<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
* QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
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OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2000
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_____ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ___________
Commission file number 0-17951
Cortex Pharmaceuticals, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 33-0303583
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15241 Barranca Parkway, Irvine, California, 92618
(Address of principal executive offices, including zip code)
(949) 727-3157
(Issuers's telephone number)
NOT APPLICABLE
----------------------------------
(Former name, former address and former fiscal year,
if changed since last year)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports); and (2) has been
subject to such filing requirements for the past 90 days.
YES * NO _____
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
16,583,358 shares of Common Stock as of November 10, 2000
Page 1 of 13
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CORTEX PHARMACEUTICALS, INC.
INDEX
<TABLE>
<CAPTION>
Page Number
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets -- September 30, 2000 and June 30, 2000.............................. 3
Statements of Operations -- Three months ended
September 30, 2000 and 1999......................................................... 4
Statements of Cash Flows -- Three months ended
September 30, 2000 and 1999......................................................... 5
Notes to Financial Statements....................................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Plan of Operation................................................................... 9
PART II. OTHER INFORMATION
Item 3. Defaults on Senior Securities....................................................... 13
Item 6. Exhibits and Reports on Form 8-K.................................................... 13
SIGNATURES......................................................................................... 13
</TABLE>
Page 2 of 13
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Cortex Pharmaceuticals, Inc.
Balance Sheets
<TABLE>
<CAPTION>
(Unaudited) (Note)
September 30, 2000 June 30, 2000
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,692,683 $ 2,704,961
Restricted cash 247,300 247,300
Other current assets 92,955 103,802
-------------- -------------
Total current assets 3,032,938 3,056,063
Furniture, equipment and leasehold improvements, net 379,043 398,570
Other 33,407 33,407
-------------- -------------
$ 3,445,388 $ 3,488,040
============== =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 530,607 $ 469,800
Accrued dividends 25,988 25,988
Accrued wages, salaries and related expenses 113,672 89,551
Unearned revenue 895,261 302,085
Advance for Alzheimer's project 250,237 247,300
-------------- -------------
Total current liabilities 1,815,765 1,134,724
Stockholders' equity:
9% cumulative convertible preferred stock, $0.001
par value; $1.00 per share liquidation preference;
shares authorized: 1,250,000; shares issued and
outstanding: 27,500 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 21,703 21,703
Common stock, $0.001 par value; shares authorized:
30,000,000; shares issued and outstanding:
16,582,758 (September 30) and 16,576,174 (June 30) 16,582 16,575
Deferred compensation (92,000) (92,000)
Additional paid-in capital 42,225,590 41,637,793
Accumulated deficit (40,569,752) (39,258,255)
-------------- -------------
Total stockholders' equity 1,629,623 2,353,316
-------------- -------------
$ 3,445,388 $ 3,488,040
============== =============
</TABLE>
See accompanying notes.
Note: The balance sheet as of June 30, 2000 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
Page 3 of 13
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Cortex Pharmaceuticals, Inc.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30,
------------------------------
2000 1999
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<S> <C> <C>
Revenues:
Research and license revenue $ 705,824 $ 767,889
Grant revenue 10,750 66,667
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Total revenues 716,574 834,556
Operating expenses:
Research and development expenses 1,230,732 751,800
General and administrative expenses 843,606 367,380
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Total operating expenses 2,074,338 1,119,180
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Loss from operations (1,357,764) (284,624)
Interest, net 46,267 (6,559)
------------- -------------
Net loss applicable to common shares $ (1,311,497) $ (291,183)
============= =============
Shares used in calculating per share, basic and diluted 16,580,318 15,522,252
============= =============
Net loss per share, basic and diluted $ (0.08) $ (0.02)
============= =============
</TABLE>
See accompanying notes.
Page 4 of 13
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Cortex Pharmaceuticals, Inc.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30,
------------------------------
2000 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,311,497) $ (291,183)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 35,115 46,835
Changes in operating assets/liabilities:
Accounts payable and accrued expenses 84,928 (64,052)
Unearned revenue 593,176 (5,390)
Other current assets 10,847 29,476
Stock option compensation expense 585,178 --
Changes in other assets and other liabilities 2,937 (196,922)
------------- -------------
Net cash provided by (used in) operating activities 684 (481,236)
------------- -------------
Cash flows from investing activities:
Purchase of fixed assets (15,588) (4,243)
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Net cash used in investing activities (15,588) (4,243)
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Cash flows from financing activities:
Proceeds from issuance of common stock 2,626 3,301
Principal payments on note payable to Alkermes, Inc. -- (137,888)
------------- -------------
Net cash provided by (used in) financing activities 2,626 (134,587)
------------- -------------
Decrease in cash and cash equivalents (12,278) (620,066)
Cash and cash equivalents, beginning of period 2,704,961 909,337
------------- -------------
Cash and cash equivalents, end of period $ 2,692,683 $ 289,271
============= =============
Supplemental disclosure of cash flow information:
Cash paid for interest $ -- $ 212,112
</TABLE>
See accompanying notes.
Page 5 of 13
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Cortex Pharmaceuticals, Inc.
Notes to Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended September 30, 2000
are not necessarily indicative of the results that may be expected for the year
ending June 30, 2001. For further information, refer to the financial statements
and notes thereto included in the Company"s 2000 Annual Report on Form 10-KSB.
Certain previously reported amounts have been reclassified to conform with the
September 30, 2000 presentation.
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 2). The agreement will enable Organon to develop and commercialize
the Company's Ampakine(R) 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 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 3).
Subsequent to September 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 5).
The Company is seeking collaborative arrangements with other pharmaceutical
companies for other applications of the AMPAKINE compounds, under which such
companies would provide additional capital to the Company in exchange for
exclusive or non-exclusive license or other rights to the technologies and
products that the Company is developing. Competition for corporate partnering
with major pharmaceutical companies is intense, with a large number of
biopharmaceutical companies attempting to arrive at such arrangements.
Accordingly, although the Company is in discussions with a number of candidate
companies, there is no assurance that an agreement will arise from these
discussions in a timely manner, or at all, or that an agreement that may arise
from these discussions will successfully reduce the Company's short or longer-
term funding requirements.
To supplement its existing resources, the Company may raise additional capital
through the sale of debt or equity. There can be no assurance that such capital
will be available on favorable terms, or at all. If additional funds are raised
by issuing equity securities, dilution to existing stockholders is likely to
result.
Page 6 of 13
<PAGE>
Revenue Recognition
The Company recognizes research revenue from collaborations as services are
performed under the agreements. 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 view in applying generally accepted accounting principles to
various revenue recognition issues and specifically addresses revenue
recognition for up-front, non-refundable fees received in connection with
research collaboration arrangements. It is the SEC's position that such fees
generally should be recognized over the term of the agreement. Effective April
1, 2001, the Company will adopt SAB 101 with no material impact on the Company's
historical financial statements. Adoption of SAB 101 is expected to impact the
Company's revenue recognition for the up-front fees received from the research
and collaboration agreements entered into with Les Laboratiores Servier
subsequent to September 30, 2000 (Note 5). Instead of recording the revenue from
the up-front payment when the agreement was executed, Cortex expects to
recognize the related revenues over the three-years of collaborative research
included in the agreement.
Employee Stock Options
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 Interpretation, which has been
adopted prospectively as of July 1, 2000, requires that stock options that have
been modified to reduce the exercise price be accounted for as variable. The
Company repriced certain stock options on December 22, 1998 by reducing the
exercise price to $0.375 per share, the then-current market price of the stock.
Under the Interpretation, the options are accounted for as variable from July 1,
2000 until the options are exercised, forfeited or expire unexercised. Prior to
the adoption of the Interpretation, the Company accounted for these repriced
stock options as fixed. Because the market price of the Company's stock
increased since July 1, 2000, the effect of adopting the Interpretation was to
increase the net loss for the quarter ended September 30, 2000 by $545,000, or
$0.03 per share.
New Accounting Standard
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.
Certain previously reported amounts have been reclassified to conform with the
September 30, 2000 presentation.
Note 2 -- Research and License Agreement with NV Organon
In January 1999, the Company entered into a research collaboration and exclusive
worldwide license agreement with NV Organon ("Organon"), a pharmaceutical
business unit of Akzo Nobel (The Netherlands). The agreement will enable Organon
to develop and commercialize the Company's proprietary AMPAKINE technology for
the treatment of schizophrenia and, upon Organon's election, for the treatment
of depression.
In connection with the agreement, the Company received an up-front license
payment of $2,000,000. The agreement also includes research support payments of
up to $3,000,000 per year for two years (subject to Cortex providing agreed-upon
levels of research). During the three months ended September 30, 2000, the
Company received the remaining scheduled research support from Organon of
$1,287,000. The Company achieved its first milestone from the agreement in May
2000, when Organon selected a candidate AMPAKINE compound to pursue in phase I
clinical testing. Achieving this milestone triggered a $2,000,000 payment to
Cortex from Organon. Based upon success of the clinical development, Cortex may
receive additional milestone payments, plus royalty payments on worldwide sales.
Page 7 of 13
<PAGE>
Note 3 -- 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 up-front fee,
milestone payments based on successful clinical and commercial development,
research support for additional Ampakines and royalties on sales.
Note 4-- 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 balance of outstanding
principal and accrued interest 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 5 -- 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, and the
dementia associated with 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.
Page 8 of 13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations; Plan of Operation
The following discussion and analysis should be read in conjunction with the
Financial Statements and Notes thereto appearing elsewhere in this report and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations; Plan of Operation" presented in the Company's 2000 Annual Report on
Form 10-KSB.
Introductory Note
This Quarterly Report on Form 10-QSB contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 and the Company intends that such forward
looking statements be subject to the safe harbors created thereby. These
forward-looking statements relate to (i) future research plans, expenditures and
results, (ii) potential collaborative arrangements, (iii) the potential utility
of the Company's proposed products and (iv) the need for, and availability of,
additional financing.
The forward-looking statements included herein are based on current
expectations, which involve a number of risks and uncertainties and assumptions
regarding the Company's business and technology. These assumptions involve
judgments with respect to, among other things, future scientific, economic and
competitive conditions, and future business decisions, all of which are
difficult or impossible to predict accurately and many of which are beyond the
control of the Company. Although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could prove inaccurate and, therefore, there can be no assurance that the
results contemplated in forward-looking statements will be realized and actual
results may differ materially. In light of the significant uncertainties
inherent in the forward-looking information included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be achieved.
Results of Operations
In January 1999, the Company entered into a research collaboration and exclusive
worldwide license agreement with NV Organon ("Organon"), a pharmaceutical
business unit of Akzo Nobel (The Netherlands). The agreement will allow Organon
to develop and commercialize the Company's proprietary Ampakine(R) technology
for the treatment of schizophrenia and, upon Organon's election, for the
treatment of depression. In connection with the agreement, the Company received
a $2,000,000 up-front licensing payment. The agreement includes research support
payments of up to $3,000,000 per year for two years (subject to Cortex providing
agreed-upon levels of research) and milestone payments, plus royalty payments on
worldwide sales. During the three months ended September 30, 2000, the Company
received the remaining scheduled research support from the agreement of
$1,287,000.
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.
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, and the
Page 9 of 13
<PAGE>
dementia associated with 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 September 30, 2000, the Company has
sustained losses aggregating $38,538,000. Continuing losses are anticipated over
the next several years, as the Company's ongoing operating expenses will only be
offset, if at all, by research support payments and possible milestone payments
from its research 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, Shire and Servier
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, Shire, Servier or its other prospective
partners to attain profitable operations from royalties or other product-based
revenues.
The net loss for the three-month period ended September 30, 2000 of $1,311,000
compares with a net loss of $291,000 for the corresponding prior year period.
The increased net loss includes $545,000 of non-cash charges for stock options
that were repriced in 1998. In accordance with Accounting Principles Board
Opinion No. 25, at the time of repricing, these options were recorded as fixed
and no expense was recorded. As required, during the quarter ended September 30,
2000, the Company adopted FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation, an interpretation of APB 25." Under
the Interpretation, the repriced options are accounted for as variable from July
1, 2000 until the options are exercised, forfeited or expire unexercised (Note
1). The increased net loss also includes costs for drug manufacturing and
expenses related to preparing a Notice of Claimed Investigational Exemption for
a New Drug ("IND").
Research and development expenses increased from $752,000 to $1,231,000, or by
64%, during the three-month period ended September 30, 2000 compared to the
corresponding prior year period. The increase includes $178,000 of non-cash
charges related to repriced stock options, as detailed above. Excluding these
non-cash charges, the increase in research expenses primarily includes costs of
manufacturing drug for use in planned clinical trials. In connection with the
option agreement signed with Shire in April 2000, Shire will conduct clinical
testing of the Ampakine CX516 in patients with Attention Deficit Hyperactivity
Disorder (Note 3). Shire's purchase of required study drug from the Company is
expected to partially offset the manufacturing costs recorded during the period.
The remaining increase in research expenses reflects costs for preparing an IND,
an executive-level bonus and an increase in sponsored research at the University
of California, Irvine.
For the three-month period ended September 30, 2000, general and administrative
expenses increased from $367,000 to $844,000, or by 130%, compared to the
corresponding prior year period. The increase includes $367,000 of non-cash
charges recorded in connection with repriced stock options, as mentioned above.
An increase in costs related to investor relations activities produced most of
the remaining variance.
The Company believes that inflation and changing prices have not had a material
impact on its ongoing operations to date.
Page 10 of 13
<PAGE>
Liquidity and Capital Resources; Plan of Operation
From inception (February 10, 1987) through September 30, 2000, Cortex has funded
its organizational and research and development activities primarily from the
issuance of equity securities, with net proceeds aggregating $38,519,000. Net
interest income from inception through September 30, 2000 was $1,753,000.
Research and licensing payments received in connection with the agreement with
Organon (Note 2) totaled $9,880,000 through September 30, 2000. Of this amount,
Cortex received $1,287,000 during the three months ended September 30, 2000,
which represented the remaining scheduled research support payments. Under the
terms of the agreement, the Company may also receive milestone payments based on
clinical development of the licensed technology and royalties on worldwide
sales.
As of September 30, 2000, the Company had cash and cash equivalents totaling
$2,693,000 and working capital of $1,217,000. In comparison, as of June 30,
2000, the Company had cash and cash equivalents of $2,705,000 and working
capital of $1,921,000. The decrease in working capital reflects the unearned
revenue recorded for the research support received from Organon, in advance.
The Company leases approximately 32,000 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 total $262,000, $274,000, $358,000 and $343,000,
respectively.
As of September 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 from June 1990.
Accrued and unpaid dividends as of September 30, 2000 were $25,988.
Over the next twelve months the Company is committed to $420,000 of funding for
sponsored research in academic laboratories. Remaining commitments for current
Phase I/IIa clinical studies on the Company's Ampakine compounds are not
significant. Together with its corporate partner, Servier, the Company is
planning to conduct a transnational clinical study with the Ampakine CX516 in
patients with mild cognitive impairment (MCI). Servier and Cortex expect to
share the related costs for this study, which is currently in the planning
phase.
As of September 30, 2000, Cortex had a total of 23 full-time research and
administrative employees. Neither significant increases to staffing nor
significant investments in plant or equipment are planned for the upcoming year.
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 Alzheimer's disease. In connection with the
agreement, Cortex received 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.
Page 11 of 13
<PAGE>
Cortex anticipates that its cash and cash equivalents, and the up-front payment
and research support payments from Servier, will be sufficient to satisfy its
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 (Note 3), the
negotiated agreement includes an up-front fee, 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.
In order to provide for both its immediate and longer-term spending
requirements, the Company is presently seeking additional collaborative or other
arrangements with larger pharmaceutical companies. Under these agreements, it is
intended that such companies would provide capital to the Company in exchange
for exclusive or non-exclusive license or other rights to certain of the
technologies and products that the Company is developing. Competition for such
arrangements is intense, however, with a large number of biopharmaceutical
companies attempting to secure alliances with more established pharmaceutical
companies. Although the Company 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 current or prospective corporate partners or licensees. There can be
no assurance that the Company's proposed products will prove to be safe or
effective or receive regulatory approvals that are required for commercial sale.
Page 12 of 13
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PART II. OTHER INFORMATION
Item 3. Defaults upon Senior Securities
In order to conserve capital for operations, the Board of Directors of the
Company elected not to distribute the semi-annual dividends that have accrued
from June 15, 1990 on the Company's 9% cumulative convertible preferred stock.
As of September 30, 2000, accrued and unpaid dividends on the 9% cumulative
convertible preferred stock were $25,988.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
--------------------------------------------------------------------
10.67 Collaborative Research, Joint Clinical Research and
Licensing Agreements with Les Laboratoires Servier
dated October 13, 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).
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 2000.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CORTEX PHARMACEUTICALS, INC.
November 14, 2000 By: /s/ Maria S. Messinger
--------------------------------------------
Maria S. Messinger
Vice President and Chief Financial Officer;
Corporate Secretary
(Chief Accounting Officer)
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