in 1995.
Symptoms of ADHD include an inability to sustain attention and
concentration, developmentally inappropriate levels of activity, distractability
and impulsivity. Children with the disorder may have functional impairment
across multiple settings including home, school and peer relationships. ADHD has
also been linked to long-term adverse effects on academic performance,
vocational success and social and emotional development. These effects not only
impact the individual patients, but also their families, schools and
communities. For many, the symptoms and impact of the disorder extend into
adulthood.
Psychostimulants, including amphetamine, methylphenidate and pemoline,
represent the most widely researched and commonly prescribed treatments for the
disorder. One theory suggests that ADHD relates to difficulties in inhibiting
responses to internal and external stimuli. Evidence suggests that those areas
of the brain thought to be involved in planning, foresight, and consideration of
alternative responses may be under-stimulated in patients with ADHD. Stimulant
medication may work on these areas of the brain to increase neural activity to
more normal levels.
Because psychostimulants are more readily available and more frequently
prescribed, concerns over their potential overuse and abuse have intensified.
Given the lack of consistent improvement beyond the disorder's core
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symptoms and the deficit of long-term studies, the need remains for additional
testing with medications and behavioral treatments.
In April 1999, the Company reported preliminary results from a study with
CX516 in patients with schizophrenia being treated with clozapine. The results
noted in CX516-treated patients included improved performance on several tests
of memory, problem solving and distractability, as well as a clinical
improvement in attention -- symptoms that are also common to patients with ADHD.
Based upon these results, the Company believes that Ampakines may represent a
novel, non-controlled (not regulated by the Drug Enforcement Agency) approach
for treating ADHD patients.
In April 2000, the Company entered into an option agreement with Shire
Pharmaceuticals, plc ("Shire") under which Shire will evaluate the use of
Cortex's Ampakine CX516 for the treatment of ADHD. Under the terms of the
agreement, Shire will undertake a double-blind, placebo-controlled evaluation of
CX516 in ADHD patients. In exchange for the option, Cortex received $130,000 and
issued 254,353 shares of common stock to Shire for $870,000. In addition, Shire
will purchase study drug from Cortex and be responsible for all costs associated
with the trial.
If the study proves effective, Shire has the right to convert its option
into an exclusive worldwide license for the Ampakines for ADHD under a
development and licensing agreement. Should Shire elect to execute this
agreement, Shire will bear all future developmental costs. Cortex would receive
a license fee, milestone payments based on successful clinical and commercial
development, research support for additional Ampakines and royalties on sales.
Calpain Inhibitor Program
Calpain is a protease, a protein that digests other proteins. It is
involved in a variety of biological processes throughout the body and has been
implicated in the pathology of several diseases and disorders.
The Company's first target for calpain inhibitor therapeutics was brain
damage following stroke. A stroke is a vascular event causing localized damage
to the brain. There are two general categories of stroke: ischemic stroke, which
is due to a blockage of blood flow, and hemorrhagic stroke, which involves a
blood vessel bursting in the brain. In either case, the insult to the brain is
often immediately life threatening, and initiates a cascade of molecular events
that may lead to permanent brain damage.
In 1990 and 1991, Cortex established laboratory models of ischemia and used
them to identify a range of calpain inhibitor compounds that appeared to have
the potential to block brain damage due to stroke and other ischemic events. In
January 1992, Cortex entered into a Development and License Agreement, amended
in October 1992, (the "Alkermes Agreement") with Alkermes, Inc. ("Alkermes").
Cortex granted to Alkermes an exclusive worldwide license, with a right to
sublicense, to commercialize the Company's calpain inhibitor technology for the
prevention or treatment of acute and chronic neurodegenerative diseases and
disorders of the nervous system.
In November 1993, Alkermes filed an action in U.S. District Court in
Massachusetts alleging that the Company had breached the Alkermes Agreement by
developing calpain inhibitors for cerebral vasospasm. In October 1995, the
Company and Alkermes agreed to a settlement of the dispute.
Alkermes agreed to dismiss its action against Cortex and to relinquish all
rights previously granted them by the Company, as well as rights to related
technologies developed by Alkermes. In connection with the settlement, the
Company issued to Alkermes a $1,000,000 non-transferable, three-year promissory
note accruing interest semi-annually at the federal funds rate. The Company also
committed to pay Alkermes a graduated royalty on calpain inhibitor development
proceeds, as defined and subject to certain limitations. Subsequently, the terms
of the note were restructured several times, with Cortex issuing warrants to
Alkermes as a condition for such restructurings. During the
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month of March 2000, using the proceeds from the exercise of non-related
warrants to purchase shares of Cortex common stock, the Company paid Alkermes
the remaining balance of principal and accrued interest.
Cortex has subsequently shifted more of its resources from its calpain
inhibitor program to its Ampakine technology platform. As part of the Company's
emphasis on its Ampakine program, Cortex canceled its licensing agreement with
Georgia Tech Research Corporation related to the Company's calpain inhibitor
technology during the year ended June 30, 1999.
Manufacturing
Cortex has no experience in manufacturing pharmaceutical products and
relies, and presently intends to rely, on the manufacturing and quality control
expertise of contract manufacturing organizations or prospective corporate
partners. There is no assurance that the Company will be able to enter
arrangements for manufacturing of its proposed products on favorable terms.
However, generally there is an excess of manufacturing capacity and the
Ampakines do not have any particularly unique manufacturing characteristics.
Marketing
The Company has no experience in the marketing of pharmaceutical products
and does not anticipate having the resources to distribute and broadly market
any products that it may develop. The Company will therefore continue to seek
commercial development arrangements with other pharmaceutical companies for its
proposed products. In entering into such arrangements, the Company may seek to
retain the right to promote or co-promote products for certain indications in
North America. The Company's worldwide licensing agreements with Organon and
potential agreement with Shire (see Notes 5 and 6 of Notes to Financial
Statements) do not provide Cortex with co-promotional rights. There is no
assurance that the Company will be able to enter into marketing arrangements in
connection with its other licensing activities, or that marketing rights will
lead to greater revenues for the Company.
Technology Rights and Collaborative Agreements
AMPA Receptor Modulating Compounds
In 1993, Cortex entered into an agreement with the Regents of the
University of California, under which Cortex secured exclusive commercial rights
to AMPA receptor modulating technology and compounds (Ampakines) for the
treatment of deficits of memory and cognition. The agreement was subsequently
amended to include additional indications. The Company paid an initial license
fee and is obligated to make additional payments, including license maintenance
fees and patent expense reimbursements creditable against future royalties, over
the course of initiating and conducting human clinical testing and obtaining
regulatory approvals. When and if sales of licensed products commence, the
Company will pay royalties on net sales.
Patents and Proprietary Rights
The Company is aggressively pursuing patent protection of its technologies.
Cortex owns or has exclusive rights (within its areas of product development) to
approximately 15 issued or allowed U.S. patents and a number of additional U.S.
patent applications and their international counterparts.
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In April 1999, Cortex received a patent that covers the Company's Ampakines
-- as well as compounds made by others -- for the treatment of memory and
cognition. It allows Cortex and its licensees to exclude others in the United
States from making and selling AMPA-receptor modulating compounds for the
treatment of memory or dementia, including Alzheimer's disease. The Company
believes that the coverage also extends to psychiatric conditions with cognitive
disturbances including depression, obsessive compulsive disorder, attention
deficit disorder, and phobic disorders. In June 2000, Cortex received a notice
of allowance for a similar patent filed in Mexico. In 1998, Cortex received a
United States patent that contained a broad claim for any AMPA-modulating
compound to treat schizophrenia. Other recently allowed or issued patents
include claims for enhancing neurotrophic factor expression, which may restore
the size and function or aged neurons, and claims for the use of AMPA receptor
modulating compounds, regardless of structure, to treat sexual dysfunction.
There is no assurance that patents, whether already issued or issuing in
the future in connection with current or future patent applications, will afford
effective protection against competitors with similar technology. There is also
no assurance that any patents issued or licensed to Cortex will not be infringed
upon or designed around by others. Further, since issuance of a patent does not
guarantee the right to practice the claimed invention, there is no assurance
that others will not obtain patents that the Company would then need to license
or design around in order to practice its patented technologies, or that Cortex
would be able to obtain licenses that might be required to practice these
technologies due to patents of others on reasonable terms. Additionally, any
unpatented manufacture, use or sale of the Company's technology, processes or
products may infringe on patents or proprietary rights of others, and the
Company may be unable to obtain licenses or other rights to these other
technologies that may be required for commercialization of the Company's
proposed products or processes.
Cortex relies to a certain extent upon unpatented proprietary technology
and may determine in some cases that its interests would be better served by
reliance on trade secrets or confidentiality agreements rather than patents. No
assurance is made that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to or
disclose such technology. In addition, there is no assurance that Cortex can
meaningfully protect its rights in such unpatented proprietary technology or
that others will not wrongfully obtain such technology.
If Cortex is unable to obtain strong protection of its proprietary rights
in its products or processes prior to or after obtaining regulatory clearance,
whether through patents, trade secrets or otherwise, competitors may be able to
market competing products by obtaining regulatory clearance through
demonstration of equivalency to the Company's products, without being required
to conduct the same lengthy clinical tests conducted by the Company.
Government Regulation
In order to test, produce and market human therapeutic products in the
United States, mandatory procedures and safety standards established by the Food
and Drug Administration ("FDA") must be satisfied. Obtaining FDA approval is a
costly and time-consuming process. Cortex has initiated Phase I (safety) testing
in Europe. In the U.S., the Company has conducted or is now conducting Phase
I/IIa studies with CX516 in patients with schizophrenia and Alzheimer's disease.
Clinical trials in the U.S. were and are performed under Notices of Claimed
Investigational Exemption for a New Drug ("IND") filed with the FDA by the
Company's clinical collaborators. Cortex is currently preparing to file an IND
for CX516 in the name of the Company. It is the Company's intent that Organon,
Shire, Servier or other pharmaceutical company partner or partners that the
Company is seeking, will pursue other required regulatory approvals to conduct
further clinical testing.
Clinical trials are normally conducted in three phases. Phase I trials are
concerned primarily with safety of the drug, involve fewer than 100 subjects,
and may take from six months to over a year. Phase II trials normally involve a
few hundred patients and are designed primarily to demonstrate effectiveness in
treating or diagnosing the disease or condition for which the drug is intended,
although short-term side effects and risks in people whose health is impaired
may also be examined. Phase III trials may involve up to several thousand
patients who have the disease or condition for which the drug is intended, to
approximate more closely the conditions of ordinary medical practice. Phase III
trials
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are also designed to clarify the drug's benefit-risk relationship, to uncover
less common side effects and adverse reactions, and to generate information for
proper labeling of the drug. The FDA receives reports on the progress of each
phase of clinical testing, and may require the modification, suspension, or
termination of clinical trials if an unwarranted risk is presented to patients.
The FDA estimates that the clinical trial period of drug development can take up
to ten years, and averages five years. With certain exceptions, once clinical
testing is completed, the sponsor can submit a New Drug Application ("NDA") for
approval to market a drug. The FDA's review of an NDA can also be lengthy.
Therapeutic products that may be developed and sold by the Company outside
the United States will be subject to regulation by the various countries in
which they are to be distributed. In addition, products manufactured in the
United States that have not yet been cleared for domestic distribution will
require FDA approval in order to be exported to foreign countries for
distribution there.
There is no assurance that any required FDA or other governmental approval
will be granted or, if granted, will not be withdrawn. Governmental regulation
may substantially delay or prevent the marketing of the Company's proposed
products, or cause the Company to undertake additional procedures, which may be
both costly and lengthy, and thereby furnish a competitive advantage to the
competitors of the Company or its licensees.
Cortex does not have the financial and other resources to conduct the
clinical testing and other procedures required to obtain approval to market its
products. Accordingly, the Company will be dependent upon entering into
partnerships or other collaborative arrangements with third parties with the
required resources to obtain the needed approvals. Along with its licensing
agreements with Organon and Servier and its option agreement with Shire, Cortex
intends to enter into license or other arrangements with other pharmaceutical
companies under which those companies would conduct the required clinical trials
and seek FDA approval for most or all of its proposed products. There is no
assurance that Cortex will be able to enter into such arrangements on favorable
terms, or at all, or that such arrangements will ultimately result in obtaining
the necessary governmental approvals.
Competition
The pharmaceutical industry is characterized by rapidly evolving technology
and intense competition. Many companies of all sizes, including both major
pharmaceutical companies and specialized biotechnology companies, are engaged in
activities similar to those of Cortex. A large number of drugs intended for the
treatment of Alzheimer's disease, schizophrenia, depression, ADHD and other
neurological and psychiatric diseases and disorders are on the market or in the
later stages of clinical testing. For example, approximately 15 drugs are in
development in the U.S. for schizophrenia. In addition, over 25 drugs are under
clinical investigation in the U.S. for the treatment of Alzheimer's disease. The
Company's competitors have substantially greater financial and other resources
and larger research and development staffs. Larger pharmaceutical company
competitors also have significant experience in preclinical testing, human
clinical trials and regulatory approval procedures.
In addition, colleges, universities, governmental agencies and other public
and private research organizations will continue to conduct research and are
becoming more active in seeking patent protection and licensing arrangements to
collect license fees, milestone payments and royalties in exchange for license
rights to technology that they have developed, some of which may be directly
competitive with that of the Company. These institutions also compete with
companies such as Cortex in recruiting highly qualified scientific personnel.
The Company expects technological developments in the neuropharmacology
field to continue to occur at a rapid rate and expects that competition will
remain intense as advances continue to be made. Although the Company believes,
based on the technical qualifications, expertise and reputations of its
Scientific Directors, consultants and other key scientists, that it will be able
to compete in the discovery and early clinical development of therapeutics for
neurological and psychiatric disorders, the Company does not have the resources,
and does not presently intend, to compete with major pharmaceutical companies in
clinical testing, manufacturing and marketing.
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Product Liability Insurance
The clinical testing, manufacturing and marketing of the Company's products
may expose the Company to product liability claims, against which the Company
maintains liability insurance. Although the Company has never been subject to a
product liability claim, there is no assurance that such claims will not be
brought in the future, that the coverage limits of the Company's insurance
policies will be adequate or that one or more successful claims brought against
the Company would not have a material adverse effect upon the Company's
business, financial condition and results of operations.
Employees
As of June 30, 2000, Cortex had 23 full-time employees and had engaged one
part-time M.D.-level and two part-time Ph.D.-level scientific consultants. Of
the 23 full-time employees, 18 are engaged in research and development and five
are engaged in management and administrative support. The Company also sponsors
a substantial amount of research in academic laboratories, primarily at UCI.
Facilities
The Company leases approximately 32,000 square feet of office, research
laboratory and expansion space under an operating lease that expires May 31,
2004. Current monthly rent on these facilities is approximately $20,000. The
Company believes that this facility will be adequate for its research and
development activities for at least the next three years.
Legal Proceedings
The Company is not a party to any material legal proceedings.
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MANAGEMENT
Directors, Executive Officers and Scientific Directors
The directors, executive officers and scientific directors of the Company are as
follows:
<TABLE>
<CAPTION>
Name Age Position
-------------------------------------------------------------------------------------------
<S> <C> <C>
Robert F. Allnutt (2) 65 Chairman of the Board, Director
Charles J. Casamento (2) 55 Director
James H. Coleman 59 Sr. Vice President, Business Development
Carl W. Cotman, Ph.D. (1) 60 Director, Scientific Director
Michael G. Grey (1) (2) 47 Director
Gary S. Lynch, Ph.D. 57 Scientific Director
Maria S. Messinger 33 Vice President and Chief Financial Officer
Gary A. Rogers, Ph.D. 55 Sr. Vice President, Pharmaceutical Research
Vincent F. Simmon, Ph.D. 57 President and Chief Executive Officer, Director
Davis L. Temple Jr., Ph.D. (1) 57 Director
</TABLE>
(1) Member of the Compensation/Stock Option Committee.
(2) Member of the Audit Committee.
Robert F. Allnutt has been a director since December 1995 and Chairman of
the Board since February 1999. Since February 1995, Mr. Allnutt has been a
senior counselor for APCO Associates, Inc., a public affairs and strategic
communications company. Mr. Allnutt was Executive Vice President of the
Pharmaceutical Manufacturers Association from May 1985 until February 1995 and
was Vice President for Governmental Relations of Communications Satellite
Corporation from May 1984 until May 1985. Prior to 1985, Mr. Allnutt held
numerous positions in the Federal Government for 25 years, including 15 years at
NASA, where his positions included Associate Deputy Administrator, the third
ranking position in the agency. Mr. Allnutt is a director of Cypros
Pharmaceuticals, Inc., a developer and marketer of prescription pharmaceuticals.
He also serves as a member of the Boards of Directors of the Partnership for
Caring and of the National Medals of Science and Technology. Mr. Allnutt holds
a B.S. in Industrial Engineering from the Virginia Polytechnic Institute and
J.D. and L.L.M. degrees from George Washington University.
Charles J. Casamento was elected to the Board of Directors of the Company
in July 1997. Since June 1993, Mr. Casamento has been Chairman, President and
Chief Executive Officer of QuestCor Pharmaceuticals, a biopharmaceutical company
based in Hayward, California. Prior to that, he was President and Chief
Executive Officer of Interneuron Pharmaceuticals, a neuropharmaceutical company,
from its founding in March 1989 until May 1993. From January 1986 to March
1989, he was Senior Vice President and General Manager, Pharmaceuticals &
Biochemicals at Genzyme Corp., a biotechnology company. From 1970 through 1985,
Mr. Casamento held senior management positions in marketing, finance and
business development at Sandoz, Johnson & Johnson and American Hospital Supply
Corp., where he was Vice President, Business Development and Strategic Planning
for the Critical Care Division. He holds a B.S. in Pharmacy and an M.B.A. from
Fordham University and is a licensed pharmacist.
James H. Coleman became Senior Vice President of Business Development in
May 2000. Prior to joining Cortex, Mr. Coleman was President and Senior Partner
of Diversified Healthcare Management, Inc. (DHM), a biopharmaceutical and
biotechnology consulting firm he founded in 1997. From March 1999 to May 2000,
Cortex was the principal client of DHM. Upon his employment with Cortex, Mr.
Coleman decreased his active consultancy and has not accepted new clients.
During 1996, Mr. Coleman served as Vice President of Commercial Development at
CoCensys, Inc., a biotechnology company, where he directed strategic planning
and external business development. Mr. Coleman was also
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employed as an executive at Pharmacia & Upjohn, Inc. for over 25 years where he
acquired extensive management expertise in new product development, global
strategic marketing, sales, CNS research, and clinical research trial
methodologies. Mr. Coleman holds a B.S. in Applied Biology from the University
of Rhode Island.
Carl W. Cotman, Ph.D. has been a Scientific Director of and consultant to
the Company since October 1987, served as a director of the Company from March
1989 to October 1990, and was reelected as a director in November 1991. Dr.
Cotman has been a Professor of Psychobiology, Neurology, and Psychiatry at the
University of California, Irvine since 1985. He was a Professor of
Psychobiology and Neurology at that University from 1983 to 1985, and has held
various other teaching and research positions at that University since 1968. He
chaired the Scientific Advisory Council of the American Paralysis Association
and is a member of numerous professional associations and committees, including
the Council of the American Society for Neurochemistry, the National Institute
of Aging Task Force, the American Association for the Advancement of Science and
the International Society for Neurochemistry. Dr. Cotman has served on the
editorial boards of numerous scientific journals and has authored or co-authored
seven books and over 400 articles in the fields of neurobiology, memory and
cognition, and the recovery of function after brain injury. Dr. Cotman holds a
B.A. in Chemistry from Wooster College, an M.A. in Analytical Chemistry from
Wesleyan University, and a Ph.D. in Biochemistry from Indiana University.
Michael G. Grey has been a director of the Company since September 1994.
Since January 1999, Mr. Grey has been President and Chief Executive Officer of
Trega Biosciences, Inc., a drug discovery company pursuing the identification
and early-stage development of novel, small-molecule drug therapies. From
November 1994 until August 1998, Mr. Grey served as President of BioChem
Therapeutic Inc., a wholly-owned subsidiary of BioChem Pharma, an international
biopharmaceutical company. From January 1994 to October 1994, Mr. Grey was
Senior Vice President, Corporate Development of Titan Pharmaceuticals, Inc., a
biopharmaceutical holding company and President and Chief Operating Officer at
Ansan, Inc., an early stage biopharmaceutical company. From 1991 until 1993,
Mr. Grey served as Vice President, Corporate Development of Glaxo, Inc., and
from 1989 until 1991, Mr. Grey served as Director of International Licensing of
Glaxo Holdings p.l.c., and was responsible for the worldwide licensing
activities of Glaxo. Since July 1999, Mr. Grey has also served as a member of
the Board of Directors of Epimmune Inc., a developer of vaccines to treat and
prevent infectious diseases and cancer. Mr. Grey holds a B.Sc. in Chemistry
from the University of Notingham.
Gary S. Lynch, Ph.D. has been a Scientific Director of and consultant to
the Company since October 1987, and served as a director of the Company from
March 1988 to March 1989 and again from December 1994 to December 1995. Dr.
Lynch has been a Professor in the Department of Psychobiology at the University
of California, Irvine since 1981, and has held various other teaching and
research positions at that University since 1969. He is a Professor at the
University's Center for the Neurobiology of Learning and Memory. Dr. Lynch is a
member of the Neuroscience Society and the International Brain Research
Organization. He also serves on the Advisory Board of the Cognitive Neuroscience
Institute. Dr. Lynch has authored and co-authored over 400 articles and a number
of books in the areas of neurobiology, cognition and memory. Dr. Lynch holds a
B.A. in Psychology from the University of Delaware and a Ph.D. in Psychology
from Princeton University.
Maria S. Messinger was appointed Vice President, Chief Financial Officer
and Secretary of the Company in December 1999. She has served as Controller of
the Company since September 1994. From August 1989 to September 1994, Ms.
Messinger served in a progression of positions at Ernst & Young LLP, including
her most recent position as an Audit Manager. She holds a B.A. from the School
of Business Administration and Economics at California State University,
Fullerton and is a Certified Public Accountant.
Gary A. Rogers, Ph.D. was appointed Senior Vice President, Pharmaceutical
Research in July 2000 and served as Vice President, Pharmaceutical Discovery
since June 1995. In February 1994, he founded Ligand Design, a private contract
design and synthesis firm located in Santa Barbara. From 1987 to 1994, Dr.
Rogers served as an associate research biochemist at the University of
California, Santa Barbara. Prior to that, he held a succession of research and
faculty positions at universities in the United States and abroad, including
three years as an assistant adjunct professor of bio-organic chemistry under Dr.
Paul Boyer at the University of California, Los Angeles and four years as an
29
<PAGE>
assistant professor at the University of Texas. Dr. Rogers is a co-inventor of
the Ampakine family of AMPA receptor modulating compounds. He holds a B.S.
degree in organic chemistry from the University of California, Los Angeles and a
Ph.D. in bio-organic chemistry from the University of California, Santa Barbara.
Vincent F. Simmon, Ph.D. was appointed President and Chief Executive
Officer and a director of the Company in May 1996. From October 1998 to December
6, 1999, he was the acting Chief Financial Officer and Secretary of the Company.
From November 1994 to December 1995, Dr. Simmon served as Chairman, President
and Chief Executive Officer of Prototek, Inc., a privately-held
biopharmaceutical company focusing on the development of protease inhibitors.
From March 1990 to November 1994, Dr. Simmon served as President, Chief
Executive Officer and a director at Alpha I Biomedicals, Inc., a biotechnology
company. From February 1985 to March 1990, Dr. Simmon served as Vice President
for Biomedical and Biotechnology Research at W. R. Grace and Co. From 1979 to
1985, Dr. Simmon served in varying capacities including Senior Vice President of
Research and Development for Genex Corporation, a genetic engineering company,
and from 1973 to 1979 in varying capacities including Assistant Director,
Department of Technology for SRI International, a consulting company. Dr.
Simmon has served as a governor of the Emerging Companies Section of BIO
(Biotechnology Industrial Organization) and a director of the Chemical
Industries Institute for Toxicology (Research Triangle Park). Dr. Simmon holds
a B.A. in Biology and Chemistry from Amherst College, a M.S. from the University
of Toledo in Plant Physiology and a Ph.D. in Molecular Biology from Brown
University. Dr. Simmon was a post-doctoral fellow from 1971 to 1973 at Stanford
University.
Davis Temple, Jr., Ph.D. has been a director of and consultant to the
Company since March 1994 and served as co-member of the Office of Chief
Executive Officer of the Company from October 1995 to May 1996. In April 1997,
Dr. Temple was appointed as Chief Executive Officer of Cognetix, a privately
held biopharmaceutical drug discovery and development company. Dr. Temple has
served as the Chairman of Cognetix since January 1999. From November 1995 until
April 1998, he was a Senior Consultant for Kaufman Brothers, a New York
investment bank. Prior to that, from January 1994 to November 1995 he was
Managing Director at Stover Haley Burns, Inc., a life science advisory group.
From 1990 until 1993, Dr. Temple served as Vice President, CNS Drug Discovery,
of Bristol-Myers Squibb and from 1984 to 1990 he served as Senior Vice
President, CNS Research at Bristol-Myers Company. Dr. Temple holds a B.S. in
Pharmacy and a Ph.D. in Medicinal Chemistry and Pharmacology from the University
of Mississippi. Dr. Temple completed post-doctorate research at Louisiana State
University.
All directors hold office until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. Officers are
elected by and serve at the discretion of the Company's Board of Directors.
There are no family relationships among any of the directors or officers of the
Company.
Other Key Employees
Ursula V. Staubli, Ph.D., 48, was named Vice President of Biological
Research in June 1999. From June 1993 to May 1999, Dr. Staubli was Associate
Professor at the Center for Neural Science at New York University ("NYU"). While
at NYU, she served as a consultant to the Company. Prior to June 1993, she held
teaching and research positions at McGill University and the University of
California, Irvine. A recipient of numerous pre- and post-doctoral fellowships
and grants, Dr. Staubli has published more than 60 scientific papers. She
received her B.S. in Behavioral Sciences and Ph.D. in Neurobiology from ETH-
Zurich (Swiss Federal Institute of Technology).
30
<PAGE>
Executive Compensation
The following table sets forth summary information concerning compensation
paid or accrued by the Company for services rendered during the three fiscal
years ended June 30, 2000, to the Company's Chief Executive Officer, Chief
Financial Officer and Senior Vice President of Business Development
(collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
-------------------------------------------- -------------------------------
Securities
Underlying
Name and Other Annual Options/ All Other
Principal Position Year Salary Bonus Compensation SARs(#) Compensation($)
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Vincent F. Simmon, Ph.D. 2000 $220,000 $ 75,000 $ -- 150,000 $ --
President, Chief 1999 211,370 100,000 (1) -- 330,000 (2) --
Executive Officer 1998 203,178 -- -- -- --
Maria S. Messinger, CPA (3) 2000 $106,042 $ 25,000 $ -- 40,000 $ --
Vice President, Chief
Financial Officer and
Corporate Secretary
James H. Coleman (4) 2000 $ 16,048 $ -- $ 150,000 (5) 175,000 (6) $ --
Senior Vice President,
Business Development
</TABLE>
_______________
(1) According to Dr. Simmon's employment agreement, he is eligible to receive a
bonus of between 15% to 50% of his annual base salary. Dr. Simmon
voluntarily postponed any bonus for the year ended June 30, 1998. The bonus
for the year ended June 30, 1999 includes an amount to adjust for the bonus
not paid in fiscal 1998.
(2) Includes stock options to purchase 180,000 shares of the Company's Common
Stock that were repriced in December 1998 from an exercise price of $5.625
per share to $0.375 per share, which represented the fair market value of
the Company's Common Stock at the time of repricing.
(3) Ms. Messinger was appointed Vice President and Chief Financial Officer in
December 1999. The table includes the compensation paid by the Company to
Ms. Messinger in her capacity as Controller during the fiscal year ended
June 30, 2000, prior to her appointment.
(4) Mr. Coleman was appointed Senior Vice President, Business Development in
May 2000. Prior to his employment at Cortex, Mr. Coleman served as a
consultant to the Company from March 1999.
(5) Other Annual Compensation to Mr. Coleman represents the consulting fees
paid to Diversified Healthcare Management during the fiscal year ended June
30, 2000.
(6) Includes options to purchase 50,000 shares of Cortex Common Stock granted
to Diversified Healthcare Management, the firm Mr. Coleman worked for as a
consultant to Cortex prior to his employment at the Company in May 2000.
Option Matters
Option Grants. The following table sets forth certain information
concerning grants of stock options to the Company's Named Executive Officers
named in the Summary Compensation Table during the fiscal year ended June 30,
2000.
31
<PAGE>
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Number of % of Total
Securities Options
Underlying Granted to
Options Employees in Exercise Expiration
Name Granted(#) Fiscal Year Price($/Sh) Date
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Vincent F. Simmon, Ph.D. 150,000 27% $0.75 12/17/09
Maria S. Messinger, CPA 40,000 7% $0.75 12/17/09
James H. Coleman 125,000 22% $3.02 05/17/10
50,000 (1) 9% $3.02 05/10/10
</TABLE>
______________________
(1) Represents options granted to Diversified Healthcare Management, the
firm Mr. Coleman worked for as a consultant to Cortex prior to his
employment at the Company in May 2000.
Option Exercises. The following table sets forth certain information
concerning the exercise of options by the Company's Named Executive Officers
during the fiscal year ended June 30, 2000, including the aggregate value of
gains on the date of exercise. In addition, the table includes the number of
shares covered by both exercisable and unexercisable stock options as of June
30, 2000. Also reported are the values for "in the money" options, which
represent the positive spread between the exercise prices of any such exisiting
stock options and $2.52, the closing price of Common Stock on June 30, 2000, as
reported by the OTC Bulletin Board.
_________________________
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Value Realized($)
(market price Number of Securities Value of Unexercised
at exercise Underlying Unexercised In-the-Money
Shares Acquired less exercise tions at FY-End(#) Options at FY-End($)
Name on Exercise(#) price) exercisable Unexercisable Exercisable Unexercisable
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Vincent F. Simmon, Ph.D. 30,000 $112,575 215,000 235,000 $ 428,725 $466,925
Maria S. Messinger, CPA 0 0 18,750 46,250 40,219 84,406
James H. Coleman 0 0 0 175,000 (1) 0 0
</TABLE>
__________________
(1) Includes options to purchase 50,000 shares of Cortex Common Stock
granted to Diversified Healthcare Management, the firm Mr. Coleman worked
for as a consultant to Cortex prior to his employment at the Company in May
2000.
__________________
Employment and Consulting Agreements
Vincent F. Simmon joined the Company as President and Chief Executive
Officer in May 1996. His employment agreement currently calls for a base salary
of $255,000 per year with an annual bonus, at the discretion of the Board of
Directors of the Company, in cash and/or equity equal to between 15% and 50% of
his base salary, subject to annual review by the Compensation Committee. In
connection with his employment, Dr. Simmon was
32
<PAGE>
granted options to purchase 180,000 shares of Common Stock at an exercise price
of $5.625 per share, representing 100% of the fair market value as of the date
of grant. The options vest monthly over a three-year period commencing one month
from the date of grant and have a ten-year term. In December 1998, the exercise
price of these options was restated to $0.375 per share. The restated options
vest in three equal installments over a two-year period, with the first
installment vested on the date of grant.
James H. Coleman joined the Company as Senior Vice President, Business
Development in May 2000. His employment agreement calls for a base salary of
$180,000 per year with an annual bonus, at the discretion of the Board of
Directors of the Company, equal to between 15% and 50% of his base salary. In
connection with his employment, Mr. Coleman was granted options to purchase
125,000 shares of Common Stock at an exercise price of $3.02 per share,
representing 100% of the fair market value as of the date of grant. The options
vest in equal annual installments over a three-year period and have a ten-year
term.
The Company has entered into severance agreements with each of the Named
Executive Officers. In the event of a termination of employment, under certain
circumstances, these severance agreements provide defined benefits to the Named
Executive Officers, including compensation equal to 12 months of the Named
Executive Officer's then current annual salary.
Drs. Carl W. Cotman and Gary S. Lynch (both of whom are co-founders and
Scientific Directors of the Company) have each entered into a consulting
agreement with the Company. Dr. Lynch receives a consulting fee of $30,000 per
year and Dr. Cotman receives a consulting fee of $23,000 per year. The term of
each consulting agreement commenced in November 1987 and will continue until
terminated by the respective parties thereto. The consulting agreements obligate
the respective consultants to make themselves available to the Company for
consulting and advisory services for an average of three days per month. See
also "Director Compensation."
33
<PAGE>
Director Compensation
During the fiscal year ended June 30, 2000, each non-employee director
(other than those who join the Board of Directors to oversee an investment in
the Company) was entitled to receive $1,500 at each Board of Directors meeting
attended, and an additional $750 annual retainer for each committee on which he
or she serves. The Chairman of the Board was entitled to receive $2,500 at each
Board of Directors meeting attended and an additional $750 annual retainer for
each committee on which he or she serves. On September 19, 2000, the Board of
Directors approved certain adjustments to the above-described director
compensation. As of September 19, 2000, each non-employee director (other than
those who join the Board of Directors to oversee an investment in the Company)
is entitled to receive $2,500 at each Board of Directors meeting attended, and
the Chairman of the Board is entitled to receive $3,000 at each Board of
Directors meeting attended.
During the fiscal year ended June 30, 2000, under the Company's 1996 Stock
Incentive Plan, each non-employee director (other than those who serve on the
Board of Directors to oversee an investment in the Company) was automatically
granted options to purchase 15,000 shares of Common Stock upon commencement of
service as a director and additional options to purchase 6,000 shares of Common
Stock on the date of each Annual Meeting of Stockholders. As of September 19,
2000, the Board of Directors approved an increase in the option grants for the
above described non-employee directors. Currently, each non-employee director
(other than those who serve on the Board of Directors to oversee an investment
in the Company) is automatically granted options to purchase 30,000 shares of
Common Stock upon commencement of service as a director and additional options
to purchase 10,000 shares of Common Stock on the date of each Annual Meeting of
Stockholders. Non-employee directors who serve on the Board of Directors to
oversee an investment in the Company receive options to purchase 7,500 shares of
Common Stock upon commencement of service as a director and additional options
to purchase 3,000 shares of Common Stock on the date of each Annual Meeting of
Stockholders. These nonqualified options have an exercise price equal to 100% of
the fair market value of the Common Stock on the date of grant, have a ten-year
term and vest in equal increments of 33-1/3% on each anniversary date of the
dates of grant, and are otherwise subject to the terms and provisions of the
1996 Stock Incentive Plan.
CERTAIN TRANSACTIONS
The Company's Restated Certificate of Incorporation provides that, pursuant
to Delaware law, directors of the Company shall not be liable for monetary
damages for breach of the directors' fiduciary duty of care to the Company and
its stockholders. This provision does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as injunctions or other forms
of non-monetary relief remain available under Delaware law. In addition, each
director continues to be subject to liability for breach of the director's duty
of loyalty to the Company, for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the director and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision also does not affect a director's responsibility under any
other law, such as the federal securities laws. The Company has entered into
Indemnification Agreements with each of the officers and directors that obligate
the Company to indemnify them as permitted by applicable law.
See "Employment and Consulting Agreements" for a description of certain
arrangements and transactions with executive officers and directors.
34
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, to the knowledge of the Company, certain
information regarding the beneficial ownership of the Company's Common Stock as
of Sepember 30, 2000, by (i) each person known by the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock, (ii) each of
the Company's directors, (iii) each of the named executive officers in the
Summary Compensation Table and (iv) all of the Company's executive officers and
directors as a group. Except as indicated in the footnotes to this table, the
Company believes that the persons named in this table have sole voting and
investment power with respect to the shares of Common Stock indicated.
<TABLE>
<CAPTION>
Directors, Shares Percent of
Officers, and 5% Beneficially Common Stock
Stockholders (1) Owned (2) Beneficially Owned (2)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert F. Allnutt 55,500(3) *
Charles J. Casamento 21,000(4) *
James H. Coleman 64,217(5) *
Carl W. Cotman, Ph.D. 160,000(6) *
Michael G. Grey 32,000(7) *
Maria S. Messinger, CPA 18,750(8) *
Vincent F. Simmon, Ph.D. 379,600(9) 2.2
Davis L. Temple, Jr., Ph.D. 54,500(10) *
All officers and directors
as a group (8 persons) 785,567(11) 4.6
</TABLE>
__________________
* Less than one percent
(1) Except as otherwise indicated, the address of such beneficial owner is
at the Company's principal executive offices, 15241 Barranca Parkway,
Irvine, California 92618.
(2) Applicable percentage of ownership at September 30, 2000 is based upon
16,582,758 shares of Common Stock outstanding. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and includes voting and investment power with respect to
shares shown as beneficially owned. Shares of Common Stock subject to
options or warrants currently exercisable or exercisable within 60 days
of September 30, 2000 are deemed outstanding for computing the shares
and percentage ownership of the person holding such options or warrants,
but are not deemed outstanding for computing the percentage ownership of
any other person or entity.
(3) Includes 29,500 shares that may be purchased upon exercise of options
within 60 days of September 30, 2000.
(4) Includes 21,000 shares that may be purchased upon exercise of options
within 60 days of September 30, 2000.
(5) Includes 50,000 shares that may be purchased upon exercise of options
within 60 days of September 30, 2000.
(6) Includes 62,000 shares that may be purchased upon exercise of options
within 60 days of September 30, 2000.
(7) Includes 32,000 shares that may be purchased upon exercise of options
within 60 days of September 30, 2000.
(8) Includes 18,750 shares that may be purchased upon exercise of options
within 60 days of September 30, 2000.
(9) Includes 290,000 shares that may be purchased upon exercise of options
within 60 days of September 30, 2000.
(10) Includes 54,500 shares that may be purchased upon exercise of options
within 60 days of September 30, 2000.
(11) Includes 557,750 shares that may be purchased upon exercise of options
within 60 days of September 30, 2000.
The Company is not aware of any arrangements that may at a subsequent date
result in a change of control of the Company.
35
<PAGE>
DESCRIPTION OF SECURITIES
General
The authorized capital stock of the Company consists of: 30,000,000 shares
of Common Stock, par value $0.001 per share, and 5,000,000 shares of Preferred
Stock, par value $0.001 per share, of which 1,250,000 shares have been
designated as 9% Cumulative Convertible Preferred Stock (the "9% Preferred
Stock"), 3,200,000 shares have been designated as Series B Convertible Preferred
Stock (the "Series B Preferred Stock"), 500 shares have been designated as
Series D Convertible Preferred Stock (the "Series D Preferred Stock") and 400
shares have been designated as Series A Convertible Preferred Stock (the "Series
A Preferred Stock").
As of June 30, 2000, there were 16,576,174 shares of Common Stock, 27,500
shares of 9% Preferred Stock, 37,500 shares of Series B Preferred Stock and no
shares of Series A Preferred Stock outstanding. As of the same date, investors
in the Series A Preferred Stock private placement held warrants to purchase
312,000 shares of Common Stock (the "Series A Warrants"), Vector Securities
International, Inc. ("Vector") held warrants to acquire 57,193 shares of Common
Stock (the "Vector Warrants") and Swartz Investments, Inc. ("Swartz") and its
transferees held warrants to purchase 90,921 shares of Common Stock (the "Swartz
Warrants"). As of June 30, 2000, there were 582 record holders of Common Stock,
two record holders of 9% Preferred Stock, one record holders of Series B
Preferred Stock, nine record holders of the Series A Warrants, one record holder
of the Vector Warrants and eight record holders of the Swartz Warrants.
In addition, as of June 30, 2000 the Company had reserved an aggregate of
1,854,479 shares of Common Stock for issuance upon exercise of outstanding stock
options held by employees and officers, directors and consultants to the
Company, 3,667 shares for issuance upon conversion of the 9% Preferred Stock,
3,679 shares for issuance upon conversion of the Series B Preferred Stock,
312,000 shares for issuance upon exercise of the Series A Warrants, 57,193
shares for issuance upon exercise of the Vector Warrants and 90,921 shares for
issuance upon exercise of the Swartz Warrants.
Common Stock
Holders of shares of Common Stock are entitled to one vote per share held
of record on all matters submitted to a vote of stockholders, including the
election of directors. The holders are entitled to receive dividends when, as
and if declared by the Board of Directors, in its discretion, out of funds
legally available therefor, subject to preferences that may be applicable to any
outstanding shares of Preferred Stock. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all of the assets of the Company
remaining after payment of liabilities and after payment of any preferential
amounts to which holders of shares of the 9% Preferred Stock, the Series B
Preferred Stock and any other series of Preferred Stock that may be outstanding
in the future, may be entitled. Holders of Common Stock have no preemptive or
other subscription rights, and there are no conversion rights or redemption or
sinking fund provisions with respect to such shares. All of the outstanding
shares of Common Stock are, and the shares of Common Stock when issued will be,
fully paid and nonassessable.
Warrants
As consideration for its agreement to provide financial advisory services
related to corporate finance transactions and corporate partnering activities,
as amended and extended in November 1994, Vector was issued a six-year non-
redeemable warrant to purchase 57,193 shares of the Company's Common Stock at
$3.06 per share, subject to adjustment under certain circumstances. Warrants to
purchase 8,169 shares of the Company's Common Stock vested immediately, and
warrants to purchase 24,512 shares of the Company's Common Stock will vest upon
the consummation of each strategic alliance, as defined, when and as secured by
Vector.
36
<PAGE>
In connection with the December 1995 private placement of 160 shares of
Series C Preferred Stock, the Company issued to the placement agent for the
transaction a five-year non-redeemable warrant to purchase 106,195 shares of
Common Stock at a price of $2.825 per share subject to adjustment under certain
circumstances. The warrants contain cashless exercise provisions and include
piggyback registration rights. During the year ended June 30, 2000, warrants to
purchase 15,274 shares were converted into 8,459 shares of common stock.
Warrants to purchase 90,921 shares of common stock remained outstanding as of
June 30, 2000.
In connection with the June 1997 private placement of 400 shares of Series
A Preferred Stock, the Company issued to the eleven participating institutional
investors four-year non-redeemable warrants to purchase an aggregate of 800,000
shares of Common Stock at a price of $3.08 per share, subject to adjustment
under certain circumstances. During the year ended June 30, 2000, warrants to
purchase 488,000 shares of Cortex common stock were exercised, resulting in
proceeds of $1,502,000. As of June 30, 2000, warrants to purchase 312,000 shares
of common stock remained outstanding.
In connection with the February 1998 restructuring of the note payable to
Alkermes, Inc., the Company issued to Alkermes a five-year warrant to purchase
75,000 shares of Common Stock at an exercise price of $1.55 per share,
representing the average of the high and low sale prices of Cortex Common Stock
as reported on the Nasdaq SmallCap Market on the date of the restructuring.
In connection with the July 1999 restructuring of the note payable to
Alkermes, Inc., the Company issued to Alkermes a five-year warrant to purchase
100,000 shares of common stock at an exercise price of $1.07 per share. As part
of the note payable restructuring, in December 1999 the Company issued to
Alkermes a five-year warrant to purchase 50,000 shares of the Company's common
stock at an exercise price of $0.76 per share. Because the note payable was
extended beyond February 2000, the Company issued to Alkermes a final five-year
warrant to purchase 50,000 shares of Cortex common stock at an exercise price of
$3.02 per share. The exercise prices for all warrants issued to Alkermes during
the year ended June 30, 2000 were derived from the fair market value of the
Company's common stock.
Preferred Stock
The holders of the 9% Preferred Stock are not entitled to vote for the
election of directors or upon any other matter presented to the stockholders,
except as and to the extent provided by applicable law. The holders of the 9%
Preferred Stock are entitled to receive cumulative dividends, from and after
June 15, 1989, at the rate of $.09 per share per annum, out of funds legally
available therefor, when and as declared by the Board of Directors. Upon any
liquidation, dissolution or winding up of the Company, or any merger or
consolidation of the Company or other transaction in which more than 50% of the
Company's voting power is transferred (except for an issuance of the Company's
securities), the holders of the 9% Preferred Stock are entitled to receive an
amount equal to $1.00 per share plus accrued and unpaid dividends. The holders
of the 9% Preferred Stock are not entitled to share in assets remaining after
such preference is satisfied. The Company has the right at any time to redeem
the 9% Preferred Stock, in whole or in part, upon not less than 30 days' nor
more than 60 days' written notice, at a price of $1.00 per share.
Each share of 9% Preferred Stock is convertible at any time at the option
of the holder thereof into approximately 0.1333 shares of Common Stock, at an
effective conversion price of $7.50 per share, subject to adjustment under
certain circumstances. Upon conversion of 9% Preferred Stock, accrued and unpaid
dividends pertaining thereto do not convert to Common Stock, but rather are
credited to additional paid-in capital.
The holders of Series B Preferred Stock are not entitled to vote for the
election of directors or upon any other matter presented to the stockholders,
except as and to the extent provided by applicable law. In the event of any
liquidation, dissolution, winding-up or other distribution of the assets of the
Company, holders of Series B Preferred Stock are entitled to receive, after
payment of the full liquidation preference to holders of 9% Preferred Stock, an
amount equal to $0.6667 per share of Series B Preferred Stock. The Company has
the right to redeem the Series B Preferred Stock for $0.6667 per share. Each
share of Series B Preferred Stock is convertible at any time at the option of
37
<PAGE>
the holder thereof into approximately 0.09812 shares of Common Stock at an
effective conversion price of $6.795 per share, subject to adjustment under
certain circumstances.
The Restated Certificate of Incorporation of the Company authorizes the
issuance of 5,000,000 shares of Preferred Stock, of which 549,100 shares remain
undesignated. The Board of Directors, within the limitations and restrictions
contained in the Restated Certificate of Incorporation and without further
action by the Company's stockholders, has the authority to issue this
undesignated Preferred Stock from time to time in one or more series and to fix
the number of shares and the relative rights, conversion rights, voting rights,
rights and terms of redemption, liquidation preferences and any other
preferences, special rights and qualifications of any such series. If shares of
Preferred Stock with voting rights are issued, such issuance could affect the
voting rights of the holders of the Company's Common Stock by increasing the
number of outstanding shares entitled to vote and by the creation of class or
series voting rights. In addition, any further issuance of Preferred Stock
could, under certain circumstances, have the effect of delaying or preventing a
change in control of the Company and may adversely affect the rights of holders
of Common Stock. Other than the shares of 9% Preferred Stock and Series B
Preferred Stock, there are no shares of Preferred Stock currently issued and
outstanding and the Company has no present plans to issue any additional shares
of Preferred Stock or to establish or designate any new series of Preferred
Stock.
Transfer Agent and Warrant Agent
American Stock Transfer and Trust Company, 40 Wall Street, New York, New
York, 10005 serves as Transfer Agent for the Common Stock, 9% Preferred Stock
and Series B Preferred Stock of the Company.
38
<PAGE>
SELLING STOCKHOLDERS
The Shares are to be offered by and for the respective accounts of the Selling
Stockholders. The number of Shares that each Selling Stockholder may offer is as
follows:
<TABLE>
<CAPTION> Shares offered
Owned Before Offering (1) pursuant Owned After Offering
------------------------- to this -----------------------
Selling Stockholder Shares Percent Prospectus Shares Percent
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nelson Partners 81,000 * 81,000 0 0
Olympus Securities, Ltd. 81,000 * 81,000 0 0
MichaelAngelo, L.P. 30,000 * 30,000 0 0
Raphael, L.P. 30,000 * 30,000 0 0
Angelo, Gordon & Co. L.P. 22,500 * 22,500 0 0
GAM Arbitrage Investments, Inc. 22,500 * 22,500 0 0
AG Super Fund, L.P. 15,000 * 15,000 0 0
AG Super Fund International
Partners, L.P. 15,000 * 15,000 0 0
AG Long Term Super Fund, L.P. 15,000 * 15,000 0 0
Bronnum, Dwight B. 1,500 * 1,500 0 0
Bury, Lance T. 5,000 * 5,000 0 0
Enigma Investments 3,451 * 3,451 0 0
Hathorn, P. Bradford 5,000 * 5,000 0 0
Hopkins, Robert L. 1,500 * 1,500 0 0
Kendrick Family Partnership L.P. 32,987 * 32,987 0 0
Krusen, Charles 8,496 * 8,496 0 0
Swartz Family Partnership, L.P. 32,987 * 32,987 0 0
Vector Securities International, Inc. 57,193 * 57,193 0 0
</TABLE>
____________________________
* Less than one percent
(1) Represents shares of Common Stock that may be acquired upon exercise of
warrants.
PLAN OF DISTRIBUTION
The Company has been advised by each Selling Stockholder that the Selling
Stockholder may sell its Shares from time to time in transactions on the OTC
Bulletin Board in negotiated transactions, by writing options on the Shares or
by a combination of these methods, at fixed prices that may be changed, at
market prices at the time of sale, at prices related to market prices or at
negotiated prices. The Selling Stockholders may effect these transactions by
selling the Shares to or through broker-dealers, who may receive compensation in
the form of discounts, concessions or commissions from the Selling Stockholders
or the purchasers of the Shares for whom the broker-dealer may act as an agent
or to whom they may sell the Shares as a principal, or both. The compensation to
a particular broker-dealer may be in excess of customary commissions.
The Selling Stockholders and broker-dealers who act in connection with the
sale of the Shares may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commissions received by such broker-dealers and profits
on any resale of the Shares as a principal may be deemed to be underwriting
discounts and commissions under the Securities Act.
39
<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport
Beach, California.
EXPERTS
The financial statements of Cortex Pharmaceuticals, Inc. at June 30, 2000
and 1999 and for each of the two years in the period ended June 30, 2000
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
40
<PAGE>
[This page intentionally left blank]
41
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors.................................................................. F-2
Balance Sheets - As of June 30, 2000 and 1999................................................... F-3
Statements of Operations - For the the years ended June 30, 2000 and 1999....................... F-4
Statements of Stockholders' Equity - For the period from
June 30, 1998 through June 30, 2000............................................................ F-5
Statements of Cash Flows - For the years ended June 30, 2000 and 1999........................... F-6
Notes to Financial Statements................................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Stockholders and Board of Directors
Cortex Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of Cortex Pharmaceuticals, Inc.
(the "Company") as of June 30, 2000 and 1999, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cortex Pharmaceuticals, Inc. at
June 30, 2000 and 1999, and the results of its operations and its cash flows for
the years then ended, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
San Diego, California
July 21, 2000,
except for Note 12, as to
which the date is
October 13, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
Cortex Pharmaceuticals, Inc.
Balance Sheets
June 30, 2000 June 30, 1999
---------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,704,961 $ 909,337
Restricted cash 247,300 --
Other current assets 103,802 60,977
------------- -------------
Total current assets 3,056,063 970,314
Furniture, equipment and leasehold improvements, net 398,570 531,970
Other 33,407 46,737
------------- -------------
$ 3,488,040 $ 1,549,021
============= =============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 469,800 $ 523,474
Accrued dividends 25,988 23,513
Accrued wages, salaries and related expenses 89,551 67,497
Unearned revenue 302,085 98,584
Advance for Alzheimer's project 247,300 --
Current portion of note payable to Alkermes, Inc. -- 999,282
------------- ----------
Total current liabilities 1,134,724 1,712,350
Stockholders' equity (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: 37,500 (2000)
and 75,000 (1999) 21,703 43,405
Common stock, $0.001 par value; shares
authorized: 30,000,000; shares issued and
outstanding: 16,576,174 (2000) and
15,519,382 (1999) 16,575 15,519
Deferred compensation (92,000) --
Additional paid-in capital 41,637,793 38,811,100
Accumulated deficit (39,258,255) (39,060,853)
------------- ------------
Total stockholders' equity (deficit) 2,353,316 (163,329)
------------- ------------
$ 3,488,040 $ 1,549,021
============= ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
Cortex Pharmaceuticals, Inc.
Statements of Operations
Years ended June 30,
------------------------
2000 1999
------------------------------------------------------------------------
Revenues:
Research and license revenue $ 5,369,488 $ 3,051,406
Grant revenue 138,999 100,001
----------- -----------
Total revenues 5,508,487 3,151,407
----------- -----------
Operating expenses:
Research and development 3,896,627 3,379,732
General and administrative 1,814,632 1,401,602
----------- -----------
Total operating expenses 5,711,259 4,781,334
----------- -----------
Loss from operations (202,772) (1,629,927)
Interest income, net 5,370 8,477
----------- -----------
Net loss before preferred stock
accretion and dividends (197,402) (1,621,450)
----------- -----------
Preferred stock accretion and dividends:
Accretion of and dividends on 9% Cumulative
Convertible Preferred Stock 2,475 2,475
----------- -----------
Net loss applicable to common stock $ (199,877) $(1,623,925)
=========== ===========
Shares used in basic and diluted calculation 15,795,595 13,407,945
=========== ===========
Basic and diluted net loss per share $ (0.01) $ (0.12)
=========== ===========
See accompanying notes.
F-4
<PAGE>
Cortex Pharmaceuticals, Inc.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
9% Series B
convertible convertible Additional
preferred preferred Common paid-in Deferred Accumulated
stock stock stock capital compensation deficit
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1998 $ 35,000 $ 86,810 $10,237 $36,276,202 $ -- $(37,439,403)
Conversion of 7,500 shares of 9% preferred stock
into 999 shares of common stock (7,500) -- -- 7,500 -- --
Conversion of 75,000 shares of Series B preferred
stock into 7,359 shares of common stock -- (43,405) 7 43,398 -- --
Conversion of 250 shares of Series A preferred
stock into 5,272,398 shares of common stock -- -- 5,273 2,455,177 -- --
Adjustment of accrued dividends for conversion of
9% preferred stock -- -- -- 5,737 -- --
9% preferred stock dividends -- -- -- (2,475) -- --
Issuance of compensatory stock options -- -- -- 25,000 -- --
Issuance of 1,500 shares of common stock
upon exercise of stock options -- -- 2 561 -- --
Net loss and comprehensive loss -- -- -- -- -- (1,621,450)
----------- ---------- ------- ----------- ----------- ------------
Balance, June 30, 1999 27,500 43,405 15,519 38,811,100 -- (39,060,853)
Issuance of 496,459 shares of common stock
upon exercise of warrants -- -- 496 1,501,844 -- --
Issuance of 293,301 shares of common stock
upon exercise of stock options -- -- 303 113,049 -- --
Issuance of 254,353 shares of common stock to
Shire Pharmaceuticals Group, plc -- -- 254 826,586 -- --
Conversion of 37,500 shares of Series B preferred
stock into 3,679 shares of common stock -- (21,702) 3 21,699 -- --
Issuance of warrants to purchase 200,000 shares
of common stock -- -- -- 241,500 -- --
Issuance of stock options to consultants -- -- -- 92,000 (92,000) --
Extension of stock options previously granted
to former Chairman of the Board -- -- -- 32,490 -- --
9% preferred stock dividends -- -- -- (2,475) -- --
Net loss and comprehensive loss -- -- -- -- -- (197,402)
----------- ---------- ------- ----------- ----------- ------------
Balance, June 30, 2000 $ 27,500 $ 21,703 $16,575 $41,637,793 $ (92,000) $(39,258,255)
=========== ========== ======= =========== =========== ============
<CAPTION>
Total
----------------------------------------------------------------------
<S> <C>
Balance, June 30, 1998 $ (1,031,154)
Conversion of 7,500 shares of 9% preferred stock
into 999 shares of common stock --
Conversion of 75,000 shares of Series B preferred
stock into 7,359 shares of common stock --
Conversion of 250 shares of Series A preferred
stock into 5,272,398 shares of common stock 2,460,450
Adjustment of accrued dividends for conversion of
9% preferred stock 5,737
9% preferred stock dividends (2,475)
Issuance of compensatory stock options 25,000
Issuance of 1,500 shares of common stock
upon exercise of stock options 563
Net loss and comprehensive loss (1,621,450)
--------------
Balance, June 30, 1999 (163,329)
Issuance of 496,459 shares of common stock
upon exercise of warrants 1,502,340
Issuance of 293,301 shares of common stock
upon exercise of stock options 113,352
Issuance of 254,353 shares of common stock to
Shire Pharmaceuticals Group, plc 826,840
Conversion of 37,500 shares of Series B preferred
stock into 3,679 shares of common stock --
Issuance of warrants to purchase 200,000 shares
of common stock 241,500
Issuance of stock options to consultants --
Extension of stock options previously granted
to former Chairman of the Board 32,490
9% preferred stock dividends (2,475)
Net loss and comprehensive loss (197,402)
--------------
Balance, June 30, 2000 $ 2,353,316
==============
</TABLE>
See accompanying notes.
F-5
<PAGE>
Cortex Pharmaceuticals, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended June 30,
----------------------------
2000 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (197,402) $(1,621,450)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 172,764 197,662
Changes in operating assets/liabilities:
Accounts payable and accrued expenses 171,881 219,033
Other current assets (42,825) 10,589
Stock option compensation expense 32,490 --
Warrants issued for debt restructuring 241,500 --
Changes in other assets and other liabilities (185,952) 53,145
---------- -----------
Net cash provided by (used in) operating activities 192,456 (1,141,021)
---------- -----------
Cash flows from investing activities:
Purchase of fixed assets (39,364) (74,213)
---------- -----------
Net cash used in investing activities (39,364) (74,213)
---------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 2,442,532 563
Principal payments on note payable to Alkermes, Inc. (800,000) --
---------- -----------
Net cash provided by financing activities 1,642,532 563
---------- -----------
Increase (decrease) in cash and cash equivalents 1,795,624 (1,214,671)
Cash and cash equivalents, beginning of period 909,337 2,124,008
---------- -----------
Cash and cash equivalents, end of period $2,704,961 $ 909,337
========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 239,700 $ --
Supplemental schedule of non-cash investing and
financing activities:
Conversion of preferred stock to common stock $ 21,702 $ 2,517,093
Advance for Alzheimer's project 247,300 --
</TABLE>
See accompanying notes.
F-6
<PAGE>
Cortex Pharmaceuticals, Inc.
NOTES TO FINANCIAL STATEMENTS
Note 1 -- Business and Summary of Significant Accounting Policies
Business -- Cortex Pharmaceuticals, Inc. (the "Company") was formed to engage in
the discovery, development and commercialization of innovative pharmaceuticals
for the treatment of neurological and psychiatric disorders. Since its formation
in 1987, the Company has been engaged in research and early clinical development
activities. The Company previously reported its financial statements as a
development stage company.
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 5). The agreement will enable Organon to develop and commercialize
the Company's Ampakine(R) technology for the treatment of schizophrenia and, at
Organon's election, for the treatment of depression. In April 2000, the Company
entered into an option agreement with Shire Pharmaceuticals Group, plc ("Shire")
under which Shire will evaluate the use of the Company's Ampakine CX516 for the
treatment of Attention Deficit Hyperactivity Disorder (Note 6). Subsequent to
June 30, 2000, the Company entered into a research collaboration and exclusive
license agreement with Les Laboratoires Servier ("Servier"). The agreement will
enable Servier to develop and commercialize the Company's Ampakine technology
for the treatment of memory impairment associated with aging and
neurodegenerative diseases such as Alzheimer's disease (Note 12).
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. Competition for corporate partnering arrangements with major
pharmaceutical companies is intense, with a large number of biopharmaceutical
companies attempting to arrive at such arrangements. Accordingly, although the
Company is presently engaged in discussion with candidate companies, there can
be no assurance that an agreement will arise from these discussions in a timely
manner, or at all, or that any agreement that may arise from these discussions
will successfully reduce the Company's short or longer-term funding
requirements.
Cash Equivalents -- The Company considers all highly liquid short-term
investments with maturities of less than three months when acquired to be cash
equivalents.
Concentrations of Credit Risk -- Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash and cash
equivalents. The Company limits its exposure to credit loss by investing its
cash with high credit quality financial institutions.
Furniture, Equipment and Leasehold Improvements -- Furniture, equipment and
leasehold improvements are recorded at cost and are being depreciated on a
straight-line basis over the lesser of their estimated useful lives, ranging
from five to ten years, or the life of the lease, as appropriate.
Long-Lived Assets -- In accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," if
indicators of impairment exist, the Company assesses the recoverability of the
affected long-lived assets by determining whether the carrying value of such
assets can be recovered through the undiscounted future operating cash flows. If
impairment is indicated, the Company measures the amount of such impairment by
comparing the carrying value of the asset to the present value of the expected
future cash flows associated with the use of the asset. While the Company's
historical operating cash flow losses are indicators of impairment, the Company
believes that the future cash flows to be received from the long-lived assets
will exceed the assets' carrying value. Accordingly, the Company has not
recognized any impairment losses through June 30, 2000.
Net Loss per Share -- Net loss per share is computed based on the weighted
average number of common shares outstanding and includes preferred stock
dividends. Shares issuable upon conversion of preferred stock and upon exercise
of outstanding stock options and warrants are not included since the effects
would be anti-dilutive. For purposes of computing net loss per share, preferred
stock dividends include dividends that actually accrued and 'imputed dividends'
for preferred stock issued with a nondetachable beneficial conversion feature
near the date of issuance. Imputed dividends represent the aggregate difference
between conversion price and the fair market
F-7
<PAGE>
value of the common stock as of the date of issuance of the preferred stock,
without regard to the actual date upon which the preferred stock may be
converted.
Employee Stock Options -- The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25), in accounting for its employee stock options because the alternative fair
value accounting provided for under Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), requires use of
option valuation models that were not developed for use in valuing employee
stock options. According to APB 25, no compensation expense is recognized since
the exercise price of the Company's stock options generally equals the market
price of the underlying stock on the date of grant.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB 25." The Company is required to adopt the
Interpretation on July 1, 2000. The Interpretation requires that stock options
that have been modified to reduce the exercise price be accounted for as
variable. The Company has repriced stock options on December 22, 1998 and in
accordance with generally accepted accounting principles accounts for the
repriced stock options as fixed. As a result of adopting the Interpretation, the
Company will be required to apply variable accounting for these options.
Consequently, if the market price of the Company's stock increases, the Company
will recognize additional compensation expense that it otherwise would not have
incurred. However, the impact cannot be determined as it is dependent on the
change in the market price of the stock from July 1, 2000 until the stock
options are exercised, forfeited or expire unexercised.
Research and Development Costs -- All costs related to research and development
activities are treated as expenses in the period incurred.
Revenue Recognition -- The Company recognizes research revenue from the
collaboration with Organon (Note 5) as services are performed under the
agreement. The Company records grant revenues as the expenses related to the
grant projects are incurred. All amounts received under collaborative research
agreements or research grants are non-refundable, regardless of the success of
the underlying research. Revenues from the receipt of milestone payments are
recognized upon achievement of the milestone event.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"). SAB 101 provides
the SEC Staff's views in applying generally accepted accounting principles to
various revenue recognition issues and specifically addresses revenue
recognition for upfront, non-refundable fees received in connection with
research collaboration arrangements. It is the SEC's position that such fees
should be generally recognized over the term of the agreement. Effective July 1,
2000, the Company will adopt SAB 101. Such adoption is not expected to have a
material impact on the Company's historical financial statements.
Use of Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual amounts may differ from those
estimates.
New Accounting Standards -- Effective July 1, 2001, the Company will adopt SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
adoption of SFAS No. 133 is not anticipated to have an impact on the Company's
results of operations or financial condition, as the Company holds no derivative
financial instruments and does not currently invest in derivative instruments or
engage in hedging activities.
F-8
<PAGE>
Note 2 -- Furniture, Equipment and Leasehold Improvements
Furniture, equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
June 30,
-------------------------
2000 1999
-------------------------
<S> <C> <C>
Laboratory equipment $ 1,240,241 $ 1,216,266
Leasehold improvements 623,176 622,036
Furniture and equipment 115,909 112,129
Computers and software 273,382 262,913
----------- -----------
2,252,708 2,213,344
Accumulated depreciation (1,854,138) (1,681,374)
----------- -----------
$398,570 $ 531,970
=========== ===========
</TABLE>
Note 3 -- Redeemable Preferred Stock
Series A Convertible Preferred Stock ("Series A Preferred") originally consisted
of 400 shares issued in a two-tranche private placement in June 1997. As of June
30, 1999, all outstanding shares of Series A Preferred had been converted into
an aggregate of 6,105,276 shares of the Company's common stock at effective
conversion prices ranging from $0.30 to $2.17 per share of common stock. Imputed
dividends of $1,012,493 related to the private placement were recorded for the
year ended June 30, 1997.
Note 4 -- Stockholders' Equity
Preferred Stock
The Company has authorized a total of 5,000,000 shares of preferred stock, par
value $0.001 per share, of which 1,250,000 shares have been designated as 9%
Cumulative Convertible Preferred Stock (non-voting, "9% Preferred"); 3,200,000
shares have been designated as Series B Convertible Preferred Stock (non-voting,
"Series B Preferred"); 500 shares have been designated as Series D Convertible
Preferred Stock (non-voting, "Series D Preferred"); 400 shares have been
designated as Series A Convertible Preferred Stock (non-voting, "Series A
Preferred"); and 549,100 shares are presently undesignated and may be issued
with such rights and powers as the Board of Directors may designate.
The 9% Cumulative Convertible Preferred Stock as of June 30, 2000 and June 30,
1999 consisted of 27,500 shares of an original 1,250,000 shares of 9% Preferred
issued in a 1988 private placement. Each share of 9% Preferred is convertible
into approximately 0.1333 shares of common stock at an effective conversion
price of $7.50 per share of common stock, subject to adjustment under certain
circumstances, such as stock splits or stock dividends. Cash dividends on the 9%
Preferred accrue semi-annually on June 15th and December 15th at the rate of
$0.09 per share per annum. In order to conserve capital for operations, the
Company has elected not to distribute the dividends that have accrued from June
15, 1990. Upon conversion of 9% Preferred, accrued and unpaid dividends are
credited to additional paid-in capital. Accrued and unpaid dividends as of June
30, 2000 and June 30, 1999 were $25,988 and $23,513, respectively. The Company
may redeem the 9% Preferred at any time at a price of $1.00 per share, an amount
equal to its liquidation preference, upon not less than 30 nor more than 60
days' notice.
Series B Convertible Preferred Stock as of June 30, 2000 and June 30, 1999
consisted of 37,500 and 75,000 shares, respectively, of Series B Preferred
issued in a May 1991 private placement. Each share of Series B Preferred is
convertible into approximately 0.09812 shares of common stock at an effective
conversion price of $6.795 per share of common stock, subject to adjustment
under certain circumstances such as stock splits or stock dividends. The Series
B Preferred may be redeemed by the Company at a price of $0.6667 per share, an
amount equal to its
F-9
<PAGE>
liquidation preference, at any time upon 30 days' notice. The liquidation
preference of the Series B Preferred is subordinate to that of the 9% Preferred.
Series C Convertible Preferred Stock originally consisted of 160 shares issued
in a private placement in December 1995. As of June 30, 1997, all outstanding
shares of Series C Preferred had been converted into 1,517,611 shares of common
stock. The relative effective conversion prices ranged from $2.33 to $2.83 per
share, as computed in accordance with a formula that was indexed to the average
bid price of the Company's common shares.
Series D Convertible Preferred Stock originally consisted of 400 shares issued
in a three-tranche private placement initiated in October 1996 and completed in
February 1997. As of June 30, 1997, all outstanding shares of Series D Preferred
had been converted into an aggregate of 1,433,437 shares of the Company's common
stock. The effective conversion prices ranged from $2.06 to $3.35 per share, as
computed in accordance with a formula that was indexed to the average bid price
of the Company's common shares. During the year ended June 30, 1997, imputed
dividends aggregating $879,672 were recorded in connection with the three
tranches.
Common Stock and Common Stock Purchase Warrants
In connection with the December 1995 private placement of 160 shares of Series C
Preferred Stock, the Company issued to the placement agent for the transaction a
five-year non-redeemable warrant to purchase 106,195 shares of common stock at a
price of $2.825 per share, subject to adjustment under certain circumstances.
The warrants contain cashless exercise provisions and include piggyback
registration rights. During the year ended June 30, 2000, warrants to purchase
15,274 shares were converted into 8,459 shares of common stock. Warrants to
purchase 90,921 shares of common stock remained outstanding as of June 30, 2000.
In connection with the June 1997 private placement of 400 shares of Series A
Preferred Stock, the Company issued to the eleven participating institutional
investors four-year non-redeemable warrants to purchase an aggregate of 800,000
shares of common stock at a price of $3.08 per share, subject to adjustment
under certain circumstances. During the year ended June 30, 2000, warrants to
purchase 488,000 shares of Cortex common stock were exercised, resulting in
proceeds of $1,502,000. As of June 30, 2000, warrants to purchase 312,000 shares
of common stock remained outstanding.
In connection with the February 1998 restructuring of the note payable to
Alkermes, Inc. (Note 7), the Company issued to Alkermes a five-year warrant to
purchase 75,000 shares of common stock at an exercise price of $1.55 per share,
representing the average of the high and low sale prices of Cortex common stock
as of the date of the restructuring.
In connection with the July 1999 restructuring of the note payable to Alkermes,
Inc. (Note 7), the Company issued to Alkermes a five-year warrant to purchase
100,000 shares of common stock at an exercise price of $1.07 per share. As part
of the note payable restructuring, in December 1999 the Company issued to
Alkermes a five-year warrant to purchase 50,000 shares of common stock at an
exercise price of $0.76 per share. Because the note payable was extended beyond
February 2000, the Company issued to Alkermes a final five-year warrant to
purchase 50,000 shares of Cortex common stock at an exercise price of $3.02 per
share. The exercise prices for all warrants issued to Alkermes during the year
ended June 30, 2000 were derived from the fair market value of the Company's
common stock. The Company recorded expense of $241,500 for the estimated fair
value of the warrants issued during the year ended June 30, 2000.
As of June 30, 2000, the Company had reserved an aggregate of 3,667 shares of
common stock for issuance upon conversion of the outstanding 9% Preferred Stock;
3,679 shares for issuance upon conversion of the Series B Preferred Stock;
735,114 shares for issuance upon exercise of warrants; 1,854,479 shares for
issuance upon exercise of outstanding stock options; and 1,150,079 shares for
issuance upon exercise of stock options available for future grant.
F-10
<PAGE>
Stock Option and Stock Purchase Plans
Consultant Plan -- The Company's 1989 Special Nonqualified Stock Option and
Stock Purchase Plan provided for the granting by the Company of options and
rights to purchase up to an aggregate of 400,000 shares of the Company's
authorized but unissued common stock (subject to adjustment under certain
circumstances, such as stock splits, recapitalizations and reorganizations) to
consultants to the Company. The exercise price of nonqualified stock options and
the purchase price of stock offered under this plan, which terminated February
2, 1999, was at least 50% of the fair market value of the common stock on the
date of grant. As of June 30, 2000, options to purchase an aggregate of 2,000
shares of common stock were outstanding under this plan.
1996 Stock Incentive Plan -- The 1996 Plan provides for the granting of options
and rights to purchase up to an aggregate of 3,306,358 shares of the Company's
authorized but unissued common stock (subject to adjustment under certain
circumstances, such as stock splits, recapitalizations and reorganizations) to
qualified employees, officers, directors, consultants and other service
providers. No further options will be granted under the Company's earlier stock
option and stock purchase plans. The exercise price of nonqualified stock
options and the purchase price of stock offered under the 1996 Plan, which
terminates October 25, 2006, must be at least 85% of the fair market value of
the common stock of the date of grant. The exercise price of incentive stock
options must be at least equal to the fair market value of the common stock on
the date of grant. Each non-employee director (other than those who serve on the
Board of Directors to oversee an investment in the Company) is automatically
granted options to purchase 15,000 shares of common stock upon commencement of
service as a director and additional options to purchase 6,000 shares of common
stock on the date of each Annual Meeting of Stockholders. Non-employee directors
who serve on the Board of Directors to oversee an investment in the Company
receive options to purchase 7,500 shares of common stock upon commencement of
service as a director and additional options to purchase 3,000 shares of common
stock on the date of each Annual Meeting of Stockholders. These nonqualified
options have an exercise price equal to 100% of the fair market value of the
common stock on the date of grant, have a ten-year term and vest in equal
increments of 33 1/3% on the anniversary dates of the dates of grant. As of
June 30, 2000, options to purchase an aggregate of 1,852,479 shares of common
stock were outstanding under the 1996 Plan, and an additional 1,150,078 shares
of common stock were reserved for future option grants.
As of June 30, 2000, options to purchase an aggregate of 811,994 shares of
common stock were exercisable under the Company's stock option plans. During the
years ended June 30, 2000 and 1999 no options to purchase shares of common stock
were issued with exercise prices below the fair market value of the common stock
on the dates of grant.
Stock option transactions under the Company's stock option plans for each of the
two years in the period ended June 30, 2000 are summarized below:
<TABLE>
<CAPTION>
Weighted average
Number exercise price
of shares per share
-------------------------------
<S> <C> <C>
Outstanding as of June 30, 1998 994,646 $ 3.90
Granted 1,545,896 0.45
Exercised (1,500) 0.38
Forfeited (1,096,246) 3.63
----------
Outstanding as of June 30, 1999 1,442,796 $ 0.42
Granted 787,665 1.68
Exercised (302,301) 0.38
Forfeited (73,681) 0.77
----------
Outstanding as of June 30, 2000 1,854,479 $ 0.95
==========
Available for future grant 1,150,078
==========
</TABLE>
F-11
<PAGE>
Pro-Forma Information -- The Company has elected to continue accounting for its
employee stock options in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Under APB 25,
because the exercise price of the Company's employee stock options is equal to
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net loss and net loss per share is required by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), and has been determined as if the Company had
accounted for its employee stock plans under the fair value method. The fair
value was estimated at the date of grant using the Black-Scholes option pricing
model and the following assumptions for the years ended June 30, 2000 and 1999,
respectively: weighted average risk-free interest rates of 6.4% and 5.5%;
dividend yields of 0%; volatility factors of the expected market price of the
Company's common stock of 144% and 186%; and a weighted average life of 3.7
years and 3.0 years. The estimated weighted average fair value of options
granted during the years ended June 30, 2000 and 1999 was $1.43 and $0.40,
respectively.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
assumptions can materially affect the fair value estimate, in management's
opinion the existing models do not provide a reliable single measure of the fair
value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized as expense over the vesting period of the options, resulting in the
following pro forma information for the years ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
June 30,
2000 1999
---------------------
<S> <C> <C>
Pro forma net loss before preferred
stock accretion and dividends $547,237 $1,895,558
Pro forma net loss applicable to
common stock 549,712 1,898,033
Pro forma net loss per share $ (0.03) $ (0.14)
</TABLE>
The results above are not necessarily indicative of the effects of SFAS 123 on
reported net income or loss for future periods as these amounts reflect the
related expense for only two years of stock option vesting.
Information regarding stock options outstanding at June 30, 2000 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- ----------------------------------
Weighted
Number average Weighted Number Weighted
Range of outstanding remaining average exercisable average
exercise prices at June 30, 2000 contractual life exercise price at June 30, 2000 exercise price
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 0.34 - 0.47 872,133 7.0 years $ 0.40 577,834 $ 0.39
0.50 - 6.97 982,346 9.3 years 1.44 234,160 0.64
---------------- ----------------
1,854,479 811,994
================ ================
</TABLE>
F-12
<PAGE>
Note 5 -- 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 technology for the treatment of
schizophrenia and, upon Organon's election, for the treatment of depression.
In connection with the agreement with Organon, during the year ended June 30,
1999, the Company received an up-front payment of $2,000,000 and research
support payments of $1,150,000. During the fiscal year ended June 30, 2000, the
Company received further support of $3,443,000 and a milestone payment of
$2,000,000, which was triggered when Organon selected a compound to pursue in
Phase I clinical testing. The agreement includes research support payments of up
to $3,000,000 per research year for two years (subject to Cortex providing
agreed-upon levels of research), milestone payments, plus royalty payments on
worldwide sales. Subsequent to June 30, 2000, Cortex received $735,000 of
additional research support from the agreement. The remaining research support
payment is expected to approximate $550,000.
Note 6 -- Option Agreement with Shire Pharmaceuticals Group, plc
In April 2000, the Company entered into an option agreement with Shire
Pharmaceuticals Group, plc ("Shire") under which Shire will evaluate the use of
the Company's Ampakine CX516 for the treatment of Attention Deficit
Hyperactivity Disorder ("ADHD"). Under the terms of the agreement, Shire will
undertake a double-blind, placebo-controlled evaluation of CX516 in ADHD
patients. In exchange for the option, Cortex received $130,000 and issued
254,353 shares of common stock to Shire for $870,000. In addition, Shire will be
responsible for all costs associated with the clinical trial.
If the study proves effective, Shire has the right to convert its option into an
exclusive worldwide license for the Ampakines for ADHD under a development and
licensing agreement. Should Shire elect to execute this agreement, Shire will
bear all future developmental costs. Cortex would receive an upfront fee,
milestone payments based on successful clinical and commercial development,
research support for additional Ampakines and royalties on sales.
Note 7 -- Note Payable to Alkermes, Inc.
In January 1992, the Company entered into an agreement with Alkermes, Inc.
("Alkermes") for the development, clinical testing and commercialization of the
Company's calpain inhibitor products (the "Alkermes Agreement"). In connection
with the Alkermes Agreement, the Company granted Alkermes an exclusive worldwide
license to commercialize calpain inhibitor products for the prevention and
treatment of neurodegenerative diseases and disorders of the central and
peripheral nervous systems. The Company received an aggregate of $3,600,000 in
research payments under the Alkermes Agreement during the fiscal years ended
June 30, 1992 and 1993.
In November 1993, Alkermes filed an action alleging that the Company had
breached the Alkermes Agreement by developing calpain inhibitors for cerebral
vasospasm. In October 1995, the Company and Alkermes agreed to a settlement of
the dispute. Alkermes agreed to dismiss its action against the Company and to
relinquish all rights previously granted them by the Company, as well as rights
to related technologies developed by Alkermes. In connection with the
settlement, the Company issued to Alkermes a $1,000,000 three-year promissory
note accruing interest semi-annually at the federal funds rate. The Company also
committed to pay Alkermes a graduated royalty on calpain inhibitor development
proceeds, as defined and subject to certain limitations.
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 the
F-13
<PAGE>
consummation of a corporate partnership between Cortex and a larger
pharmaceutical company, whichever was earlier. In connection with the
restructuring agreement, the Company issued to Alkermes a five-year warrant to
purchase 75,000 shares of common stock at an exercise price of $1.55 per share,
representing the average of the high and low sale prices of Cortex common stock
as of the date of the restructuring. With the signing of the license agreement
with NV Organon (Note 5), 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
was due February 28, 2000. Interest on the unpaid balance accrued 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 issued to Alkermes a five-year
warrant to purchase 100,000 shares of common stock at an exercise price of $1.07
per share. Because the balance of principal and interest was not paid by
December 31, 1999, in accordance with the restructured terms, Cortex issued 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.
As agreed upon earlier, when the note was extended beyond February 28, 2000, the
Company issued to Alkermes a final five-year warrant to purchase 50,000 shares
of Cortex common stock at an exercise price of $3.02 per share. For all warrants
issued during the year ended June 30, 2000, the exercise prices were derived
from the fair market value of the Company's common stock for the 30-trading days
preceding the date of issuance. The Company recorded expense of $241,500 for the
estimated fair value of the warrants issued during the year ended June 30, 2000.
In March 2000, using the proceeds from the exercise of non-related warrants to
purchase shares of Cortex common stock, the Company paid Alkermes the remaining
balance of principal and accrued interest. The exercised warrants were
previously issued to investors in connection with the Company's June 1997
private placement of Series A preferred stock.
Note 8 -- Advance from the Institute for the Study of Aging
In June 2000, the Company received $247,300 from the Institute for the Study of
Aging (the "Institute") to fund testing of the Company's Ampakine CX516 in
patients with mild cognitive impairment ("MCI"). Patients with MCI represent the
earliest clinically-defined group with memory impairment beyond that expected
for normal individuals of the same age and education, but such patients do not
meet the clinical criteria for Alzheimer's disease. The Institute is a non-
profit foundation based in New York City and dedicated to the improvement in
quality of life for the elderly.
As the funding from the Institute must be used solely for the planned clinical
trials in MCI patients, Cortex has recorded the amounts received as restricted
cash in the Company's balance sheet. Provided that Cortex complies with the
conditions of the funding agreement, including the restricted use of the amounts
received, repayment of the advance shall be forgiven unless Cortex enters an
Ampakine into Phase III clinical trials for Alzheimer's disease. Upon such
potential clinical trials, repayment would include interest computed at a rate
equal to one-half of the prime lending rate. In lieu of cash, in the event of
repayment the Institute may elect to receive the outstanding principal balance
and any accrued interest thereon as shares of Cortex common stock. The
conversion price for such form of repayment shall initially equal $4.50 per
share, subject to adjustment under certain circumstances.
Note 9 -- Commitments
The Company leases its offices and research laboratories under an operating
lease that expires May 31, 2004. Rent expense under this lease for the years
ended June 30, 2000 and 1999 was $269,000 and $260,000, respectively.
Commitments under the lease for the years ending June 30, 2001, 2002, 2003 and
2004 are $262,000, $274,000, $358,000 and $343,000, respectively.
F-14
<PAGE>
As of June 30, 2000, the Company was obligated to an executive officer under an
employment agreement expiring in May 2003. The agreement involves annual salary
payments aggregating $255,000 and provides for bonuses under certain
circumstances. Additionally, in the event that the Company commercializes a
compound developed by or under the supervision of one of its senior scientific
employees, the Company may be obligated to pay the employee a royalty based on
net sales, as defined and subject to adjustment, of products containing the
compound. As of June 30, 2000, commitments under scientific consulting and
external research agreements for the years ending June 30, 2001, 2002, 2003,
2004 and 2005 aggregated $554,000, $346,000, $227,000, $58,000 and $58,000.
The Company has entered agreements with an academic institution that provide the
Company exclusive rights to certain of the technologies that the Company is
developing. Under the terms of the agreements, the Company is committed to
royalty payments. These payments include minimum annual royalties of $85,000 for
the year ending June 30, 2001 and for each year thereafter for the remaining
life of the patents covering the subject technologies. The agreements also
commit the Company to pay up to an additional $875,000 upon achieving certain
clinical testing and regulatory approval milestones, as well as a portion of
certain remuneration received by the Company in connection with sublicensing
agreements that the Company may enter into.
Note 10 -- Related Party Transactions
During the years ended June 30, 2000 and 1999, the Company paid or accrued
scientific and other consulting fees to stockholders aggregating $82,250 and
$78,417, respectively. Under certain circumstances, the Company is obligated to
make royalty payments to certain of its scientific consultants, some of whom are
stockholders, and to one employee, upon successful commercialization of certain
of its products by the Company or its licensees.
In connection with its services as placement agent in the 1993 private placement
of 2,750,000 shares of common stock, Vector Securities International, Inc.
("Vector") was paid a fee of $1,096,800 and was issued a five-year non-
redeemable warrant to purchase 274,200 shares of the Company's common stock at
$9.375 per share. In connection with Vector's assistance in reaching the
settlement with Alkermes (Note 7), this warrant was canceled and reissued as a
new warrant to purchase 363,113 shares of the Company's common stock at $3.47
per share, as adjusted and subject to further adjustment, at any time through
January 15, 2000. The value of this new warrant was computed utilizing the
Black-Scholes option pricing model. This warrant expired unexercised.
As consideration for its agreement to provide financial advisory services, as
amended and extended in November 1994, Vector was paid a retainer of $50,000 and
was issued a six-year non-redeemable warrant to purchase 57,193 shares of the
Company's common stock at $3.06 per share, subject to adjustment under certain
circumstances. Warrants to purchase 8,169 shares of the Company's common stock
vested immediately, and warrants to purchase 24,512 shares of the Company's
common stock vest upon the consummation of each strategic alliance when and as
secured by Vector.
Note 11 -- Income Taxes
The Company uses the liability method of accounting for income taxes as set
forth in Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." Under the liability method, deferred taxes are determined based
on differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates. As of June 30, 2000, the Company had
federal and California tax net operating loss carryforwards of approximately
$35,147,000 and $5,987,000, respectively. The difference between the federal and
California tax loss carryforwards is primarily attributable to the
capitalization of research and development expenses for California franchise tax
purposes and the fifty percent limitation on California loss carryforwards. The
California tax loss carryforwards will continue to expire in 2000 (approximately
$806,000 expired in 1999), while the federal carryforwards begin expiring in
2004. The Company also has federal and California research and development tax
credit carryforwards totaling $1,281,000 and $510,000, respectively, which will
begin to expire in 2004.
F-15
<PAGE>
Utilization of the net operating loss and tax credit carryforwards from the tax
years ended on or before June 30, 1992 is subject to an annual limitation of
approximately $1,500,000, due to ownership change limitations provided by the
Internal Revenue Code of 1986 and similar state provisions. If there should be
future changes of ownership, these annual limitations for utilization of net
operating loss and tax credit carryforwards may become more restrictive.
Pursuant to Internal Revenue Code Sections 382 and 383, use of the Company's net
operating loss carryforwards may be limited if a cumulative change in ownership
of more than 50% occurs within any three-year period since the last ownership
change.
Significant components of the Company's deferred tax assets as of June 30, 2000
and June 30, 1999 are shown below. The valuation allowance related to deferred
tax assets is $15,896,000 and $15,629,000 for the years ended June 30, 2000 and
1999, respectively. The increase in the valuation allowance for the year ended
June 30, 2000 of $267,000 is due principally to the increase in deferred tax
assets resulting from the increase in tax net operating loss carryforwards.
Deferred tax assets:
<TABLE>
<CAPTION>
June 30,
2000 1999
---------------------------
<S> <C> <C>
Net operating loss carryforwards $ 12,646,000 $ 12,299,000
Capital loss carryforwards 22,000 22,000
Research and development credits 1,613,000 1,436,000
Capitalized research and development costs 1,325,000 1,309,000
Settlement with Alkermes, Inc. -- 407,000
Depreciation 115,000 88,000
Other-net 175,000 68,000
------------ ------------
Net deferred tax assets 15,896,000 15,629,000
------------ ------------
Valuation allowance for deferred tax assets (15,896,000) (15,629,000)
------------ ------------
Total deferred tax assets $ -- $ --
============ ============
</TABLE>
Note 12 -- Research and License Agreement with Les Laboratoires Servier
In October 2000, the Company entered into a research collaboration and exclusive
license agreement with Les Laboratoires Servier. The agreement will enable
Servier to develop and commercialize Cortex's proprietary Ampakine technology
for the treatment of declines in cognitive performance associated with aging and
neurodegenerative diseases. The indications covered include, but are not limited
to, Alzheimer's disease, Mild Cognitive Impairment, sexual dysfunction, multiple
sclerosis and Lou Gehrig's disease. The territory covered by the exclusive
license excludes North America, allowing Cortex to retain commercialization
rights in its domestic market. The territory covered by the agreement also
excludes South America (except Argentina, Brazil and Venezuela), Australia and
New Zealand. The agreement includes an up-front payment by Servier of
$5,000,000, research support payments of up to $2,025,000 per year for three
years (subject to Cortex providing agreed-upon levels of research) and milestone
payments, plus royalty payments on sales in licensed territories.
F-16
<PAGE>
No person has been authorized in connection with the offering made hereby to
give any information or to make any representation not contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or the Selling
Stockholders. This Prospectus does not constitute any offer to sell or a
solicitation of an offer to buy any of the securities offered hereby to any
person or by anyone in any jurisdiction in which it is unlawful to make such
offer or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any date subsequent to the date
hereof.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary................................................................ 3
Risk Factors...................................................................... 6
Use of Proceeds................................................................... 11
Price Range of Common Stock....................................................... 11
Dividend Policy................................................................... 11
Capitalization.................................................................... 12
Selected Financial Data........................................................... 13
Management's Discussion and Analysis of Financial Condition and Results
of Operations.................................................................... 14
Business.......................................................................... 18
Management........................................................................ 28
Certain Transactions.............................................................. 34
Principal Stockholders............................................................ 35
Description of Securities......................................................... 36
Selling Stockholders.............................................................. 39
Plan of Distribution.............................................................. 39
Legal Matters..................................................................... 40
Experts........................................................................... 40
Index to Financial Statements..................................................... F-1
Report of Independent Auditors.................................................... F-2
Financial Statements.............................................................. F-3
</TABLE>
460,114 SHARES
CORTEX PHARMACEUTICALS,
INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
__, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law makes provision for the
indemnification of officers and directors in terms sufficiently broad as to
include indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Act"). The Restated Certificate of Incorporation of the Company
provides that the Company shall indemnify officers and directors to the fullest
extent permitted by statute.
In addition, as permitted by Section 102(b)(7) of the Delaware Corporation
Law, the Restated Certificate of Incorporation of the Company provides that a
director of the Company shall not be liable to the Company or its stockholders
for monetary damages for breach of the director's fiduciary duty of care.
However, as provided by Delaware law, such limitation of liability will not act
to limit liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for any acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) arising
under the provision of the Delaware General Corporation Law relating to unlawful
distributions, or (iv) for any transaction from which the director derived an
improper benefit.
The Company has entered into indemnification agreements with each of its
directors and its officers, which provide for the indemnification of directors
and the officers of the Company against any and all expenses, judgements, fines,
penalties and amounts paid in settlement, to the fullest extent permitted by
law.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses of this offering
(excluding commissions), none of which expenses are being paid by the security
holders. All of the amounts shown are estimates except the Securities and
Exchange Commission registration fee.
Amount
-------
SEC Registration Fee $ 4,095
Accounting Fees and Expenses 27,500
Legal Fees and Expenses 30,000
Miscellaneous 25,000
-------
$86,595
=======
Item 26. Recent Sales of Unregistered Securities
The following consists of information relating to unregistered securities
sold by the Company during the past three years.
1. In February 1998, the Company issued a warrant to purchase 75,000 shares of
Common Stock to Alkermes, Inc. in connection with the restructuring of a
promissory note.
2. In July 1999, the Company issued a warrant to purchase 100,000 shares of
Common Stock to Alkermes, Inc. in connection with the restructuring of a
promissory note.
3. In December 1999, the Company issued a warrant to purchase 50,000 shares of
Common Stock to Alkermes, Inc. in connection with the restructuring of a
promissory note.
II-1
<PAGE>
4. In February 2000, the Company issued a warrant to purchase 50,000 shares of
Common Stock to Alkermes, Inc., in connection the restructuring of a
promissory note.
5. Between February and March 2000, the Company issued an aggregate of 488,000
shares of Common Stock to five accredited investors on exercise of
privately placed warrants originally issued in June 1997. Aggregate
proceeds from such exercises were $1,502,000.
6. In April 2000, in connection with an option to license the Cortex Ampakine
technology, the Company issued 254,353 shares of Common Stock to Shire
Pharmaceuticals Group, plc in exchange for $870,000.
The foregoing sales of securities described above were made in reliance
upon the exemption from the registration provisions of the Securities Act of
1933 set forth in Section 4(2) thereof as transactions by an issuer not
involving any public offering. The Company has reason to believe that all of
the foregoing purchasers were familiar with or had access to information
concerning the operations and financial condition of the Company, and each of
the purchasers acquiring securities in exchange for cash consideration
represented that it was acquiring the shares for investment and not with a view
to the distribution thereof. At the time of issuance, all of the foregoing
shares of Common Stock were deemed to be restricted securities for purposes of
the Securities Act of 1933 and the certificates representing such securities
bear legends to that effect.
Item 27. Exhibits
Exhibit
Number Description
--------------------------------------------------------------------------------
3.1 Restated Certificate of Incorporation dated April 11, 1989, as amended
by Certificate of Amendment on June 27, 1989, by Certificate of
Designation filed April 29, 1991, by Certificate of Correction filed
May 1, 1991, by Certificate of Amendment of Certificate of Designation
filed June 13, 1991, by Certificate of Amendment of Certificate of
Incorporation filed November 12, 1992, by Certificate of Amendment of
Restated Certificate of Incorporation filed January 11, 1995, by
Certificate of Designation filed December 8, 1995, by Certificate of
Designation filed October 15, 1996, by Certificate of Designation
filed June 4, 1997, and by Certificate of Designation filed December
21, 1998.
3.2 By-Laws of the Company, as adopted March 4, 1987, and amended through
October 8, 1996, incorporated by reference to Exhibit 3.2 to the
Company's Annual Report on Form 10-KSB filed October 15, 1996.
5.1 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation, Counsel to the Registrant, incorporated by reference to
the same numbered Exhibit to the Company's Registration Statement on
Form SB-2, Number 333-29493, filed June 18, 1997.
10.2 Consulting Agreement, dated October 30, 1987, between the Company and
Carl W. Cotman, Ph.D. *
10.3 Consulting Agreement, dated as October 30, 1987, between the Company
and Gary S. Lynch, Ph.D. *
10.9 1989 Special Nonqualified Stock Option and Stock Purchase Plan. *
10.19 License Agreement dated March 27, 1991 between the Company and the
Regents of the University of California, incorporated by reference to
Exhibit 10.19 of the Company's Amendment on Form 8 filed November 27,
1991 to the Company's Annual Report on Form 10-K filed September 30,
1991. (Portions of this Exhibit are omitted and were filed separately
with the Secretary of the Commission pursuant to the Company's
application requesting confidential treatment under Rule 24b-2 under
the Securities Exchange Act of 1934).
II-2
<PAGE>
Exhibit
Number Description
--------------------------------------------------------------------------------
10.31 License Agreement dated June 25, 1993 between the Company and the
Regents of the University of California, incorporated by reference to
the Company's Amendment of Annual Report on Form 10-KSB/A filed
November 26, 1993. (Portions of this Exhibit are omitted and were
filed separately with the Secretary of the Commission pursuant to the
Company's application requesting confidential treatment under Rule
24b-2 of the Securities Exchange Act of 1934).
10.42 Amendment to 1989 Special Nonqualified Stock Option and Stock Purchase
Plan adopted December 13, 1993, incorporated by reference to Exhibit
4.8 of the Company's Registration Statement on Form S-8 filed January
28, 1994.
10.44 Lease Agreement, dated January 31, 1994, for the Company's facilities
in Irvine, California, incorporated by reference to Exhibit 10.44 of
the Company's Quarterly Report on Form 10-QSB filed May 16, 1994.
10.46 Amendment to 1989 Special Nonqualified Stock Option and Stock Purchase
Plan adopted December 1994, incorporated by reference to Exhibit 4.9
of the Company's Registration Statement on Form S-8 filed February 8,
1995.
10.48 Amendment to the Non-Employee Director Formula Grant Plan, adopted
December 15, 1994, incorporated by reference to the same numbered
Exhibit to the Company's Annual Report on Form 10-KSB filed October
13, 1995.
10.49 Settlement Agreement between the Company and Alkermes, Inc., dated
October 5, 1995, incorporated by reference to the same numbered
Exhibit to the Company's Annual Report on Form 10-KSB filed October
13, 1995. (Portions of this Exhibit are omitted and were filed
separately with the Secretary of the Commission pursuant to the
Company's Application requesting confidential treatment under Rule 406
of the Securities Act of 1933).
10.51 Warrant dated December 8, 1995, to purchase 106,195 shares issued to
Swartz Investments, Inc., incorporated by reference to Exhibit 4.3 of
the Company's Current Report on Form 8-K filed December 22, 1995.
10.53 Warrant dated November 29, 1994, to purchase 35,000 shares issued to
Vector Securities International, Inc., incorporated by reference to
the same numbered Exhibit to the Company's Pre- Effective Amendment
No. 1 to Post Effective Amendment No. 2 to Registration Statement on
Form SB-2, No. 33-71894, filed January 26, 1996.
10.56 Employment Agreement dated May 15, 1996, between the Company and
Vincent F. Simmon, Ph.D., incorporated by reference to the same
numbered Exhibit to the Company's Current Report on Form 8-K filed
June 4, 1996.
10.58 Amendment to 1989 Special Nonqualified Stock Option and Stock Purchase
Plan adopted December 12, 1995, incorporated by reference to Exhibit
4.10 of the Company's Registration Statement on Form S-8 filed
September 13, 1996.
10.60 1996 Stock Incentive Plan, incorporated by reference to the same
numbered Exhibit to the Company's Quarterly Report on Form 10-QSB
filed November 12, 1996.
10.62 Form of Warrant issued to each purchaser of Series A Preferred Stock,
incorporated by reference to the same numbered Exhibit to the
Company's Registration Statement on Form SB-2, No. 333-29493, filed
June 18, 1997.
II-3
<PAGE>
Exhibit
Number Description
--------------------------------------------------------------------------------
10.63 Registration Rights Agreement with holders of Series A Preferred
Stock, incorporated by reference to the same numbered Exhibit to the
Company's Registration Statement on Form SB-2, No. 333-29493, filed
June 18, 1997.
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.)
10.65 Amendment No. 1 to the Lease Agreement for the Company's facilities in
Irvine, California, dated February 1, 1999 incorporated by reference
to the same numbered Exhibit to the Company's Annual Report on Form
10-KSB filed September 28, 1999.
10.66 Option Agreement between the Company and Shire Pharmaceuticals Group,
plc dated April 20, 2000, incorporated by reference to Exhibit 10.66
of the Company's quarterly report on Form 10-QSB as filed on May 12,
2000. (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
Act of 1934.)
21 Subsidiaries of the Registrant, incorporated by reference to the same
numbered Exhibit to the Company's Registration Statement on Form SB-2,
No. 333-29493, filed June 18, 1997.
23.1 Consent of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation (included in the Opinion filed as Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, independent auditors.
24 Power of Attorney (included on Signature page).
27 Financial Data Schedule.
_______________________
* Incorporated by reference to the same numbered exhibit of the
Company's Registration Statement on Form S-1, No. 33-28284, effective
on July 18, 1989.
II-4
<PAGE>
Item 28. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered that remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
For purposes of determining any liability under the Securities Act, the
Registrant will treat the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant under Rule 424(b)(1), or (4) or
497(h) under the Securities Act as part of this registration statement as of the
time the Commission declared it effective; and will treat each post-effective
amendment that contains a form of prospectus as a new registration statement for
the securities offered in the registration statement, and that offering of the
securities at that time as the initial bona fide offering of those securities.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorizes this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Irvine, State of California, on the 27th day of
October, 2000.
CORTEX PHARMACEUTICALS, INC.
By: /s/ Vincent F. Simmon, Ph.D.
------------------------------------------
Vincent F. Simmon, Ph.D.
President and Chief Executive Officer
We, the undersigned directors officers of Cortex Pharmaceuticals, Inc., do
hereby constitute and appoint Vincent F. Simmon, Ph.D. and Maria S. Messinger,
acting singly, as our true and lawful attorney and agent, to do any and all acts
and things in our name and behalf in our capacities as directors and to execute
any and all instruments for us and in our names in the capacities indicated
below, which said attorney and agent may deem necessary or advisable to enable
said corporation to comply with the Securities Act of 1933, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement, including specifically, but
without limitation, power and attorney to sign for us or any of us in our names
and in the capacities indicated below, any and all amendments (including post-
effective amendments) hereto or any related registration statement that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended; and we do hereby ratify and confirm all that the said attorney and
agent shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Chairman of the Board October 27, 2000
---------------------------
Robert F. Allnutt and Director
* Director October 27, 2000
---------------------------
Charles J. Casamento
* Director October 27, 2000
---------------------------
Carl W. Cotman, Ph.D.
* Director October 27, 2000
---------------------------
Michael G. Grey
/s/ Maria S. Messinger Vice President, Chief October 27, 2000
---------------------------
Maria S. Messinger Financial Officer and Secretary
S-1
<PAGE>
/s/ Vincent F. Simmon, Ph.D. President and Chief October 27, 2000
------------------------------
Vincent F. Simmon, Ph.D. Executive Officer, Director
(Principal Executive Officer)
* Director October 27, 2000
-----------------------------
Davis L. Temple, Jr., Ph.D.
/s/ Vincent F. Simmon, Ph.D.
------------------------------
* Vincent F. Simmon, Ph.D.,
Attorney-in-fact
S-2
<PAGE>
Exhibit
Number Description
--------------------------------------------------------------------------------
3.1 Restated Certificate of Incorporation dated April 11, 1989, as
amended by Certificate of Amendment on June 27, 1989, by
Certificate of Designation filed April 29, 1991, by Certificate of
Correction filed May 1, 1991, by Certificate of Amendment of
Certificate of Designation filed June 13, 1991, by Certificate of
Amendment of Certificate of Incorporation filed November 12, 1992,
by Certificate of Amendment of Restated Certificate of
Incorporation filed January 11, 1995, by Certificate of Designation
filed December 8, 1995, by Certificate of Designation filed October
15, 1996, by Certificate of Designation filed June 4, 1997, and by
Certificate of Designation filed December 21, 1998.
3.2 By-Laws of the Company, as adopted March 4, 1987, and amended
through October 8, 1996, incorporated by reference to Exhibit 3.2
to the Company's Annual Report on Form 10-KSB filed October 15,
1996.
5.1 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation, Counsel to the Registrant, incorporated by reference
to the same numbered Exhibit to the Company's Registration
Statement on Form SB-2, Number 333-29493, filed June 18, 1997.
10.2 Consulting Agreement, dated October 30, 1987, between the Company
and Carl W. Cotman, Ph.D.*
10.3 Consulting Agreement, dated as October 30, 1987, between the
Company and Gary S. Lynch, Ph.D.*
10.9 1989 Special Nonqualified Stock Option and Stock Purchase Plan.*
10.19 License Agreement dated March 27, 1991 between the Company and the
Regents of the University of California, incorporated by reference
to Exhibit 10.19 of the Company's Amendment on Form 8 filed
November 27, 1991 to the Company's Annual Report on Form 10-K filed
September 30, 1991. (Portions of this Exhibit are omitted and were
filed separately with the Secretary of the Commission pursuant to
the Company's application requesting confidential treatment under
Rule 24b-2 under the Securities Exchange Act of 1934).
10.31 License Agreement dated June 25, 1993 between the Company and the
Regents of the University of California, incorporated by reference
to the Company's Amendment of Annual Report on Form 10-KSB/A filed
November 26, 1993. (Portions of this Exhibit are omitted and were
filed separately with the Secretary of the Commission pursuant to
the Company's application requesting confidential treatment under
Rule 24b-2 of the Securities Exchange Act of 1934).
10.42 Amendment to 1989 Special Nonqualified Stock Option and Stock
Purchase Plan adopted December 13, 1993, incorporated by reference
to Exhibit 4.8 of the Company's Registration Statement on Form S-8
filed January 28, 1994.
10.44 Lease Agreement, dated January 31, 1994, for the Company's
facilities in Irvine, California, incorporated by reference to
Exhibit 10.44 of the Company's Quarterly Report on Form 10-QSB
filed May 16, 1994.
10.46 Amendment to 1989 Special Nonqualified Stock Option and Stock
Purchase Plan adopted December 1994, incorporated by reference to
Exhibit 4.9 of the Company's Registration Statement on Form S-8
filed February 8, 1995.
10.48 Amendment to the Non-Employee Director Formula Grant Plan, adopted
December 15, 1994, incorporated by reference to the same numbered
Exhibit to the Company's Annual Report on Form 10-KSB filed October
13, 1995.*
EXH-1
<PAGE>
Exhibit
Number Description
--------------------------------------------------------------------------------
10.49 Settlement Agreement between the Company and Alkermes, Inc., dated
October 5, 1995, incorporated by reference to the same numbered
Exhibit to the Company's Annual Report on Form 10-KSB filed October
13, 1995. (Portions of this Exhibit are omitted and were filed
separately with the Secretary of the Commission pursuant to the
Company's Application requesting confidential treatment under Rule
406 of the Securities Act of 1933).
10.51 Warrant dated December 8, 1995, to purchase 106,195 shares issued
to Swartz Investments, Inc., incorporated by reference to Exhibit
4.3 of the Company's Current Report on Form 8-K filed December 22,
1995.
10.53 Warrant dated November 29, 1994, to purchase 35,000 shares issued
to Vector Securities International, Inc., incorporated by reference
to the same numbered Exhibit to the Company's Pre-Effective
Amendment No. 1 to Post Effective Amendment No. 2 to Registration
Statement on Form SB-2, No. 33-71894, filed January 26, 1996.
10.56 Employment Agreement dated May 15, 1996, between the Company and
Vincent F. Simmon, Ph.D., incorporated by reference to the same
numbered Exhibit to the Company's Current Report on Form 8-K filed
June 4, 1996.
10.58 Amendment to 1989 Special Nonqualified Stock Option and Stock
Purchase Plan adopted December 12, 1995, incorporated by reference
to Exhibit 4.10 of the Company's Registration Statement on Form S-8
filed September 13, 1996.
10.60 1996 Stock Incentive Plan, incorporated by reference to the same
numbered Exhibit to the Company's Quarterly Report on Form 10-QSB
filed November 12, 1996.
10.62 Form of Warrant issued to each purchaser of Series A Preferred
Stock, incorporated by reference to the same numbered Exhibit to
the Company's Registration Statement on Form SB-2, No. 333-29493,
filed June 18, 1997.
10.63 Registration Rights Agreement with holders of Series A Preferred
Stock, incorporated by reference to the same numbered Exhibit to
the Company's Registration Statement on Form SB-2, No. 333-29493,
filed June 18, 1997.
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.)
10.65 Amendment No. 1 to the Lease Agreement for the Company's facilities
in Irvine, California, dated February 1, 1999 incorporated by
reference to the same numbered Exhibit to the Company's Annual
Report on Form 10-KSB filed September 28, 1999.
10.66 Option Agreement between the Company and Shire Pharmaceuticals
Group, plc dated April 20, 2000, incorporated by reference to
Exhibit 10.66 of the Company's quarterly report on Form 10-QSB as
filed on May 12, 2000. (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 Act of 1934.)
21 Subsidiaries of the Registrant, incorporated by reference to the
same numbered Exhibit to the Company's Registration Statement on
Form SB-2, No. 333-29493, filed June 18, 1997.
23.1 Consent of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation (included in the Opinion filed as Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, independent auditors.
24 Power of Attorney (included on Signature page).
27 Financial Data Schedule.
______________________
* Incorporated by reference to the same numbered exhibit of the Company's
Registration Statement on Form S-1, No. 33-28284, effective on July 18, 1989.
EXH-2
