<PAGE>

                         SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, DC  20549
                                          
                                     FORM 10-Q
(Mark One)

[X]          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
             EXCHANGE ACT OF 1934

                    For the quarterly period ended June 30, 1998

                                         OR
                                          
[ ]          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
             EXCHANGE ACT OF 1934
             For the transition period from ________ to ________

                           Commission File Number 0-20954


                                   COCENSYS, INC.
                 (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
                                          
                                          
              DELAWARE                                 33-0538836
  (STATE OR OTHER JURISDICTION OF          (I.R.S. EMPLOYER IDENTIFICATION NO.)
   INCORPORATION OR ORGANIZATION)         

                        201 TECHNOLOGY DRIVE, IRVINE, CA  92618
             (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
                                          
                                   (949) 753-6100
                (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act 
of 1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days.

                                Yes    X     No  
                                    -------     -------

Indicate the number of shares outstanding of each of the issuer's classes of 
common stock, as of the latest practicable date.

           $.001 PAR VALUE                              24,664,378
       (CLASS OF COMMON STOCK)                 (OUTSTANDING AT AUGUST 6, 1998)

<PAGE>

                                   COCENSYS, INC.
                           (A development stage company)

<TABLE>
<CAPTION>
                                        
                                 TABLE OF CONTENTS
                                          
                                                                                 PAGE NUMBER
<S>                                                                              <C>
PART I.        FINANCIAL INFORMATION
               
                    ITEM 1.   FINANCIAL STATEMENTS.
               
               
                              Condensed Balance Sheets as of June 30, 1998
                              and December 31, 1997                                   3
               
                              Condensed Statements of Operations for the 
                              three and six-month periods ended June 30, 1998
                              and 1997 and the period from inception
                              (February 15, 1989) through June 30, 1998               4
               
                              Condensed Statements of Cash Flows for the 
                              six-month periods ended  June 30, 1998 and 1997 
                              and the period from inception (February 15, 1989)
                              through June 30, 1998                                   5
               
                              Notes to Condensed Financial Statements                 6
               
               
                    ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                              CONDITION AND RESULTS OF OPERATIONS.                   12

PART II.       OTHER INFORMATION
               
                    ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS              17

                    ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY
                              HOLDERS                                                17

                    ITEM 5.   OTHER INFORMATION                                      18

                    ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.                      18
 
 
SIGNATURES                                                                           20

</TABLE>


                                      2
<PAGE>

                                COCENSYS, INC.
                         (A development stage company)
                                          
                           CONDENSED BALANCE SHEETS
              (In thousands, except share and par value amounts)

<TABLE>
<CAPTION>

                                                     JUNE 30,      DECEMBER 31,
                                                       1998           1997
                                                     -------        -------
                                                   (Unaudited)
<S>                                                <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents                          $ 4,388        $ 3,410
  Short-term investments                              14,587          9,050
  Receivables from corporate partners                     20            414
  Other current assets                                   355            484
                                                     -------        -------
TOTAL CURRENT ASSETS                                  19,350         13,358


Property and equipment, net                            2,770          2,823
Investments                                              500            500
Other assets, net                                        219            235
                                                     -------        -------
                                                     $22,839        $16,916
                                                     -------        -------
                                                     -------        -------

LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                      $501           $866
  Other accrued liabilities                            1,044          1,911
  Accrued compensation and benefits                      490          1,107
  Deferred revenue                                     2,150              -
  Due to corporate partners                            1,498            747
  Capital lease obligation - current portion             393            353
                                                     -------        -------
TOTAL CURRENT LIABILITIES                              6,076          4,984


Capital lease obligation, less current portion           425            567
Other liabilities                                        530            534

Commitments and contingencies

Stockholders' equity:
  Preferred stock - $.001 par value,
    5,000,000 shares authorized; 208,000 shares 
    issued and outstanding at June 30, 1998 and
    214,286 at December 31, 1997                      16,530         13,000
Common stock - $.001 par value,
    75,000,000 shares authorized; 24,664,378 shares
    issued and outstanding at June 30, 1998 and 
    22,857,506 at December 31, 1997                  105,864         97,230
Deficit accumulated during the development stage    (106,227)       (98,983)
Deferred compensation                                   (345)          (430)
Accumulated comprehensive income                         (14)            14
                                                     -------        -------

TOTAL STOCKHOLDERS' EQUITY                           15,808          10,831
                                                     -------        -------
                                                     $22,839        $16,916
                                                     -------        -------
                                                     -------        -------

</TABLE>
                                      3
<PAGE>

                                   COCENSYS, INC.
                           (A development stage company)
                                          
                         CONDENSED STATEMENTS OF OPERATIONS
                      (In thousands, except per share amounts)
                                    (Unaudited)

<TABLE>
<CAPTION>

                                                                                                            PERIOD FROM
                                                                                                             INCEPTION
                                                                                                            (FEBRUARY 15,
                                                        THREE MONTHS ENDED          SIX MONTHS ENDED          1989) TO
                                                               JUNE 30,                  JUNE 30,             JUNE 30,
                                                        ------------------       --------------------
                                                          1998        1997         1998         1997           1998   
                                                        -------      ------       ------       ------       ---------
<S>                                                    <C>          <C>          <C>          <C>          <C>
REVENUES

Co-promotion revenues from corporate partners          $     -      $ 1,185      $   540      $ 2,308      $  30,705
Co-development revenues from corporate partners            425        6,247        1,021        6,949         17,714
                                                       --------     -------      -------      -------      ---------

Total revenues                                             425        7,432        1,561        9,257         48,419
                                                       --------     -------      -------      -------      ---------

OPERATING EXPENSES

Research and development                                 4,063        5,984        7,422       11,416         98,351
Marketing, general and administrative                      884        2,825        2,032        5,504         50,188
Acquired research and development                            -            -            -            -         14,879
                                                       --------     -------      -------      -------      ---------

Total operating expenses                                 4,947        8,809        9,454       16,920        163,418
                                                       --------     -------      -------      -------      ---------

OPERATING LOSS                                          (4,522)      (1,377)      (7,893)      (7,663)      (114,999)


Gain on disposition of sales division                      750            -          750            -          5,478
Interest income                                            232          189          434          408          4,887
Interest expense                                           (20)         (37)         (44)         (51)        (1,102)
                                                       --------     -------      -------      -------      ---------

NET LOSS                                                (3,560)      (1,225)      (6,753)      (7,306)      (105,736)

Dividends on preferred stock                               357            -          491            -            491
                                                       --------     -------      -------      -------      ---------

Net loss attributable to common shareholders           $(3,917)     $(1,225)     $(7,244)     $(7,306)     $(106,227)
                                                       --------     -------      -------      -------      ---------
                                                       --------     -------      -------      -------      ---------

Net loss per share                                     $ (0.16)     $ (0.05)     $ (0.31)     $ (0.33)
                                                       --------     -------      -------      -------
                                                       --------     -------      -------      -------

Shares used in computing net loss per share             23,740       22,519       23,318       22,391
                                                       --------     -------      -------      -------
                                                       --------     -------      -------      -------

</TABLE>



                                      4
<PAGE>

                                       COCENSYS, INC.
                                (A development stage company)
                                              
                             CONDENSED STATEMENTS OF CASH FLOWS
                                        (In thousands)
                                         (Unaudited)

<TABLE>
<CAPTION>
                                                                                                          PERIOD FROM
                                                                                                           INCEPTION
                                                                                    SIX MONTHS ENDED     (FEBRUARY 15,
                                                                                        JUNE 30,            1989) TO
                                                                                 ---------------------      JUNE 30,
                                                                                   1998          1997         1997  
                                                                                 --------     --------     -----------
<S>                                                                              <C>          <C>          <C>
OPERATING ACTIVITIES
Net loss                                                                         $(6,753)     $(7,306)     $(105,736)
Adjustments to reconcile net loss to net cash used in operating activities:
  Depreciation and amortization                                                      437          530          7,262
  Amortization of deferred compensation                                               86          142          3,693
  Issuance of stock and warrants for services                                        199            -          2,535
  Loss on sale of fixed assets                                                         -           12            100
  Gain on disposition of sales force                                                (750)           -         (5,478)
  Acquired research and development                                                    -            -         12,279
  Decrease (increase) in other current assets                                        129         (254)          (427)
  Decrease (increase) in receivable from corporate partner                           394            2            (20)
  Increase (decrease) in advances from corporate partners                            751         (295)         1,498
  Increase (decrease) in accounts payable and other accrued liabilities              146         (403)         2,912
                                                                                 --------     --------     -----------
NET CASH USED IN OPERATING ACTIVITIES                                             (5,361)      (7,572)       (81,382)
                                                                                 --------     --------     -----------

INVESTING ACTIVITIES
Decrease (increase) in short-term investments                                     (5,565)       1,766        (14,601)
Purchase of property and equipment                                                  (384)        (351)        (7,484)
Decrease (increase) in other assets and notes receivable from officers                16         (153)        (1,375)
Cash received on disposition of sales division                                       750            -          8,750 
Cash received on sale of fixed assets                                                  -            -             20
Increase in deferred costs                                                             -            -         (2,475)
Purchase of investments                                                                -            -           (500)
Acquisition of Acea Pharmaceuticals, net of cash acquired                              -            -            (62)
                                                                                 --------     --------     -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                               (5,183)       1,262        (17,727)
                                                                                 --------     --------     -----------

FINANCING ACTIVITIES
Net cash proceeds from issuance of common stock                                      154        2,291         61,399
Net cash proceeds from issuance of preferred stock                                11,320        5,000         40,701
Proceeds from sale/leaseback of fixed assets and notes payable                       150          529          5,385
Payments on capital lease obligations and notes payable                             (102)        (368)        (3,988)
                                                                                 --------     --------     -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                         11,522        7,452        103,497
                                                                                 --------     --------     -----------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                            978        1,142          4,388
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                   3,410        1,050              -
                                                                                 --------     --------     -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                       $ 4,388       $2,192         $4,388
                                                                                 --------     --------     -----------
                                                                                 --------     --------     -----------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid for interest                                                           $    44       $   39         $  864
                                                                                 --------     --------     -----------
                                                                                 --------     --------     -----------

</TABLE>


                                      5
<PAGE>

                                COCENSYS, INC.
                        (A development stage company)
                                          
                   NOTES TO CONDENSED FINANCIAL STATEMENTS
                                          
                                JUNE 30, 1998
                                (UNAUDITED)
                                          
                                          
1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Basis of Presentation

     CoCensys, Inc. ("CoCensys" or the "Company") is a biopharmaceutical 
     company dedicated to the discovery, development, marketing and sales of 
     small molecule drugs to treat neurological and psychiatric disorders.  
     The interim financial information for the three and six-month periods 
     ended June 30, 1998 and 1997 is unaudited but includes all adjustments 
     (consisting only of normal recurring entries) that the Company's 
     management of believes to be necessary for the fair presentation of the 
     financial position, results of operations and cash flows for the periods 
     presented.  The accompanying interim financial statements should be read 
     in conjunction with the financial statements and related notes included 
     in the Company's 1997 Annual Report on Form 10-K for the year ended 
     December 31, 1997.  Certain information and footnote disclosures normally 
     included in financial statements prepared in accordance with generally 
     accepted accounting principles have been condensed or omitted pursuant to 
     Securities and Exchange Commission rules and regulations.  Interim 
     results of operations for the three and six-month period ended June 30, 
     1998, are not necessarily indicative of operating results to be expected
     for the full year.

     REVENUE AND EXPENSE RECOGNITION
     
     See Notes 2, 3, 4, 5 and 6 for revenue recognition policies related 
     to co-promotion and co-development revenues from corporate partners.

     NET LOSS PER SHARE

     In 1997, Statement of Financial Accounting Standards No. 128, "Earnings per
     Share" ("SFAS 128"), replaced the calculation of primary and fully diluted
     earnings per share with basic and diluted earnings per share.  Unlike
     primary earnings per share, basic earnings per share excludes any dilutive
     effect of options, warrants and convertible securities.  All per share
     amounts for all prior periods have been presented and, where appropriate,
     restated to conform to the SFAS 128 requirements.

     Both basic and diluted loss per share are computed using the weighted
     average number of shares of common stock outstanding.  Common equivalent
     shares from stock options, warrants and convertible securities are excluded
     from the computation of diluted earnings per share, as their effect would
     be antidilutive.



                                      6
<PAGE>

                                COCENSYS, INC.
                        (A development stage company)
                                          
                   NOTES TO CONDENSED FINANCIAL STATEMENTS

     COMPREHENSIVE INCOME
     
     As of January 1, 1998, the Company adopted Statement of Financial
     Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). 
     SFAS 130 establishes new rules for the reporting and display of
     comprehensive income and its components; however, the adoption of this
     Statement had no impact on the Company's net income or stockholders'
     equity.  SFAS 130 requires unrealized gains and losses on available-for-
     sale securities, which prior to adoption were reported separately on
     stockholders' equity, to be included in other comprehensive income.  Prior
     financial statements have been restated to conform to the requirements of
     SFAS 130.  
     
     The components of comprehensive loss are as follows (in thousands):

<TABLE>
<CAPTION>

                                                                                         PERIOD FROM
                                                                                          INCEPTION
                                                                                         (FEBRUARY 15,
                                         THREE MONTHS ENDED         SIX MONTHS ENDED       1989) TO
                                              JUNE 30,                 JUNE 30,            JUNE 30, 
                                         ------------------         ----------------     ------------
                                           1998       1997          1998       1997         1998    
                                        -------      -------     --------     -------     ----------
<S>                                   <C>         <C>          <C>        <C>          <C>
Net loss                                $(3,560)     $(1,225)    $ (6,753)    $(7,306)    $(105,736)
Unrealized gain (loss) on investments         3          (37)         (28)         (3)         (14)
                                        -------      -------     --------     -------     --------
Comprehensive loss                      $(3,557)     $(1,262)    $ (6,781)    $(7,309)    $(105,750)
                                        -------      -------     --------     -------     --------
                                        -------      -------     --------     -------     --------
</TABLE>

     Pending Adoption of Financial Accounting Standards No. 131
     
     In June 1998, the Financial Accounting Standards Board issued Financial
     Accounting Standards No. 131, "Disclosures about Segments of and Enterprise
     and Related Information" (SFAS 131).  SFAS 131 establishes standards for
     the way that public business enterprises report information about segments
     in annual financial statements and requires that those enterprises report
     selected information about operating segments in interim financial reports.
     SFAS 131 also establishes standards for related disclosures about products
     and services, geographic areas and major customers.  SFAS 131 is effective
     for financial statements for fiscal years beginning after December 15,
     1997, and therefore the Company will adopt the new requirements effective
     with filing of the Annual Report on Form 10-K for the year ended December
     31, 1998.  Management has not completed its review of SFAS 131, but does
     not expect that it will have an impact on the Company's results of
     operations, financial position or cash flows.
     

2.   DISPOSITION OF SALES AND MARKETING DIVISION
     
     On October 8, 1997, the Company entered into an Asset Purchase Agreement
     (the "Agreement") to sell its sales and marketing division (the "Division")
     to Watson Laboratories, Inc. ("Watson"), a 


                                      7
<PAGE>

                                COCENSYS, INC.
                        (A development stage company)
                                          
                   NOTES TO CONDENSED FINANCIAL STATEMENTS

     wholly owned subsidiary of Watson Pharmaceuticals, Inc.  Under the terms 
     of the Agreement, Watson assumed the Division's co-promotion agreements, 
     acquired certain of its operating assets and obtained the right to hire 
     approximately 70 employees of the Division.  As consideration for these 
     assets, the Company received $8.0 million from Watson in October 1997 
     with up to $1.0 million more due to the Company if Watson retained, as of 
     specified future dates, certain percentages of the employees from the 
     Division.  Pursuant to this contingency arrangement, in April 1998, 
     Watson paid CoCensys $750,000.  An additional $250,000 is due to CoCensys 
     in October 1998 if certain retention percentages are met at that time.
          
     In order to satisfy certain provisions of the Agreement, the Company
     entered into, and transferred to Watson, agreements with two pharmaceutical
     companies for marketing rights and NDAs for two drugs with an aggregate
     cost of $2.0 million, of which the Company paid $1.0 million in October
     1997.  An additional $1.0 million is payable by the Company in future
     installments.  Pursuant to the Agreement, $1.0 million of the $8.0 million
     in proceeds from the sale of the Division was deposited into an escrow
     account to satisfy the Company's future obligations related to the
     acquisition of these marketing rights and NDAs.


3.   DEVELOPMENT AND COMMERCIALIZATION AGREEMENT WITH WYETH-AYERST LABORATORIES 
     
     In May 1997, the Company entered into a development and commercialization
     agreement for Co 2-6749, its lead anxiolytic compound, with the Wyeth-
     Ayerst Laboratories Division ("Wyeth-Ayerst") of American Home Products
     Corporation ("AHP").  Under the terms of the agreement, Wyeth-Ayerst paid
     CoCensys a non-refundable  $5.0 million licensing fee and AHP paid $5.0
     million to purchase 100,000 shares of the Company's Series C Convertible
     Preferred Stock.  Additionally, CoCensys will receive specified milestone
     payments dependent upon the achievement of key development events and
     $750,000 per quarter for up to three years to identify back-up compounds. 
     However, if Co 2-6749 fails to meet certain criteria, and the back-up
     program fails to produce a back-up compound that meets other certain
     criteria, Wyeth-Ayerst has the right to terminate the back-up program and
     require CoCensys to reimburse them for a portion of the back-up funding. 
     Accordingly, a portion of the back-up program funding has been recorded as
     deferred revenue and will be recognized as revenue when Co 2-6749 or a
     back-up compound meets applicable criteria for acceptance by Wyeth-Ayerst.
     
     Wyeth-Ayerst is responsible for the costs associated with developing Co 
     2-6749. The Company and Wyeth-Ayerst will co-promote any resulting 
     product in certain market segments in the United States, while 
     Wyeth-Ayerst will have rights to develop, register and market any drugs 
     derived from the collaboration in the rest of the world, subject to 
     royalty obligations to CoCensys.  The preferred stock is convertible into 
     common stock after May 12, 1999, at a conversion price based on the 
     market price of the common stock at that time (subject to certain minimum 
     and maximum limits).

                                      8
<PAGE>

                                COCENSYS, INC.
                        (A development stage company)
                                          
                   NOTES TO CONDENSED FINANCIAL STATEMENTS

4.   MARKETING AND DEVELOPMENT COLLABORATION WITH WARNER-LAMBERT COMPANY
     
     In October 1995, the Company entered into collaboration with 
     Warner-Lambert Company ("Warner-Lambert") and its Parke-Davis division to 
     develop and market therapeutic drugs for the treatment of certain central 
     nervous system disorders.  This arrangement consists of the Research, 
     Development and Marketing Collaboration Agreement (the "1995 Warner 
     Collaboration Agreement"), for the worldwide development and 
     commercialization of a new class of neurological and psychiatric drugs, 
     termed subtype selective NMDA receptor antagonists ("SSNRAs"), and the 
     Parke-Davis Promotion Agreement.  Pursuant to the Parke-Davis Promotion 
     Agreement, the Company co-promoted Parke-Davis' central nervous system 
     drug, Cognex-Registered Trademark-, until June 1997 when Parke-Davis 
     terminated the co-promotion agreement.  In addition, in October 1997, the 
     1995 Warner Collaboration Agreement was amended and extended until at 
     least October 1999 (the "amended Warner Collaboration Agreement").

     Under the amended Warner Collaboration Agreement, both companies share
     technology and resources to develop SSNRA candidates. Warner is obligated
     to pay for all costs to develop any development candidates arising from the
     Agreement, subject to CoCensys' right to re-engage in the development by
     funding a percentage of the development costs.  Warner is also obligated to
     pay for all costs to promote any product developed under the Warner
     Collaboration Agreement, subject to CoCensys' right to co-promote in the
     United States (including sharing of costs to promote) any product for which
     CoCensys re-engaged development rights.  CoCensys will receive royalties on
     sales of any products developed under the Warner Collaboration Agreement,
     at rates based in part upon whether CoCensys co-developed and co-promoted
     such product.  In addition, upon achievement of certain clinical
     development and regulatory milestones, Warner will make nonrefundable
     milestone payments to CoCensys.  Payments received under the amended Warner
     Collaboration Agreement are recognized as co-development revenues and
     payments made are recognized as expenses.
          
     Pursuant to the 1995 Warner Collaboration Agreement, Warner-Lambert
     purchased $2.0 million of CoCensys Common Stock in October 1995 and an
     additional $2.0 million of CoCensys Common Stock in March 1997.  
     
     In October 1997, in connection with the amended Warner Collaboration
     Agreement, Warner-Lambert purchased convertible preferred stock form the
     Company with a face value of $7.0 million. Warner-Lambert paid the Company
     $1.0 million of the $7.0 million total in October 1997 and $6.0 million in
     January 1998.  The Company allocated $1.6 million to be recognized as co-
     development revenue during fiscal 1998, $4.4 million as preferred stock and
     $1.0 million as a liability (payable in common stock) due to Warner-Lambert
     in January 1999.  The preferred stock accrues an imputed non-cash dividend
     at twelve percent per annum until its mandatory conversion date in October
     2001 and is convertible at the price of the common stock at the time of
     conversion (subject to a limit on the maximum number of shares that may be
     issued).  The Company may elect to force conversion at an earlier date at a
     price equal to the greater of the then current price or the price when
     issued.



                                      9
<PAGE>

                                COCENSYS, INC.
                        (A development stage company)
                                          
                   NOTES TO CONDENSED FINANCIAL STATEMENTS

5.   DEVELOPMENT AND COMMERCIALIZATION AGREEMENT WITH G.D. SEARLE & CO.
          
     In May 1996, the Company entered into an agreement with G.D. Searle & Co. 
     ("Searle") to co-develop and co-promote CCD 3693, the Company's lead 
     compound for the treatment of insomnia along with its back-up compounds.  
     Pursuant to the agreement, Searle paid a $3.0 million license fee and 
     purchased 100,000 shares of the Company's Series B Convertible Preferred 
     Stock for $7.0 million.  The license fee was recognized as co-development 
     revenue in 1996.  In May 1998, the Series B Convertible Preferred Stock 
     converted, in accordance with its terms, into 1.6 million shares of 
     common stock at a conversion price of $4.375 per share. 
               
     In July 1998, Searle notified CoCensys that it had decided not to
     participate further in the development of the Company's proprietary
     compounds for the treatment of insomnia.  CoCensys intends to continue
     research and development of its compounds to treat insomnia and will
     consider seeking a new partner for the program in the future.
          
     
6.   PROMOTION AGREEMENT WITH SOMERSET PHARMACEUTICALS, INC.
     
     In January 1996, the Company and Somerset Pharmaceuticals, Inc. 
     ("Somerset") entered into the Somerset Promotion Agreement, pursuant to 
     which the Company, through its sales and marketing division, promoted 
     Somerset's drug Eldepryl-Registered Trademark-to neurologists in the 
     United States for the treatment of Parkinson's disease.  Effective 
     January 1, 1997, the initial agreement was superseded by the 1997 
     Somerset Promotion Agreement.  Under the 1997 Somerset Promotion 
     Agreement, CoCensys had the exclusive right to detail Eldepryl to certain 
     neurologists and other physicians in the United States and was 
     compensated based upon the number of details undertaken and gross sales 
     of Eldepryl.  In October 1997 the Company sold its sales and marketing 
     division, and all related co-promotion agreements, to Watson.  In March 
     1998, the Company received and recognized a $540,000 bonus for 1997 sales 
     of Eldepryl.  The Company does not expect to receive any more payments 
     pursuant to the Somerset agreement.

7.   CYTOVIA LICENSING AGREEMENT
          
     In January 1998, the Company licensed certain non-core technology to
     Cytovia, Inc., a new company that will focus on the commercialization of
     patented drug screening technology, using living cells, in the area of
     apoptosis or programmed cell death.  In exchange, CoCensys received shares
     of common stock of Cytovia, will be entitled to receive certain royalties
     and will retain certain rights relating to the development of future
     therapeutic agents for central nervous system disorders.  As of June 30,
     1998, CoCensys' interest in Cytovia was less than twenty percent and is
     accounted for on a cost basis.



                                      10
<PAGE>

                                COCENSYS, INC.
                        (A development stage company)
                                          
                   NOTES TO CONDENSED FINANCIAL STATEMENTS

8.   Private Placement of Preferred Stock

     In June 1998, the Company raised $8.0 million through the private placement
     of convertible preferred stock.  The preferred stock is convertible into
     common stock on June 8, 2001, or earlier at the holder's option at a price
     based on the value of the common stock, subject to a maximum price of $3.93
     per share.  See Part II, Item 2, "Changes in Securities and Use of
     Proceeds," below.  The terms of the private placement included the issuance
     of warrants to purchase 350,000 shares of common stock at $4.50 per share,
     with additional warrants to be issued for 100,000 shares of common stock if
     investors hold a specified amount of preferred stock for at least five
     months following purchase.
     
     The preferred stock carries an annual dividend of 7.5 percent of the face
     value of the outstanding shares, subject to reductions in the dividend rate
     if the market price of Company's common stock increases to certain levels.
     Dividends are payable quarterly in cash or, at the election of the Company,
     by adding the amount of the dividend to the conversion value of the
     preferred stock.  Additionally, $390,000 of the $8.0 million in proceeds
     was allocated to the warrants and $890,000 was allocated to a beneficial
     conversion feature that allows investors to convert at 90% of the market
     price of the common stock after 120 days.  These two allocated amounts have
     been credited to additional paid in capital and will be treated as issuance
     discounts. Accordingly, the $390,000 and $890,000 will be amortized over
     three years and 120 days, respectively, in the form of additional preferred
     dividends.
   


                                      11
<PAGE>

                                 COCENSYS, INC.
                         (A development stage company)
                                          
                                          
ITEM 2.   Management's Discussion and Analysis of Financial Condition and 
          Results of Operations
                                          
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING 
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND 
UNCERTAINTIES.  THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY.  
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE 
NOT LIMITED TO, THOSE DISCUSSED BELOW AND IN THE COMPANY'S 1997 ANNUAL REPORT 
ON FORM 10-K.

OVERVIEW

CoCensys, Inc. is a biopharmaceutical company dedicated to the discovery, 
development, marketing and sales of small molecule drugs to treat 
neurological and psychiatric disorders.  The Company's product discovery and 
development programs are focused on the exploration of novel receptors and 
enzymes and their ligands and inhibitors through three technology platforms: 
GABAA receptor modulators named Epalons; glutamate receptor antagonists; and 
sodium channel blockers.

Since its inception in February 1989, the Company has devoted substantially 
all of its resources to the discovery and development of neuropharmaceutical 
products for the treatment of disorders affecting the central nervous system. 
The Company has incurred losses since inception and expects losses to 
continue for the foreseeable future, primarily due to the expansion of 
programs for research and development.  Operating results are expected to 
fluctuate as a result of uncertainty in the timing and amount of revenues to 
be earned from achievement of research and development milestones, and 
uncertainty in the timing and amount of expenses for product development, 
including clinical trials.  As of June 30, 1998, the Company's accumulated 
deficit was approximately $106.2 million.
                                          
RESULTS OF OPERATIONS
                                          
The Company recognized no co-promotion revenues for the three-month period 
ended June 30, 1998, and $540,000 for the six-month period ended June 30, 
1998, compared to $1.2 and $2.3 million during the same periods in fiscal 
1997.  In October 1997, the Company sold its sales and marketing division to 
Watson Pharmaceuticals, Inc. ("Watson") and is no longer involved in 
co-promotional activities. The 1998 co-promotion revenue is attributable to a 
bonus for fiscal 1997 activity that was received and recognized in March 1998.

The Company recognized $425,000 and $1.0 million in co-development revenues 
for the three and six-month periods ended June 30, 1998, respectively, 
compared to $6.2 and $6.9 million for the same periods in 1997.  In 1998, 
co-development revenues are primarily associated with the SSNRA 
(subtype-selective NMDA receptor antagonists) program with Warner-Lambert.  
In the second quarter of 1997, the Company recognized $5.8 million related to 
an agreement with Wyeth-Ayerst to co-develop the Company's anxiolytic 
compound.

Research and development expenses decreased to $4.1 and $7.4 million for the 
three and six-month periods ended June 30, 1998, respectively, from $6.0 and 
$11.4 million in the comparable periods of 


                                      12
<PAGE>

                                 COCENSYS, INC.
                         (A development stage company)

the prior year.  The decreases in expenses in the current year are 
attributable to a lower level of external clinical activity relative to a 
year earlier and cost savings that resulted from last year's organizational 
restructuring.  In the first half of 1997, the Company had ongoing clinical 
trials for epilepsy, migraine and stroke.  In the first half of 1998, the 
Company's clinical efforts were mainly focused on planning a Phase II 
clinical trial of ganaxolone in the treatment of migraine. This trial 
commenced in June 1998 and, accordingly, the Company expects research and 
development costs to increase during the second half of the year.

Marketing, general and administrative expense decreased to $884,000 and $2.0 
million in the three and six-month periods ended June 30, 1998, respectively, 
from $2.8 and $5.5 million in the comparable periods of the prior year.  
Results for the first half of 1997 include the costs of the sales and 
marketing division, which was sold in October 1997.

Gain on disposition of sales division was $750,000 for the three-month period 
ended June 30, 1998.  In April 1998, criteria based on Watson's ability to 
retain members of the sales and marketing division were met and Watson paid 
the Company the first of two contingent payments.  The second payment of 
$250,000 is due in October 1998, contingent upon attainment of additional 
specified criteria.

Interest income was $232,000 and $434,000 for the three and six-month periods 
ended June 30, 1998, respectively, compared to $189,000 and $408,000 for the 
same periods in fiscal 1997.  The increase is due to higher average cash and 
investment balances in the current year when compared to the same periods a 
year earlier. 

Preferred dividends were $357,000 and $491,000 for the three and six-month 
periods ended June 30, 1998, respectively, while there were no dividends 
declared in the comparable periods of the prior fiscal year.  The preferred 
dividends increase the carrying value of outstanding preferred stock and do 
not involve the payment of cash.

LIQUIDITY AND CAPITAL RESOURCES

From its inception in February 1989 through June 30, 1998, the Company has 
financed its operations primarily through private and public offerings of its 
equity securities, raising net proceeds of approximately $102.0 million.  At 
June 30, 1998, the Company's balances of cash, cash equivalents and 
investments totaled $19.5 million, compared to $13.0 million at December 31, 
1997. 

On June 8, 1998, the Company issued 8,000 shares of Series E Convertible 
Preferred Stock with a stated value of $1,000 per share for an aggregate of 
$8 million in a private placement pursuant to Regulation D of the Securities 
Act of 1933, as amended.  See Part II, Item 2 "Changes in Securities," below 
and Part I, Note 8 of the Notes to Condensed Financial Statements "Private 
Placement of Preferred Stock," above.

Since its inception in February 1989 through June 30, 1998, the Company had 
invested $7.5 million in leasehold improvements, laboratory and computer 
equipment and office furnishings and 


                                      13
<PAGE>

                                 COCENSYS, INC.
                         (A development stage company)


equipment.  The Company has financed $3.6 million of these capital additions 
through capital lease lines.  In addition, the Company leases its laboratory 
and office facilities under operating leases. While additional equipment will 
be needed as the Company increases its research and development activities, 
the Company has no material commitments for the acquisition of property and 
equipment.

Pursuant to an agreement with Watson, in October 1997, the Company sold it 
sales and marketing division, related co-promotion agreements and certain 
other assets to Watson for $8.0 million in cash with an additional $1.0 
million due to CoCensys contingent upon the occurrence of specified events.  
Of this contingent amount, Watson paid the Company $750,000 was in April 1998 
with the balance due in October 1998 subject to Watson's ability to retain a 
specified percentage of employees of the sales and marketing division.

Pursuant to the 1995 collaboration agreement with Warner-Lambert Company, as 
amended and extended in October 1997, Warner-Lambert is obligated to make 
certain milestone payments for each compound selected for development, as 
well as pay for its share of development costs.  Under the terms of the 1995 
agreement, Warner-Lambert purchased $2.0 million of CoCensys Common Stock in 
October 1995 and an additional $2.0 million of CoCensys Common Stock in March 
1997.  Under the terms of the 1997 amendment, Warner-Lambert purchased 
preferred stock with a face value of $7.0 million, of which Warner-Lambert 
paid the Company $1.0 million in October 1997 and $6.0 million in January 
1998.  Of this $7.0 million in total proceeds, the Company has allocated $1.6 
million to be recognized as co-development revenue during fiscal 1998, $4.4 
million as preferred stock and $1.0 million as a liability (payable in common 
stock) due to Warner Lambert in January 1999.  The preferred stock accrues an 
imputed non-cash dividend at 12 percent per annum until its mandatory 
conversion date in October 2001. 

Pursuant to the May 1997 Development and Commercialization Agreement with 
Wyeth-Ayerst, Wyeth-Ayerst paid the Company a $5.0 million license fee and 
purchased 100,000 shares of the Company's Series C Convertible Preferred 
stock for $5.0 million.  Furthermore, Wyeth-Ayerst is obligated to pay all 
development costs associated with Co 2-6749, as well as make milestone 
payments upon the occurrence of certain agreed upon events and pay the 
Company $3.0 million per year for up to three years to identify back-up 
compounds.  However, if Co 2-6749 fails to meet certain criteria, and the 
back-up program fails to produce a back-up compound that meets other certain 
criteria, Wyeth-Ayerst has the right to terminate the back-up program and 
require CoCensys to reimburse them for a portion of the back-up funding.

Pursuant to the Development and Commercialization Agreement G.D. Searle & 
Co., both companies were obligated to pay a portion of the development costs 
of CCD 3693 and its back-up compounds for the U.S. market.  In addition, 
Searle purchased 100,000 shares of the Company's Series B Convertible 
Preferred Stock for $7.0 million during 1996.  In May 1998, the preferred 
stock converted, in accordance with its terms, into 1.6 million shares of 
common stock at a conversion price of $4.375 per share.  In July 1998, Searle 
notified CoCensys that it had decided not to participate further in the 
development of the Company's proprietary compounds for the treatment of 
insomnia.  CoCensys intends to continue research and development of its 
compounds to treat insomnia and will consider seeking a new partner for the 
program in the future.



                                      14
<PAGE>

                                 COCENSYS, INC.
                         (A development stage company)

CoCensys' operations to date have consumed substantial amounts of cash.  The 
negative cash flow from operations is expected to continue and will likely 
increase over the foreseeable future, subject to the Company's ability to 
mitigate such negative cash flows with revenues, if any, derived from license 
fees and milestone payments from research and development collaborations for 
its proprietary products and additional sales of equity.  The Company 
anticipates that its existing capital resources, including funding expected 
to be available through current partner collaborations, will be adequate to 
satisfy its capital needs for at least the next 12 months.

The Company will need to obtain substantial additional funds to conduct the 
costly and time-consuming research, preclinical development and clinical 
trials necessary to bring its products to market.  The Company intends to 
seek additional funding through additional research and development 
collaborations with suitable corporate partners and/or through public or 
private financing. There can be no assurance that additional financings or 
suitable collaborations will be available on favorable terms, if at all.  
Insufficient funds may require the Company to delay, scale back or eliminate 
some or all of its research and product development programs or to license 
third parties to commercialize products or technologies that the Company 
would otherwise seek to develop itself. 

The Company's future capital requirements will depend on many factors, 
including the progress of the Company's research and development programs, 
the scope and results of preclinical testing and clinical trials, the time 
and costs involved in obtaining regulatory approvals, the rate of 
technological advances, determinations as to the commercial potential of the 
Company's products under development, the status of competitive products, the 
establishment of third-party manufacturing arrangements and the establishment 
of additional collaborative relationships. 

IMPACT OF YEAR 2000

Some of the Company's older computer programs were written using two digits 
rather than four to define the applicable year.  As a result, those computer 
programs recognize a date using "00" as the year 1900 rather than the year 
2000. This could cause a system failure or miscalculations causing 
disruptions of operations, including a temporary inability to process 
transactions or engage in normal business activities.

The Company has completed a preliminary assessment and will have to modify or 
replace portions of its software and hardware so that its computer systems 
will function properly with respect to dates in the year 2000 and thereafter. 
However, the majority of software and hardware used by the Company consists 
of commercially available, off-the-shelf programs and equipment that have 
already been modified, or are soon to be modified, by their manufacturers to 
handle the year 2000 correctly.  As such, management believes that the year 
2000 issue does not pose a significant problem for the Company and it is 
expected that this project will be completed not later than December 31, 1998 
at a total cost of less than $50,000.  The Company has incurred minimal costs 
to date.  However, if such modifications and conversions are not made, or are 
not completed timely, the year 2000 issue could have a material impact on the 
operations of the Company.  



                                      15
<PAGE>

                                 COCENSYS, INC.
                         (A development stage company)

Additional Risks

In addition to those discussed above, the Company is subject to the following 
risks:

The Company's products are in an early stage of development and face a high 
degree of technological, regulatory and competitive risks.  Drug discovery 
and development are capital intensive activities, and there can be no 
assurance the Company will be able to raise the additional capital necessary 
to develop and commercialize products.  The Company's strategy for the 
development, clinical testing and commercialization of its products includes 
entering into various collaborations with corporate partners, licensors, 
licensees and others.  There can be no assurance that the Company will be 
able to negotiate further collaborative arrangements on acceptable terms, if 
at all, or that the current collaborative efforts will be continued or 
successful.  Human clinical trials require considerable time and funding, and 
results from any stage of testing may not predict results of later stages.  
In addition, if results of any clinical trial fail to meet the Company's 
requirements, the study plan for such compound may be adjusted or another 
compound may be substituted, either of which may result in delays in future 
clinical studies.  Unfavorable clinical trials could result in cancellation 
of future clinical studies.  Inherent in the fact that CoCensys is an early 
stage biopharmaceutical company are a range of additional risks, including 
those associated with obtaining and enforcing patents and protecting 
proprietary technology and the risk of regulatory change, among others.

The securities markets have from time to time experienced significant price 
and volume fluctuations that may be unrelated to the operating performance of 
particular companies.  The market prices of the common stock of many publicly 
traded biopharmaceutical companies have in the past been, and can in the 
future be expected to be, especially volatile due to various external 
factors, including but not limited to, announcements of technological 
innovations or new products by the Company or its competitors, developments 
or disputes concerning patents or proprietary rights, publicity regarding 
actual or potential results relating to products under development, 
regulatory developments in both the United States and foreign countries and 
public concern as to the safety of biotechnology products.



                                      16
<PAGE>

                                 COCENSYS, INC.
                         (A development stage company)

PART II.  OTHER INFORMATION

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

   (c)  Recent Sales of Unregistered Securities.

   On June 8, 1998 (the "Closing Date"), the Company issued 8,000 shares 
   of Series E Convertible Preferred Stock with a stated value of $1,000 per 
   share (the "Preferred Stock") for an aggregate of $8 million in a private 
   placement.  The Preferred Stock was sold to three investors (the 
   "Investors"):  RGC International Investors, LDC; Themis Partners L.P.; and 
   Heracles Fund.  The issuance was exempt from registration pursuant to 
   Regulation D of the Securities Act of 1933, as amended.

   Each share of Preferred Stock is convertible into the number of shares of 
   the Company's common stock equal to (i) the stated value ($1,000) plus any 
   accrued and unpaid dividends on the date of conversion divided by (ii) the 
   "Conversion Price," which equals the lesser of (x) the average of the 
   three lowest trading prices during the fifteen trading day period ending 
   one trading day prior to the conversion, multiplied by 100% (until October 
   8, 1998) or 90% (after October 8, 1998), or (y) $3.93. 

   In connection with sale of the Preferred Stock, the Company granted to the
   Investors five-year warrants to purchase an aggregate of 350,000 shares of 
   Common Stock at $4.50 per share (the "Warrants").

   On July 8, 1998, the Company filed a registration statement with the 
   Securities and Exchange Commission on Form S-3 to register the resale of 
   the shares of common stock issuable upon conversion of the Preferred Stock 
   and exercise of the Warrants. 

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
     
   The Company held an Annual Meeting on Stockholders on June 10, 1998.
     
   The stockholders elected the Board's nominees as Class II directors by the
   votes indicated:

<TABLE>
<CAPTION>

     Nominee               Votes in Favor     VOTES WITHHELD
     -------               --------------     --------------
   <S>                      <C>                <C>
     Kelvin W. Gee, Ph.D.     16,669,286         102,738
     Robert L. Roe, M.D.      16,671,486         100,538
     Lowell E. Sears          16,671,486         100,538

</TABLE>

   A 200,000 share increase in the number of shares available for issuance
   under the Company's 1995 Employee Stock Purchase Plan was approved with
   15,582,892 votes in favor, 840,791 against and 152,649 abstentions.



                                      17
<PAGE>

                                 COCENSYS, INC.
                         (A development stage company)

     The selection of Ernst & Young, LLP as the Company's independent auditors
     was ratified with 16,579,392 votes in favor, 66,292 against and 126,340
     abstentions.

ITEM 5.   OTHER INFORMATION

     Pursuant to the Company's bylaws, stockholders must provide specified
     information to the Company by January 2, 1999 if such matters are to be
     brought before the stockholders at the Company's 1999 annual meeting of
     stockholders (unless such matters are included in the Company's proxy
     statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934,
     as amended).
     

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits

<TABLE>
<CAPTION>

                                                                          SEQUENTIAL
     EXHIBIT  DESCRIPTION                                                 PAGE START
     -------  -----------                                                 ----------
   <C>      <S>                                                            <C>
     4.1      Securities Purchase Agreement dated June 8, 1998,                *
              among the Company and the purchasers set forth therein.     

     4.2      Certificate of Powers, Designation, Preferences, Rights          *
              and Limitations of Series E Convertible Preferred Stock.    

     4.3      Form of Stock Purchase Warrant (Initial Warrants).               *

     4.4      Registration Rights Agreement dated June 8, 1998,                *
              among the Company and the purchasers set forth therein.     

     4.5      Form of Stock Purchase Warrant (Additional Warrants).            *

     27       Financial Data Schedule                                          **

   --------------------------

     *    Incorporated by reference to the Company's Current Report on Form 8-K
dated June 8, 1998.

     **   Filed with EDGAR version only.

</TABLE>

     (b) Reports on Form 8-K

     The Company filed a Form 8-K on June 22, 1998 reporting under Item 5 that
     on June 8, 1998, the Company issued 8,000 shares of Series E Convertible
     Preferred Stock with a stated value of $1,000 per share for an aggregate of
     $8 million in a private placement pursuant to Regulation D of the
     Securities Act of 1933, as amended.  See Part II, Item 2 "Changes in
     Securities," above.



                                      18
<PAGE>

                                 COCENSYS, INC.
                         (A development stage company)

     The Company filed a Form 8-K on August 5, 1998, reporting under Item 5 that
     G.D. Searle & Co. decided not to participate further in the development of
     CCD 3693, CoCensys' lead compound for the treatment of insomnia. 



                                      19
<PAGE>

                                 COCENSYS, INC.
                         (A development stage company)

                                  SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.





                                                       CoCensys, Inc.




 Date:    August 11, 1998               By: /s/  F. Richard Nichol, Ph.D.
        ---------------------              -----------------------------------
                                                  F. Richard Nichol, Ph.D.
                                               President and Chief Executive
                                                        Officer
                                               (PRINCIPAL EXECUTIVE OFFICER)


 Date:    August 11, 1998               By: /s/  Peter E. Jansen
        ---------------------              -----------------------------------
                                                 Peter E. Jansen
                                             Chief Financial Officer
                                        (PRINCIPAL FINANCIAL AND ACCOUNTING
                                                      OFFICER)


                                       20