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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K







|x | Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2007
|- | --------------------------------------------------------------------------------------------------------------------------------

OR



| ̈ | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------

Commission file number 1-16467





Cortex Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 33-0303583                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)

15241 Barranca Parkway, Irvine, California, 92618

(Address of principal executive offices, including zip code)

(949) 727-3157

(Registrants telephone number, including area code)

Securities registered under Section 12(b) of the Act:



|                               |  |                                       
|------------------------------ |  | --------------------------------------
|Common Stock, $0.001 par value |  | The American Stock Exchange           
|(Title of Class)               |  | (Name of Exchange on which Registered)

Securities registered under Section 12(g) of the Act: None





Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act.    YES   ̈    NO  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.     YES   ̈    NO  x

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 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will
not be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer
or a smaller reporting company. See definition of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. Large accelerated filer   ̈ Accelerated filer  x Non-accelerated filer   ̈ Smaller reporting company   ̈

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    YES   ̈    NO  x

The aggregate market value of the voting stock
held by non-affiliates as of June 30, 2007 was $105,792,300 (based on the closing sale price of the common stock as reported by The American Stock Exchange on such date). As of March 10, 2008, there were 47,542,426 shares of the
registrants common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

PORTIONS OF THE REGISTRANTS DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 14, 2008 (TO BE FILED WITH THE COMMISSION ON OR
BEFORE APRIL 29, 2008) ARE INCORPORATED BY REFERENCE INTO PART III.











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TABLE OF CONTENTS



|                     |  |                                                                                                              |  |     
|-------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|                     |  |                                                                                                              |  | Page
|PART I               |  |                                                                                                             
|                     |  |                                                                                                             
|Item 1.              |  | Business                                                                                                     |  | 3   
|                     |  |                                                                                                             
|Item 1A.             |  | Risk Factors                                                                                                 |  | 18  
|                     |  |                                                                                                             
|Item 1B.             |  | Unresolved Staff Comments                                                                                    |  | 24  
|                     |  |                                                                                                             
|Item 2.              |  | Properties                                                                                                   |  | 25  
|                     |  |                                                                                                             
|Item 3.              |  | Legal Proceedings                                                                                            |  | 25  
|                     |  |                                                                                                             
|Item 4.              |  | Submission of Matters to a Vote of Security Holders                                                          |  | 25  
|                     | 
|PART II              |  |                                                                                                             
|                     |  |                                                                                                             
|Item 5.              |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 25  
|                     |  |                                                                                                             
|Item 6.              |  | Selected Financial Data                                                                                      |  | 27  
|                     |  |                                                                                                             
|Item 7.              |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 28  
|                     |  |                                                                                                             
|Item 7A.             |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 37  
|                     |  |                                                                                                             
|Item 8.              |  | Financial Statements and Supplementary Data                                                                  |  | 37  
|                     |  |                                                                                                             
|Item 9.              |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 37  
|                     |  |                                                                                                             
|Item 9A.             |  | Controls and Procedures                                                                                      |  | 37  
|                     |  |                                                                                                             
|Item 9B.             |  | Other Information                                                                                            |  | 40  
|                     | 
|PART III             |  |                                                                                                             
|                     |  |                                                                                                             
|Item 10.             |  | Directors, Executive Officers and Corporate Governance                                                       |  | 40  
|                     |  |                                                                                                             
|Item 11.             |  | Executive Compensation                                                                                       |  | 40  
|                     |  |                                                                                                             
|Item 12.             |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 40  
|                     |  |                                                                                                             
|Item 13.             |  | Certain Relationships and Related Transactions, and Director Independence                                    |  | 41  
|                     |  |                                                                                                             
|Item 14.             |  | Principal Accountant Fees and Services                                                                       |  | 41  
|                     | 
|PART IV              |  |                                                                                                             
|                     |  |                                                                                                             
|Item 15.             |  | Exhibits and Financial Statement Schedules                                                                   |  | 42  
|                     | 
|Signatures           |  | S-1                                                                                                         
|                     | 
|Financial Statements |  | F-1                                                                                                         



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In this Annual Report on Form 10-K, the terms Cortex, the Company,
we, us and our refer to Cortex Pharmaceuticals, Inc., a Delaware corporation.

INTRODUCTORY NOTE
REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K 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 (the Exchange Act) and we intend that such forward-looking statements be subject to the safe harbors created thereby. These
forward-looking statements, which may be identified by words including anticipates, believes, intends, estimates, expects, plans, and similar expressions include, but are not
limited to, statements regarding (i) future research plans, expenditures and results, (ii) potential collaborative arrangements, (iii) the potential utility of our proposed products and (iv) the need for, and availability of,
additional financing.

The forward-looking statements included herein are based on current expectations that involve a number of risks and
uncertainties. These forward-looking statements are based on assumptions regarding our business and technology, which involve judgments with respect to, among other things, future scientific, economic and competitive conditions, and future business
decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the assumptions underlying the forward-looking statements are reasonable, actual results may differ
materially from those set forth in the forward-looking statements. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as representation by
us or any other person that our objectives or plans will be achieved. We do not undertake and specifically decline any obligation to update any forward-looking statements or to publicly announce the results of any revisions to any statements to
reflect new information or future events or developments.

PART I

Item 1. Business

Our primary focus is to develop
novel small molecule compounds that positively modulate AMPA-type glutamate receptors, a complex of proteins involved in the communication between nerve cells in the mammalian brain. These compounds, termed AMPAKINE® compounds, enhance the activity of the AMPA receptor. These molecules are designed and developed as proprietary pharmaceuticals because we believe they hold promise for the treatment of
neurological and psychiatric diseases and disorders that are known, or thought, to involve depressed functioning of pathways in the brain that use glutamate as a neurotransmitter. Our most advanced clinical compound is CX717, which currently is in
Phase II clinical development.

The AMPAKINE platform addresses large potential markets. According to research data from IMS
Health, in 2006 worldwide sales for central nervous system products to treat brain-related disorders and diseases exceeded $82 billion. Our business plan involves partnering with larger pharmaceutical companies for research, development, clinical
testing, manufacturing and global marketing of specific AMPAKINE compounds for those indications that require sizable, expensive Phase III clinical trials  and very large sales forces to achieve significant market penetration.
Diseases such as Alzheimers disease, mild cognitive impairment (MCI), Attention Deficit Hyperactivity Disorder (ADHD), schizophrenia, depression, respiratory depression caused by opiate analgesics, and possibly sleep
apnea may benefit from treatment with AMPAKINE drugs and require such larger distribution.



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At the same time, we plan to develop compounds internally for a selected set of indications, many of
which will allow us to apply for Orphan Drug status. Such designation by the Food and Drug Administration (the FDA) is usually applied to products where the number of patients in the United States (U.S.) in the
given disease category is typically less than 200,000. The European Medicines Agency adopted a similar system termed The Regulation of Orphan Medicinal Products. These Orphan Drug indications typically require more modest investment in
the development stages, follow a quicker regulatory path to approval, and involve a more concentrated and smaller sales force targeted at selected medical centers in the U.S. and Europe. The key Orphan Drug indications that we plan to pursue
internally include (a) excessive daytime sleepiness due to narcolepsy, sleep apnea and shift work, (b) Huntingtons disease, (c) Amyotrophic Lateral Sclerosis, (d) Fragile X syndrome and (e) Rett syndrome.

We also may pursue other Orphan Drug indications and upon any related approval, may expand our clinical potential into non-Orphan Drug indications. As
an example, if we obtain approval for an indication related to Fragile X syndrome, expansion into treatment of autism-spectrum disorders may follow. While the market potential in the U.S. for most of the listed Orphan Drug indications varies between
$100 million and $500 million per indication, Cortex estimates that the consolidated potential for all indications that we may pursue, including expansion into non-Orphan Drug indications, provides us with a market potential of over $3 billion. This
amount does not include any revenues from any potential license of the Companys intellectual property. We will continue to seek one or more significant license or collaboration arrangements with larger pharmaceutical companies, while we
prepare ourselves for potential entrance into the pharmaceutical market with our own products. These arrangements may permit other applications of the AMPAKINE compounds to be advanced into later stages of clinical development and may
provide access to the extensive clinical trials management, manufacturing and marketing expertise of such companies.

While not an Orphan
Drug indication, the acute treatment of respiratory depression represents an additional market that we may potentially pursue internally. However, we will continue to evaluate related partnership opportunities for the indication. We believe that
pre-administration of an AMPAKINE compounds may prevent opiate-induced respiratory depression, while preserving the opiates pain relieving effects. As a result, an AMPAKINE compound may improve the safety margin
for giving powerful pain relievers following surgical procedures, and thereby provide a valuable tool for anesthesiologists and surgeons to optimize pain management in their patients. Recent research estimates that the treatment market for
respiratory depression, including use of an AMPAKINE compound as prevention or as a rescue therapy for respiratory depression, may exceed $1.2 billion in the U.S. alone.

In January 1999, we entered into a research collaboration and exclusive worldwide license agreement with NV Organon (Organon), at that time a
subsidiary of Akzo Nobel. The agreement grants Organon worldwide rights to develop and commercialize our AMPAKINE technology for the treatment of schizophrenia and depression. In November 2007, Organon was acquired by Schering-Plough
Corporation. Schering-Plough is currently in Phase II studies with two collaboration AMPAKINE compounds, ORG2448 and ORG26576.

In October 2000, we entered into a research collaboration agreement and a license agreement with Les Laboratoires Servier (Servier). The license agreement, as amended to date, will allow Servier to develop and commercialize up
to three AMPAKINE compounds selected at the end of the research collaboration in defined territories of Europe, Asia, the Middle East and certain South American countries as a treatment for (i) declines in cognitive performance
associated with aging, (ii) neurodegenerative diseases and (iii) anxiety disorders. The indications covered include, but are not limited to, Alzheimers disease, MCI, sexual dysfunction and anxiety disorders. The research
collaboration with Servier was terminated at the end of 2006, and as a result the worldwide rights for (a) treatment of declines in cognitive performance associated with aging, (b) neurodegenerative diseases, (c) anxiety disorders,
and (d) sexual dysfunction have been returned to us. While both the Organon and Servier research collaborations have ended, we remain eligible for milestone payments based upon defined clinical development milestones of the licensed compounds,
as well as royalties based upon potential commercialization under our licenses from both partners.



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For the years ended December 31, 2007, 2006 and 2005, our research and development expenses were
approximately $9,327,000, $13,262,000 and $11,361,000, respectively. Decreased expenses for 2007 primarily resulted from the earlier clinical hold of CX717 that was lifted in July 2007. Expenses for the year ended December 31, 2008 are
anticipated to increase from 2007 primarily due to an increase in clinical development expenses, including our Phase II studies of the acute treatment of respiratory depression with CX717 and the anticipated initiation of clinical development of
CX1739. Expenses for the year ended December 31, 2006 include costs for unanticipated toxicological studies required in response to the earlier clinical hold imposed on CX717 by the FDA at the end of March 2006. Most of those expenses had been
incurred as of December 31, 2006.

We face a number of risks in moving our technology through research, development and
commercialization. We have never had revenues from commercial sales, have never been profitable on an annual basis and have incurred net losses approximating $92,727,000 through December 31, 2007. We do not anticipate profitability in the short
term and will continue to require external funding, either from key corporate partnerships and licenses of our technology or from the private or public equity markets, debt from banking arrangements or some combination of these financing vehicles.
As of yet, neither we nor any of our corporate partners have obtained regulatory approval to market any of our products. All of these risks, and others, are described in Risk Factors starting on page 18.

Our executive offices are located at 15241 Barranca Parkway, Irvine, California 92618, and our telephone number is (949) 727-3157.

Our website is www.cortexpharm.com. We make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and all amendments to those reports as soon as practicable after such material is electronically filed with the Securities and Exchange Commission (the SEC).

AMPA Receptor Modulator Program

In June 1993, we
licensed a new class of molecules and technology, the AMPAKINE technology, from the University of California. We have subsequently been working to develop and patent new AMPAKINE molecules and to demonstrate efficacy
and safety in a number of potential indications.

AMPAKINE compounds facilitate the activity of the AMPA receptor, which is
activated by the neurotransmitter glutamate. The AMPAKINE compounds interact in a highly specific manner with the AMPA receptor, lowering the amount of neurotransmitter required to generate a response, and increasing the magnitude
and/or duration of the response to any given amount of glutamate. We believe that this selective amplification of the normal glutamate signal may eventually find utility in the treatment of neurological and psychological diseases and disorders
characterized by depressed functioning of brain pathways.

Our AMPAKINE technology is composed of two groups of compounds
that we have designated as low impact and high impact. Compounds from these two groups bind at different sites on the AMPA receptor complex and affect the response in different ways. Both types of compounds positively
modulate the AMPA receptor function; low impact compounds generally increase the amplitude of the neuronal action potential, while the high impact compounds increase both the amplitude and the half-width of the neuronal action potential.
Additionally, there is evidence that the high impact compounds activate the expression of certain genes in the neuron, including the production of neurotrophins such as Brain-Derived Neurotrophic Factor (BDNF). BDNF mediates the
differentiation and survival of neurons by providing the necessary trophic support, and modulates synaptic transmission and plasticity. We believe



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that this action of AMPAKINE molecules imparts these compounds with the potential for disease-modifying activity, since deficits in BDNF have
been observed in psychiatric diseases such as anxiety, depression, and ADHD, and neurodegenerative disease such as Alzheimers disease, Huntingtons disease, Parkinsons disease, and Retts syndrome.

The vast majority of excitatory synaptic connections in the brain utilize glutamate, and those synaptic connections decline with age. Thus, brain
disorders associated with aging may be amenable to treatment with AMPAKINE compounds. Such disorders include MCI, Alzheimers disease and Parkinsons disease. Schizophrenia, depression and other psychiatric disorders may
involve imbalances of neurotransmitters in the brain, such as dopamine, serotonin, acetylcholine and norepinephrine. Given that glutamate modulates many of these other neurotransmitters, it may play a role in the rebalancing of neurotransmission.

We continue to design, synthesize and test new AMPAKINE molecules. Significant progress has been made with both our
low impact and high impact programs, resulting in the filing of two and three, respectively, provisional patent applications in 2007. When and if these patents are granted, they will provide patent protection for our new
molecules through 2028.

Low Impact AMPAKINE Platform

Our most advanced low impact AMPAKINE compound is CX717, which is currently being tested in Phase II clinical trials. Several additional
compounds with improved potency over CX717 are in late-stage preclinical development. One of these, CX701, may be developed for veterinary use to prevent respiratory depression associated with analgesics and anesthetic agents. The additional
compounds, which include CX1739 and CX1763, are structurally different from the CX717 and CX701 series of molecules, and have been included in recently filed patent applications. Assuming no issues arise, the first compound that we plan to move into
clinical development during 2008 will be CX1739.

CX717

The Phase I safety trials provided evidence of safety for doses of up to 1,600 mg of CX717 in single doses and up to 800 mg of the drug given twice daily for ten (10) days in 104 human subjects. The
pharmacokinetic results to date from the volunteers who have taken CX717 show that the half-life of the drug averages 9 hours, and the amount of drug absorbed over the range of 25 mg to 1600 mg was linear and predictable. Very high plasma drug
levels were found in the volunteers, indicating an excellent absorption profile for the drug. CX717 exhibited an excellent safety profile in normal volunteers.

Several Phase II studies have been completed with CX717. These included two sleep deprivation studies and a study in adults with ADHD. A positron emission tomography (PET) scan study in Alzheimers
disease patients has restarted, and two Phase II studies are planned to start during the first quarter of 2008 to investigate the ability of CX717 to prevent respiratory depression induced by an opiate analgesic.

In the first sleep deprivation study, conducted in the United Kingdom (UK) in 2005, CX717 was evaluated for its effectiveness in ameliorating the
sleepiness and temporary cognitive impairment induced by overnight sleep deprivation. The study was a randomized, double-blind, placebo-controlled, four-way crossover trial of 16 male volunteers. Doses of 100 mg, 300 mg, and 1,000 mg and placebo
were tested. The primary finding, derived from results on the maintenance of wakefulness test and polysomnography, was that CX717 produced some stimulant activity at the highest doses and seemed to interfere with deep sleep and the ability to fall
asleep in a dose-dependent manner. Modest improvements in cognitive function with CX717 were best illustrated in the subjects who suffered a decline in their cognition as a result of the sleep deprivation. There were no serious adverse events or
clinically significant safety issues in the study. All doses of CX717 were well tolerated. Mild headache was the most common adverse event.



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The second sleep deprivation study was designed, funded and executed by the Defense Advanced Research
Projects Agency (DARPA). The study, conducted in 2006, assessed the effect of CX717 on cognitive performance and alertness across four nights of simulated night-shift work and restricted daytime sleep. The study was a randomized,
double-blind, placebo-controlled, parallel group study in healthy young adult male volunteers. Fifty subjects were assigned to one of three CX717 dose groups or placebo. The primary finding from the study was that CX717 did not enhance cognitive
performance relative to treatment with placebo. However, similar to the observations in the UK sleep deprivation study, CX717 did alter the recovery sleep architecture as measured by EEG polysomnography in a dose-related manner. CX717 was well
tolerated, and no serious adverse events or other significant safety concerns were observed. Differences in study design and study procedures may have contributed to some of the divergent results between the shift work simulation study and the UK
study.

In early 2006, we reported that a three-week treatment with CX717 reduced symptoms of ADHD in adult patients. Forty-nine patients
with ADHD completed the randomized, double-blind, placebo-controlled, two-way crossover design study. The primary outcome measure was the ADHD Rating Scale, which evaluates both the inattentiveness and hyperactivity symptoms. The overall ADHD Rating
Scale score showed positive statistical changes in the ADHD Rating Scale scores (p<0.002) in the 800 mg twice daily dose group of 22 patients and also statistically significant effects on the hyperactivity subscale (p<0.01) and the
inattentiveness subscale (p<0.03) compared to placebo. The 200 mg twice daily dose, tested in a group of 27 patients, did not show a significant effect. However, while the ADHD-RS values did not separate from the placebo values at the lower dose,
they did show a trend for improvements in the ADHD-RS as dosing progressed from week 1 to week 3. CX717 was well tolerated, and there were no serious adverse events or other significant safety concerns with either dose.

A Phase II positron emission (PET scan) study in Alzheimers patients was previously initiated in 2005. However, following the FDA-enforced clinical
hold for CX717 (described below), the study was temporarily stopped. Following the decision by the FDA in July 2007 that we can proceed again at all dose levels originally planned for this study, the study has been re-initiated. The pilot study
design is a randomized, double-blind, study using placebo and two dose levels to assess the efficacy and safety of single administrations of CX717 on measures of regional cerebral blood flow and cognitive function in a population of patients with
Alzheimers disease and matched normal elderly volunteers.

Two additional
Phase II studies have been approved by the German Federal Institute for Drugs and Medical Devices, or BfArM (the German regulatory agency) for initiation during first quarter of 2008. These studies will examine the effect of CX717 on the respiratory
depression induced by the opiate agonist, alfentanil. The first study is a single dose, randomized, double-blind, placebo-controlled, two-period crossover design in 16 healthy subjects. The primary study objective is to determine if CX717 can
prevent respiratory depression while preserving the underlying desired analgesic effect of alfentanil. Currently available opioid reversal agents, such as naloxone (Narcan®), also eliminate
the analgesic effect of opioids, which is a major drawback.

The second study is a single dose, randomized, double-blind,
placebo-controlled, two-period crossover design in 24 (8 subjects/dose) healthy subjects. Three different doses of CX717 will be assessed in this study, with the objective to determine an optimal dose for the prevention of respiratory depression in
humans. We anticipate preliminary results from the one study by the end of the second quarter 2008 and the other by early in the third quarter 2008.

Regulatory Issues with CX717

In late March 2006 the Neurology Division of the FDA notified us that it was placing CX717 on
clinical hold due to concerns related to some preclinical animal toxicology data. After submitting a response to the Agency in September 2006, the clinical hold was lifted in October 2006, but the FDA limited the approved dosage levels of the
compound. Those dosing limitations impacted our plans to



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conduct further clinical testing of CX717. We submitted additional data to the Neurology Division in April 2007 that demonstrated that the animal toxicity
issues were postmortem, fixative-induced effects. In July 2007, the Neurology Division removed the dosing restrictions, and allowed us to resume our clinical trial with CX717 in Alzheimers disease at all dose levels requested prior to the hold
being placed on the compound.

Shortly thereafter, in September 2007 we submitted a Notice of Claimed Investigational Exemption for a New
Drug (IND) to the Division of Psychiatry Products of the FDA to allow us to proceed with longer term human clinical studies of CX717 for ADHD. In October 2007, the Division rejected our IND application. At this time, we do not anticipate submitting
further data to the Agency for CX717 as a treatment for ADHD, but we continue to advance additional preclinical AMPAKINE compounds that may be a potential therapy for such indication.

The data developed during the additional toxicology studies conducted during 2006 and 2007 clearly demonstrated that the postmortem artifacts could not
be developed during short dosing periods with CX717, but only were found after chronic dosing at very high dose levels in animals. We believe that by developing an acute use for CX717 we can mitigate any perceived risks associated with chronic doses
of the compound. The risk/benefit ratio for the treatment of patients with life-threatening disorders, such as respiratory depression, is significantly different than that for the treatment of ADHD. In addition, our preclinical data for improvement
of memory and cognition in animals consistently indicates required dose levels of CX717 that represent a 5 to 10-fold level less than the dose required in animal models of ADHD. Either lower dosage levels for chronic administration and/or acute uses
are thus possible options for the continued development of CX717.

High Impact AMPAKINE Platform

We have made significant progress with our high impact program during the last 12 months. The most advanced compound, CX1837 is currently
undergoing preclinical testing. Assuming all tests are positive, we plan to move the compound into toxicology testing in late 2008. Several compounds have been tested in animal behavioral models. In genetic mouse models that have shown
Huntingtons-like disease, the high impact molecule CX929 has demonstrated potential to restore depressed levels of the growth factor BDNF, and improve deficits in a process known as hippocampal long-term potential, a cellular mechanism thought
to underlie learning and memory. Furthermore, treating these mice with CX929 also has demonstrated an improvement in motor deficits that occur in untreated mice. This preclinical data therefore suggests that high impact AMPAKINE
molecules might have beneficial effects in Huntingtons disease patients.

We have also looked at the effect of
AMPAKINE molecules on two different genetically altered mouse models of central nervous system disease: Rett syndrome and Fragile X syndrome. The Rett syndrome mice exhibit many of the same characteristics as the disease that occurs
in girls. One aspect of the disease, the irregular breathing patterns with bouts of apnea, is a disturbing aspect of the disease in patients, and is also seen in the genetically altered mice. We have found that AMPAKINE molecules can
restore the breathing pattern to a more normal, regular breathing pattern in those mice. The other genetically altered mouse model exhibits many of the characteristics of Fragile X. The current data that has been generated in these mice suggests
that AMPAKINE molecules such as CX929 augment levels of the growth factor BDNF, which could be valuable for correcting abnormalities in dendritic spines and synaptic function associated with Fragile X syndrome.

See Risk Factors  Risks related to our business We are at an early stage of development and we may not be able to successfully
develop and commercialize our products and technologies on page 20 for a discussion of certain risks related to the development and commercialization of our products, including, without limitation, risks related to our clinical trials.



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Potential Applications for AMPAKINE Compounds

ADHD

ADHD is a common psychiatric disorder in
both children and adults. The National Institute of Mental Health (NIMH) estimates that ADHD affects three to five percent of school-age children, with about one child in every classroom in the U.S. in need of help for this disorder.
ADHD is characterized by inattentiveness, poor impulse control and hyperactivity. The disorder was historically thought of as a childhood illness. Longitudinal studies however have documented the persistence of symptoms into adulthood in a large
percentage of childhood sufferers. The prevalence of ADHD is estimated at 2% to 4% of adults. ADHD exacts a significant toll on social relationships, education, and vocational attainment.

Psychostimulants, including amphetamine and methylphenidate, represent the most widely researched and commonly prescribed treatments for the disorder.
Based upon data from IMS Health, in 2006, psychostimulants accounted for a global market of approximately $3 billion. Because of the availability and frequent prescribing of psychostimulants, concerns over their potential overuse and abuse have
intensified. Along with the abuse potential, treatments with psychostimulants may result in side effects. According to the National Institutes of Health, some children on these medications may lose weight, have less appetite and temporarily grow
more slowly. Others may experience problems falling asleep. Given the lack of consistent improvement beyond the disorders core symptoms and the deficit of long-term studies, the need remains for additional testing with medications and
behavioral treatments. Most of the psychostimulants also carry black box warnings related to the cardiovascular risks associated with the increases in blood pressure and heart rate caused by these agents.

We believe that AMPAKINE compounds with appropriate potency and duration of activity may represent a novel, non-stimulant approach for
treating ADHD patients.

Respiratory Depression

Respiratory depression represents a potentially life-threatening condition resulting from analgesic, hypnotic and anesthesia medications. The condition results in a depression of breathing that causes a reduced
availability of oxygen to vital organs.

Respiratory depression is a leading cause of death from the overdose of some classes of abused
drugs, but the condition also may arise during typical physician-supervised procedures such as surgical anesthesia, post operative analgesia and as a consequence of normal out-patient management of pain from illnesses or injuries. Events also may
occur when two or more central nervous depressants are taken together or when prescribed drugs are taken in ways not intended by the physician. Sleeping disorders like sleep apnea are another predisposing factor for respiratory depression. Recent
research estimates that the treatment market for respiratory depression may be approximately $1.2 billion in the U.S. alone.

Our own
recently completed market research suggests that respiratory depression may occur during 10% to 15% of inpatient surgical procedures. Some of these respiratory depression events lead to death. The primary drug classes responsible for these effects
are opiates and barbiturates. Opiates include standard pain medications such as morphine, fentanyl and codeine, along with vicodin, hydrocodone and oxycontin. Barbiturates include sedative drugs such as pentobarbital.

Currently, the only pharmacological method to counter respiratory depression induced by opiates is
to administer opiate receptor antagonists such as naloxone (Narcan®), but those antagonists eliminate the analgesic activity of drugs administered for severe pain relief, which is a major
drawback for using those agents.



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In May 2007, we entered into an exclusive patent
license agreement with the University of Alberta to potentially broaden the use of our AMPAKINE technology to prevent and treat opiate- and barbiturate-induced respiratory depression. The related patent application filed by
Dr. John Greer of the University of Alberta describes a method by which an AMPAKINE compound can reverse the respiratory depression associated with classes of commonly prescribed opiate analgesics and barbiturates. Dr Greer has
demonstrated in animal models that the respiratory depression induced by these agents can be reversed or prevented with an AMPAKINE, without a reduction of pain relief or sedation. We believe that this creates the opportunity to use
an AMPAKINE compound in conjunction with commonly prescribed barbiturates or opiates to reduce the mortality caused by these adverse reactions. Preliminary animal data also suggests that an AMPAKINE compound may also
reverse the respiratory depression effects of propofol (Diprivan®), a commonly used intravenous anesthetic agent.

Alzheimers Disease and Mild Cognitive Impairment

Impairment of memory and cognition is
a significant health care problem that grows as the elderly population continues to increase. Dementia can be diagnosed in those individuals who develop persistent memory and cognitive deficits as well as in those who suffer from difficulties in
their social, occupational and other activities of daily living. With advanced dementia, many elderly individuals become confined to nursing homes because of psychological disorientation and profound functional difficulties. Pharmaceuticals to
alleviate deficits in memory and cognition could potentially enable elderly individuals with dementia to regain some functional abilities that may help them remain independent longer, resulting in improved quality of life and substantial savings in
health care costs.

Alzheimers disease is the most common form of dementia, currently afflicting some 4 million people in the
U.S. and 12 million people worldwide. With the aging of our population, unless a treatment is found, the number of people in the U.S. with the disease is expected to reach 14 million by the middle of this century. According to the
Alzheimers Association, the U.S. society spends at least $100 billion a year on Alzheimers disease at an average lifetime cost per patient of $174,000. Neither Medicare nor most private health insurance covers the long-term care
more patients need. The impact of an effective treatment, even a symptomatic one, would be enormous.

It is in the early and middle stages
of Alzheimers disease that we believe AMPAKINE molecules may play a valuable role, enhancing the effectiveness of the brain cells and brain circuits that have not yet succumbed to the disease. This enhancement may help to
alleviate the memory and cognitive deficits that constitute the major symptoms of Alzheimers disease.

There is also a possibility
that treatment with high impact AMPAKINE compounds may slow the progression of Alzheimers disease. Brain cells, or neurons, require continued input from other brain cells to remain alive. As neurons die, other neurons begin to
lose their inputs, hastening their own death. AMPAKINE compounds may slow the rate at which functional levels of input from other neurons are lost. In animal models, selected AMPAKINE compounds have been shown to
increase the production of BDNF, which is a protein associated with the formation of synapses by neurons. This possible mode of action also may prove beneficial to patients with Alzheimers disease, although it has not been demonstrated whether
the same mechanism may produce similar results in humans.

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 do not meet the clinical criteria for Alzheimers disease.

It is estimated that there are between three and four million people with MCI. The memory deficits in the MCI population are clinically discernible and can interfere with daily functioning. MCI patients also appear to
have a greatly increased risk of developing Alzheimers disease. Whereas approximately 1-2% of the normal elderly population will be diagnosed with Alzheimers disease every year, 10-15% or more of MCI patients will progress to
Alzheimers disease per year.



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Given the lack of consensus by the FDA on the diagnostic and outcome for success in MCI, we believe that
the AMPAKINE compounds must first demonstrate efficacy in Alzheimers disease before undertaking studies with the compounds in MCI. Yet given the potential size of the MCI market, we remain interested in this indication.

Day-Time Sleepiness Disorders

Sleep disorders represent a broad range of illnesses arising from many causes, including abnormalities in physiological functions during sleep, abnormalities of the biological clock and sleep disturbances that are induced by factors outside
of the sleep process. According to the National Sleep Foundation, over the past century, society has reduced its average asleep time by 20 percent and, in the past 25 years, added a month to its average annual work/commute time. When the body is
deprived of the sleep that it needs, the ability to concentrate or perform even simple tasks declines, and productivity suffers. We believe that AMPAKINE compounds may be useful in treating day-time sleepiness resulting from
narcolepsy, shift work and obstructive and central sleep apnea among other potential causes.

Narcolepsy is the classic example of a
disorder causing excessive daytime sleepiness. It is a disabling neurological disorder that affects approximately 50,000 people in the U.S. The key features of narcolepsy are excessive daytime sleepiness, disrupted nighttime sleep and periodic
irresistible sleep attacks of sudden onset and brief duration. The number and severity of symptoms vary widely among individuals with the disorder, with symptoms generally beginning between the ages of 15 and 30. There is currently no cure for
narcolepsy although many of the symptoms can be controlled with behavioral and medical therapy.

Narcolepsy represents an Orphan Drug
indication that would reduce both our cost and time to market for a potential therapeutic agent. The potential of using AMPAKINE compounds for treatment of narcolepsy comes from work done in a monkey model of sleep deprivation. In
these monkey studies, CX717 and other AMPAKINE compounds were able to reverse the deficits that sleep deprivation caused in the ability of the monkeys to accurately perform a challenging cognitive performance task. The human trials to
date with CX717 suggests that a more potent low impact compound, perhaps such as CX1739, may lead to a therapy for narcolepsy with a low impact AMPAKINE compound.

Depression

It is estimated that major depression affects over 18.8 million people in the
U.S. and over 121 million people worldwide, with approximately 20% of the global population at risk of developing major depression at some point in their lives. Women are almost twice as likely to suffer from depression as men (9.5% versus
5.8%), but prevalence figures vary from country to country. Depression costs the U.S. an estimated $44 billion each year. The World Health Organization predicts depression will become the leading cause of disability by the year 2020.

In the U.S., the depression market is considered the largest segment of the central nervous system market with global sales in excess of $20 billion in
2006. This is a mature market with a number of the leading brands facing patent expiration in the next five to six years.

In January 1999,
we entered an exclusive worldwide license agreement with Organon that enables Organon to develop and commercialize the AMPAKINE compounds for the treatment of schizophrenia. The agreement with Organon included an option for a similar
license in the field of depression.

In December 2003 Organon exercised its option to the depression field and currently has a Phase II
study in bipolar depression underway at the NIMH. Organon is subject to annual spending



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requirements for research and development using AMPAKINE compounds in the depression field. The terms of the agreement also include milestone
payments based upon clinical development and royalties on worldwide sales.

Fragile X and Autism

Fragile X is an inherited disorder that represents the most common cause of inherited mental retardation. The disorder affects approximately 60,000 to
80,000 patients in the U.S., thus qualifying the disorder as an Orphan Drug indication. Symptoms of Fragile X syndrome include mental impairment ranging from learning disabilities to mental retardation, attention deficit and hyperactivity, anxiety
and unstable mood and autistic-like behaviors.

Males are typically more severely affected by Fragile X syndrome than females. Although
most males with Fragile X syndrome have mental retardation, only one-third to one-half of females with the disorder has significant intellectual impairment; the rest have either normal intelligence or learning disabilities. Emotional and behavioral
problems are common in both sexes. There are no current therapeutic treatments for the disorder, although medications are used to treat some symptoms.

Autism is a complex developmental disability that typically appears during the first three years of life and is the result of a neurological disorder that affects the functioning of the brain. Autism and its
associated behaviors have been estimated to occur in as many as 2 to 6 in 1,000 individuals. The disability is four times more prevalent in males than in females.

Autism impacts the normal development of the brain in the areas of social interaction and communication skills. Children and adults with autism typically have difficulties in verbal and nonverbal communication, social
interactions, and leisure or play activities. Persons with autism may exhibit repeated body movements, unusual responses to people or attachments to objects, and resistance to changes in routines. Individuals also may experience heightened
sensitivities of sight, hearing, touch, smell and taste. There are currently no approved therapeutic treatments for autism, although early behavioral intervention dramatically improves the outcome.

Recent scientific research has led to an improved understanding of Fragile X syndrome and autism. A number of scientists have suggested that the use of a
drug to enhance glutamate transmission, such as an AMPAKINE compound, may be beneficial.

Further, the genetic defect in
Fragile X results in the reduction or absence of an important protein, Fragile X Mental Retardation Protein, or FMRP. FMRP is thought to play an important role in allowing normal levels of AMPA receptor proteins to be made. Increasing the activity
of AMPA receptors with an AMPAKINE may overcome the reduced number of AMPA receptors produced by the reduced level of FMRP protein.

Some Fragile X clinicians believe that AMPAKINE compounds with the potential to raise neurotrophic levels may improve Fragile X patients, especially if administered at a young age. Preliminary studies in transgenic mice with
the Fragile X gene provide some encouraging information that may lead to clinical trials using a high impact AMPAKINE compound. More potent and longer lasting AMPAKINE compounds, particularly ones which up regulate
BDNF, will most likely be required to moderate this disease.

Huntingtons Disease

Huntingtons disease is an inherited, progressive brain disorder characterized by involuntary movements, psychiatric disturbances, and dementia. It
typically strikes people whose ages are in the 30s or 40s. Patients ultimately lose physical and mental abilities to care for themselves. Walking becomes



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impossible, swallowing difficult, and dementia profound. At the end stage of the disorder, most patients require institutionalization. Current epidemiologic
data show that there are 25,000 to 30,000 patients in the U.S. with Huntingtons disease, thus qualifying it as an Orphan Drug indication.

Both low and high impact AMPAKINE compounds may play a role in the treatment of Huntingtons disease, either as a mono-therapy or in combination with existing pharmacology. AMPAKINE compounds, like CX717,
could potentially play a symptomatic role in the reduction of memory and cognitive components of this disease. High impact AMPAKINE compounds that have a potent effect on the production of neurotrophic factors, such as BDNF,
theoretically could have a disease modifying effect on this terminal disease.

Schizophrenia

The worldwide incidence of schizophrenia is approximately 1.0% of the population, regardless of ethnic, cultural or socioeconomic status. Schizophrenia
typically develops in late adolescence or early adulthood and involves a collection of symptoms. These are generally characterized as positive symptoms (delusions and hallucinations), negative symptoms (social withdrawal and loss of
emotional responsiveness) and cognitive symptoms (disordered thought and attention deficits).

The first conventional
anti-psychotics for schizophrenia were developed in the 1950s and 1960s. These drugs helped to reduce the positive symptoms of the disease and greatly reduced the need for chronic hospitalization but can be difficult to use because of safety and
tolerability issues. Newer agents achieve good control of positive symptoms, partial control of negative symptoms and better patient compliance with medication due to lower frequency of side effects. However, clinicians agree that there are still
substantial side effects and that the cognitive symptoms of schizophrenia are not greatly improved by any available agent. The persistence of cognitive symptoms prevents many patients from successfully reintegrating into society.

Schizophrenia has long been thought to have its biochemical basis in an over-activity of dopamine pathways projecting into an area of the brain known as
the striatum. More recently, a developing body of evidence suggests that schizophrenia also involves reduced activity of glutamate pathways projecting into the same area. We began studying whether AMPAKINE compounds, which increase
current flow through the AMPA subtype of glutamate receptor, might have relevance to the treatment of schizophrenia.

In January 1999, we
entered into an exclusive worldwide license agreement with Organon. The agreement will enable Organon to develop and commercialize our proprietary AMPAKINE technology for the treatment of schizophrenia. Under the agreement, Organon
has rights to intellectual property that includes broad medical use patents covering the use of any AMPA receptor modulating compound to treat schizophrenia as a mono-therapy, or in combination with other anti-psychotic medications.

Organon is currently conducting clinical testing of the AMPAKINE compound, ORG24448, in patients with schizophrenia. In May 2000, we
achieved our first milestone under the related agreement when Organon selected a licensed compound to pursue in Phase I clinical testing, triggering a $2,000,000 payment to us. In September 2001, Organon informed us of its intent to continue
development of the selected compound by entering Phase II clinical testing, triggering a second $2,000,000 milestone payment. Additional payments from the Organon agreement for schizophrenia will depend upon the drug successfully completing Phase II
studies and the initiation of Phase III trials.

Other Indications

We may conduct studies in various other indications that have not been discussed above. In addition to the AMPAKINE CX717, we plan to
advance other AMPAKINE compounds that have shown promise in animal models. During 2007, we developed a number of new patent applications for new composition of matter patents for both high and low impact compounds. If these
applications are granted, they will provide patent protection for our new AMPAKINE molecules through 2028.



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Manufacturing

We have no experience or capability to either manufacture bulk quantities of the new compounds that we develop, or to produce finished dosage forms of the compounds, such as tablets or capsules. We rely, and presently intend to rely, on the
manufacturing and quality control expertise of contract manufacturing organizations or current and prospective corporate partners. There is no assurance that we will be able to enter into manufacturing arrangements to produce bulk quantities of our
compounds on favorable financial terms. There is, however, substantial availability of both bulk chemical manufacturing and dosage form manufacturing capability in the U.S. and international pharmaceutical industry that we believe that we can
readily access. See Risk Factors  Risks related to our business We are at an early stage of development and we may not be able to successfully develop and commercialize our products and technologies on page 20 for a
discussion of certain risks related to the development and commercialization of our products.

Marketing

We have no experience in the marketing of pharmaceutical products and do not anticipate having the resources to distribute and broadly market any products
that we may develop for indications such as Alzheimers disease and schizophrenia. We will therefore continue to seek commercial development arrangements with other pharmaceutical companies for our proposed products for those indications that
require significant sales forces to effectively market. In entering into such arrangements, we may seek to retain the right to promote or co-promote products for certain of the Orphan Drug indications in North America. We believe that there is a
significant expertise base for such marketing and sales functions within the pharmaceutical industry and expect that we could recruit such expertise if we pursue to directly market a drug. Our worldwide licensing agreement with Organon (see Note 5
of Notes to Financial Statements) does not provide us with co-promotional rights. With respect to Orphan Drugs, we may distribute and market such products directly. See Risk Factors  Risks related to our business We are at
an early stage of development and we may not be able to successfully develop and commercialize our products and technologies on page 20 for a discussion of certain risks related to the development and commercialization of our products.

Technology Rights

In 1993, we entered
into an agreement with the Regents of the University of California (the University), under which we secured exclusive commercial rights to AMPA-receptor modulating technology and compounds (the AMPAKINE technology) for the
treatment of deficits of memory and cognition. The relationship later was expanded to include additional agreements for other indications. We paid an initial license fee and are obligated to make additional payments, including license maintenance
fees and patent expense reimbursements creditable against future royalties, over the course of initiating and conducting human clinical testing and obtaining regulatory approvals. When and if sales of licensed products commence, we will pay
royalties on net sales. During the fiscal year ended June 30, 2003, we amended the agreement with the University to exclude the treatment of disease areas outside of the central nervous system that we would not have the resources or the
capability to develop in a timely manner. Of the patents licensed from the University, the date for the last to expire patent is September 2017. See Risk Factors  Risks related to our business Our products rely on licenses
from the Regents of the University of California, and if we lose access to these technologies, our business would be substantially impaired on page 20 for a discussion of certain risks related to our licenses with the University.



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Patents and Proprietary Rights

We are aggressively pursuing patent protection of our technologies. We own or have exclusive rights (within our areas of product development) to more than 22 patent families comprising over 150 issued or allowed U.S.
and foreign patents and over 100 additional U.S. patent applications and their international counterparts pending. Over 130 of these are composition of matter patents that cover hundreds of our compounds. These patents form the foundation of the
Companys business and the pharmaceutical industry in general. Additionally, we are consistently filing new disclosures and patents for new structures and new uses, and in 2007 we filed five new patent applications covering hundreds of new
compounds. If these applications are granted as filed, they will provide patent protection for our new molecules through 2028.

One of our
patents covers the method of use for our AMPAKINE compounds  as well as compounds made by others  and describes the mechanism by which AMPAKINE compounds may affect the treatment of memory and cognition.
This patent issued to the University in the U.S. in 1999 and provides protection through 2016. We believe that this patent provides coverage in the U.S. that extends to both neurological disorders such as Alzheimers disease as well as
psychiatric conditions with cognitive disturbances including depression, obsessive compulsive disorder, attention deficit disorder, and phobic disorders. Similar method of use patents have been issued to us in Mexico, Australia and New Zealand.

In November 2003, a similar patent was issued to the University by the European Patent Office (EPO) that provides protection
through 2013. Upon issuance of the patent, an opposition was filed by Eli Lilly and Company. In August 2004, GlaxoSmithKline also filed an opposition. In cooperation with the University, we responded to the oppositions. An oral hearing took place at
the EPO in late January 2008. A formal written decision has not yet been received from the EPO Opposition Division to provide clarity on the decision, although a verbal decision to revoke the patent was rendered at the hearing. Upon receipt of the
written decision, which will give the reasons for the revocation decision, we will file a formal appeal. One of the reasons for the revocation cited at the hearing was a filing technicality related to matter added to the original patent application.
The EPO decided that the parent application as filed did not provide sufficient basis for several terms that appeared in the final claims of the patent. The revocation decision does not take effect until any appeal is concluded, and that process
will take several years to resolve.

We believe that the legal process related to our appeal of the revocation by the EPO may continue for
most of the remaining life of the patent, given that the European patent expires in 2013. We do not believe that the European decision is material to the future of our AMPAKINE technology because of this patents limited life for
commercial protection. Most importantly, we own a large portfolio of composition of matter patents with much longer patent lives that we believe are fundamental to pharmaceuticals in general and more critical to our commercial protection worldwide.

Because patent rules and regulations, and burden of proof requirements differ substantially between the U.S. and Europe, specifically in
regards to the revocation reason cited by the EPO above, we believe that the decision by the EPO is not likely to impact the patent that has issued in the U.S.



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Another method of use patent contains a broad claim for any AMPA-modulating compound to treat
schizophrenia. This patent was issued to the University in the U.S. in 1998, and subsequently has issued in Australia. An additional method of use patent containing a broad claim for any AMPA-modulating compounds combined with antipsychotic
medications to treat schizophrenia has issued in Europe. However, in December 2006 we were notified by the EPO that oppositions to this patent were filed by Eli Lilly and Company and another by Glaxo Group Limited. In April 2007, we submitted our
written response to the EPO to counter these objections. There is no timeframe available for a decision from the EPO and such decision may be appealed by us or the party filing the opposition. As a result, the process to determine whether the
oppositions filed for this patent will or will not prevail in Europe may take several years to resolve.

Our rights under the University
patents are contingent upon us making certain minimum annual payments to the University, meeting certain milestones and diligently seeking to commercialize the underlying technology. Over the past five years, we believe that we have demonstrated
such diligence and our investment in the technology has been at unprecedented levels.

Since issuance of a patent does not guarantee the
right to practice the claimed invention, others may obtain patents that we would then need to license or design around in order to practice our patented technologies. We may not be able to obtain licenses that might be required to practice these
technologies due to patents of others on reasonable terms or at all. Additionally, any unpatented manufacture, use or sale of our technology, processes or products may infringe on patents or proprietary rights of others, and we may be unable to
obtain licenses or other rights to these other technologies that may be required for commercialization of our proposed products or processes.

Also, we rely to a certain extent upon unpatented proprietary technology and may determine in some cases that our interests would be better served by reliance on trade secrets or confidentiality agreements rather than patents. See
Risk Factors  Risks related to our industry If we fail to secure adequate intellectual property protection, it could significantly harm our financial results and ability to compete on page 22 for a discussion of
certain risks related to the protection of our intellectual property rights.

Government Regulation

In order to test, produce and market human therapeutic products in the U.S., mandatory procedures and safety standards established by the FDA must be
satisfied. Obtaining FDA approval is a costly and time-consuming process. We have initiated Phase I and early Phase II testing in the U.S. and Europe. Some clinical trials were and are performed in the U.S. under Notices of Claimed
Investigational Exemption for a New Drug (IND) filed with the FDA by our clinical collaborators. We filed an IND for the AMPAKINE CX717 in December 2004. It is our intent that Organon, Servier or another pharmaceutical
company partner or partners that we are seeking, will pursue other required regulatory approvals to conduct further clinical testing with AMPAKINE compounds. However, we intend to file other INDs for additional
AMPAKINE compounds to facilitate the development of our Orphan Drug strategy and the newer respiratory depression indications.

Clinical trials are normally conducted in three phases. Phase I trials are concerned primarily with safety of the drug, involve fewer than 100 subjects, and may take from six months to over a year. Phase II trials normally involve a few
hundred patients. Phase II trials are designed to demonstrate effectiveness and to determine optimal dosing in treating or diagnosing the disease or condition for which the drug is intended. Short-term side effects and risks in people whose health
is impaired also may be examined. Phase III trials may involve up to several thousand patients who have the disease or condition for which the drug is intended, to approximate more closely the conditions of ordinary medical practice. Phase III
trials also are designed to clarify the drugs benefit-risk relationship, to uncover less common side effects and adverse reactions, and to generate information for proper labeling of the drug. The FDA receives



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reports on the progress of each phase of clinical testing, and may require the modification, suspension, or termination of clinical trials if an unwarranted
risk is presented to patients. The FDA estimates that the clinical trial period of drug development can take up to ten years, and typically averages six years. With certain exceptions, once clinical testing is completed, the sponsor can submit a New
Drug Application for approval to market a drug. The FDAs review of a New Drug Application can also be lengthy.

Therapeutic products
that may be developed and sold by us outside the U.S. will be subject to regulation by the various countries in which they are to be distributed. In addition, products manufactured in the U.S. that have not yet been cleared for domestic distribution
will require FDA approval in order to be exported to foreign countries for distribution there. See Risk Factors  Risks related to our industry The regulatory approval process is expensive, time consuming, uncertain and may
prevent us from obtaining required approvals for the commercialization of some of our products on page 23 for a discussion of certain risks related to the regulatory approval of our products.

We plan to seek additional financing to support our development of selected AMPAKINE compounds for Orphan Drug indications. Without such
financing, we may be severely restricted in our overall development. We would be dependent upon our sub-licensees and might be unable to maintain our current core technical and management capabilities. Under such circumstances, we would be dependent
upon entering into partnerships or other collaborative arrangements with third parties with the required resources to obtain the needed approvals. Along with our licensing agreements with Organon and Servier, we intend to enter into license or other
arrangements with other pharmaceutical companies under which those companies would conduct the required clinical trials and seek FDA approval for most or all of our proposed products. See Risk Factors  Risks related to our business We may not be able to enter into the strategic alliances necessary to fully develop and commercialize our products and technologies, and we will be dependent on our corporate partners if we do on page 21 for a discussion of certain
risks related to the proposed strategic alliances that we are seeking.

Competition

The pharmaceutical industry is characterized by rapidly evolving technology and intense competition. Many companies of all sizes, including both major
pharmaceutical companies and specialized biotechnology companies, are engaged in activities similar to ours. A large number of drugs intended for the treatment of Alzheimers disease, MCI, schizophrenia, depression, ADHD and other neurological
and psychiatric diseases and disorders are on the market or in the later stages of clinical testing. For example, approximately 15 drugs are in development in the U.S. for schizophrenia and over 25 drugs are under clinical investigation in the U.S.
for the treatment of Alzheimers disease. We are not aware of any other companies developing drugs for the reversal of respiratory depression induced by opiates or other central nervous system agents. Most of our competitors have substantially
greater financial and other resources and larger research and development staffs. Larger pharmaceutical company competitors also have significant experience in preclinical testing, human clinical trials and regulatory approval procedures.

In addition, colleges, universities, governmental agencies and other public and private research organizations will continue to conduct
research. These institutions are becoming more active in seeking patent protection and licensing arrangements to collect license fees, milestone payments and royalties in exchange for license rights to technology that they have developed, some of
which may be directly competitive with us.

We expect technological developments in the neuropharmacology field to continue to occur at a
rapid rate and expect that competition will remain intense as those advances continue. Based on the technical qualifications, expertise and reputations of our Scientific Directors, consultants and other key scientists, we believe that our operating
strategy to develop AMPAKINE compounds for the treatment of selected Orphan Drug indications and to out-license the technology to larger pharmaceutical companies for major chronic indications is appropriate.



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Product Liability Insurance

The clinical testing, manufacturing and marketing of our products may expose us to product liability claims, against which we maintain liability insurance. See Risk Factors  Risks related to our
industry  We may be subject to potential product liability claims. One or more successful claims brought against us could materially impact our business and financial condition on page 22 for a discussion of certain risks related to
product liability claims against us.

Employees

We currently have 27 full-time employees, of which eight are engaged in management and administrative support and the remainder are engaged in research and development, including one M.D. and 12 Ph.D.-level or equivalent employees.

We do not anticipate significant increases in our employee levels during the next twelve months. We will continue to outsource a
substantial amount of our research and development to qualified vendors. We sponsor a substantial amount of research in academic laboratories, primarily at the University of California, Irvine.

Item 1A. Risk Factors

In addition to the other matters set forth in this Annual Report on Form 10-K, our
continuing operations and the price of our common stock are subject to the following risks:

Risks related to our business

We have a history of net losses; we expect to continue to incur net losses and we may never achieve or maintain profitability.

Since our formation on February 10, 1987 through December 31, 2007, we have generated only modest operating revenues and we have incurred net
losses approximating $92,727,000. For the years ended December 31, 2007, 2006 and 2005, our net losses were approximately $12,969,000, $16,055,000, and $11,606,000, respectively. As of December 31, 2007, we had an accumulated deficit of
approximately $94,759,000. We have not generated any revenue from product sales to date, and it is possible that we will never generate revenues from product sales in the future. Even if we do achieve significant revenues from product sales, we
expect to incur significant operating losses over the next several years. As with other companies in the biotechnology industry, it is possible that we will never achieve profitable operations.

If we are unable to progress in our clinical development of AMPAKINE CX717 for an acute indication in a timely manner, or at all, there could be a
significant negative impact on our business operations and the market price of our common stock.

On October 10, 2007, the Division
of Psychiatry Products of the FDA notified us that it rejected our IND to study AMPAKINE CX717 in ADHD. The denial was based upon results of animal toxicology studies that we filed with the agency. At this time, we do not anticipate
re-submitting further data to the FDA for CX717 in the ADHD indication.

Our objective is to continue our plans to develop CX717 for the
acute treatment of respiratory depression and to continue our study of CX717 in our Alzheimers disease PET scan study. We believe that the IND previously filed with the Division of Neurology Products of the FDA for the treatment of



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Alzheimers disease will not be affected by the actions of the Division of Psychiatry Products. However, there can be no assurance that we will receive
final FDA approval for any eventual New Drug Application submission.

We also believe that by developing an acute use for CX717, such as
treatment of respiratory depression, the risks perceived to be associated with higher chronic doses required for ADHD may be mitigated. Additionally, the risk/benefit ratio for the treatment of patients with life-threatening respiratory depression
is substantially different than for the treatment of ADHD. Also, our preclinical data for animal models of improvement of memory and cognition consistently shows that the dose level of CX717 required is 5-10 fold less than the dose required in
animal models of ADHD. We believe that either lower dosage levels for chronic administration and/or acute uses are possible options for the continued development of CX717.

If we are unable to progress in our clinical development of AMPAKINE CX717 for an acute indication in a timely manner, or at all, there
could be a significant negative impact on our business operations and the market price of our common stock.

We will need additional capital in the
future and, if it is not available on terms acceptable to us, or at all, we may need to scale back our research and development efforts and may be unable to continue our business operations.

We will require substantial additional funds to advance our research and development programs and to continue our operations, particularly if we decide to
independently conduct later-stage clinical testing and apply for regulatory approval of any of our proposed products, and if we independently undertake marketing and promotion of our products. Additionally, we may require additional funds in the
event that we decide to pursue strategic acquisitions of or licenses for other products or businesses. Based on our current operating plan, including planned clinical trials and other product research and development costs, we estimate that our
existing cash resources will be sufficient to meet our requirements into calendar year 2009. However, we believe that we will require additional capital to fund on-going operations beyond that time. Additional funds may result from milestone
payments related to our agreements with Organon and Servier, although there is no assurance that we will receive milestone payments from Organon or Servier within the desired timeframe, or at all. Additional funds also may result from the exercise
of warrants to purchase shares of our common stock. As of December 31, 2007, warrants to purchase up to approximately 13.8 million shares of our common stock were outstanding. If these remaining warrants are fully exercised, of which there
can be no assurance, such exercise would provide approximately $36,600,000 of additional capital.

Our cash requirements in the future may
be significantly different from our current estimates and depend on many factors, including:



| |  |  | the results of our clinical trials;
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| |  |  | the time and costs involved in obtaining regulatory approvals;
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| |  |  | the costs of setting up and operating our own marketing and sales organization;
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| |  |  | the ability to obtain funding under contractual and licensing agreements;
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| |  |  | the costs involved in obtaining and enforcing patents or any litigation by third parties regarding intellectual property; and
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| |  |  | our success in entering into collaborative relationships with other parties.
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To finance our future activities, we may seek funds through additional rounds of financing, including
private or public equity or debt offerings and collaborative arrangements with corporate partners. We cannot say with any certainty that we will be able to obtain the additional needed funds on reasonable terms, or at all. The sale of additional
equity or convertible debt securities could result in additional dilution to our stockholders. If we issued preferred equity or debt securities, these securities could have rights superior to holders of our common stock, and could contain covenants
that will restrict our operations. We might have to obtain funds through arrangements with collaborative partners or others that may require us to relinquish rights to our technologies, product candidates or products that we otherwise would not
relinquish. If adequate funds are not available, we could lose our key employees and might have to delay, scale back or eliminate one or more of our research and development programs, which would impair our future prospects. In addition, we may be
unable to meet our research spending obligations under our existing licensing agreements and may be unable to continue our business operations.

Our
products rely on licenses from The Regents of the University of California and The Governors of the University of Alberta, and if we lose access to these technologies or applications, our business would be substantially impaired.

Under our agreements with The Regents of the University of California, we have exclusive rights to AMPAKINE compounds for all applications
for which the University has patent rights, other than endocrine modulation. Under our agreement with The Governors of the University of Alberta, we have exclusive rights to the use of AMPAKINE compounds to prevent and treat
respiratory depression induced by opiate analgesics, barbiturates and anesthetic and sedative agents.

Our rights to certain of the
AMPAKINE compounds are secured by patents or patent applications owned wholly by the University of California or by the University of California as a co-owner with us. Our existing agreements with the University of California require
the University of California to prepare, file, prosecute and maintain patent applications related to our licensed rights at our expense. Such agreements also require us to make certain minimum annual payments, meet certain milestones or diligently
seek to commercialize the underlying technology.

Under such agreements, we are required to make minimum annual royalty payments
approximating $70,000. Separately, we are required to spend a minimum of $250,000 per year to advance the AMPAKINE compounds until we begin marketing an AMPAKINE compound. The commercialization efforts in the agreements
require us to file for regulatory approval of an AMPAKINE compound before October 2012.

Our rights to the use of
AMPAKINE compounds to prevent and treat respiratory depression induced by opiate analgesics, barbiturates and anesthetic and sedative agents include rights to a patent application owned wholly by The Governors of the University of
Alberta. Our existing agreement with The University of Alberta requires us to file, prosecute and maintain patent applications related to our licensed rights in coordination with the University of Alberta. Such agreement also requires us to make
certain minimum annual payments pursuant to the terms of a research agreement, meet certain milestones and diligently seek to commercialize the underlying technology. Although we currently are in compliance with our obligations under the agreements
with each of The Regents of the University of California and The Governors of the University of Alberta, including minimum annual payments and diligence milestones, our failure to meet any of these requirements could allow the respective university
to terminate that particular agreement. Management believes that it maintains a strong relationship with each such university.

We are at an early stage
of development and we may not be able to successfully develop and commercialize our products and technologies.

The development of
AMPAKINE products is subject to the risks of failure commonly experienced in the development of products based upon innovative technologies and the expense and difficulty of



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obtaining approvals from regulatory agencies. Drug discovery and development is time consuming, expensive and unpredictable. On average, only one out of many
thousands of chemical compounds discovered by researchers proves to be both medically effective and safe enough to become an approved medicine. In the fields that we target, approximately one in five compounds placed in clinical trials generally
reaches the market. All of our proposed products are in the preclinical or early clinical stage of development and will require significant additional funding for research, development and clinical testing before we are able to submit them to any of
the regulatory agencies for clearances for commercial use. Our trials that are subject to our collaborative research arrangements are being funded by third parties and do not involve financial commitments from us.

The process from discovery to development to regulatory approval can take several years and drug candidates can fail at any stage of the process. Late
stage clinical trials often fail to replicate results achieved in earlier studies. Historically, in our industry more than half of all compounds in development failed during Phase II trials and 30% failed during Phase III trials. We cannot assure
you that we will be able to complete successfully any of our research and development activities. Even if we do complete them, we may not be able to market successfully any of the products or be able to obtain the necessary regulatory approvals or
assure that healthcare providers and payors will accept our products. We also face the risk that any or all of our products will not work as intended or that they will be unsafe, or that, even if they do work and are safe, that our products will be
uneconomical to manufacture and market on a large scale. Due to the extended testing and regulatory review process required before we can obtain marketing clearance, we do not expect to be able to commercialize any therapeutic drug for several
years, either directly or through our corporate partners or licensees.

We may not be able to enter into the strategic alliances necessary to fully
develop and commercialize our products and technologies, and we will be dependent on our corporate partners if we do.

In addition to
our agreements with Organon and Servier, we are seeking other pharmaceutical company partners to develop other major indications for the AMPAKINE compounds. These agreements would potentially provide us with additional funds in
exchange for exclusive or non-exclusive license or other rights to the technologies and products that we are currently developing. Competition between biopharmaceutical companies for these types of arrangements is intense. Although we have been
engaged in discussions with candidate companies for some time, we cannot give any assurance that these discussions will result in an agreement or agreements in a timely manner, or at all. Additionally, we cannot assure you that any resulting
agreement will generate sufficient revenues to offset our operating expenses and longer-term funding requirements.

If we are unable to maintain our
relationships with academic consultants and the University of California, Irvine, our business could suffer.

We depend upon our
relationships with academic consultants, particularly Dr. Gary S. Lynch of the University of California, Irvine. Dr. Lynch plays a key role in guiding our research. In addition, we sponsor preclinical research in Dr. Lynchs
laboratories at the University of California, Irvine that is part of our product development and corporate partnering profile. If our relationship with Dr. Lynch or the University of California, Irvine, is disrupted, our AMPA- receptor research
program could be adversely affected. The term of our consulting agreement with Dr. Lynch commenced in November 1987 and will continue until terminated by either party to the agreement upon at least 60 days prior written notice to the
other party. Our agreements with our other consultants are generally also terminable by the consultant on short notice. We maintain a positive relationship with Dr. Lynch and continue to fund research related to understanding the molecular
actions of the AMPAKINE compounds and the AMPA receptor in his laboratory.



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Risks related to our industry

If we fail to secure adequate intellectual property protection, it could significantly harm our financial results and ability to compete.

Our success will depend, in part, on our ability to get patent protection for our products and processes in the U.S. and elsewhere. We have filed and
intend to continue to file patent applications as we need them. However, additional patents that may issue from any of these applications may not be sufficiently broad to protect our technology. Also, any patents issued to us or licensed by us may
be designed around or challenged by others, and if such challenge is successful, it may diminish our rights.

If we are unable to obtain
sufficient protection of our proprietary rights in our products or processes prior to or after obtaining regulatory clearances, our competitors may be able to obtain regulatory clearance and market competing products by demonstrating the equivalency
of their products to our products. If they are successful at demonstrating the equivalency between the products, our competitors would not have to conduct the same lengthy clinical tests that we have conducted.

We also rely on trade secrets and confidential information that we try to protect by entering into confidentiality agreements with other parties. Those
confidentiality agreements may be breached, and our remedies may be insufficient to protect the confidential information. Further, our competitors may independently learn our trade secrets or develop similar or superior technologies. To the extent
that our consultants, key employees or others apply technological information independently developed by them or by others to our projects, disputes may arise regarding the proprietary rights to such information. We cannot assure you that such
disputes will be resolved in our favor.

We may be subject to potential product liability claims. One or more successful claims brought against us could
materially impact our business and financial condition.

The clinical testing, manufacturing and marketing of our products may expose us
to product liability claims. We maintain liability insurance with coverage limits of $10 million per occurrence and $10 million in the annual aggregate. We have never been subject to a product liability claim, and we require each patient in our
clinical trials to sign an informed consent agreement that describes the risks related to the trials, but we cannot assure you that the coverage limits of our insurance policies will be adequate or that one or more successful claims brought against
us would not have a material adverse effect on our business, financial condition and result of operations. Further, if one of our AMPAKINE compounds is approved by the FDA for marketing, we cannot assure you that adequate product
liability insurance will be available, or if available, that it will be available at a reasonable cost. Any adverse outcome resulting from a product liability claim could have a material adverse effect on our business, financial condition and
results of operations.

We face intense competition that could result in products that are superior to the products that we are developing.

Our business is characterized by intensive research efforts. Our competitors include many companies, research institutes and
universities that are working in a number of pharmaceutical or biotechnology disciplines to develop therapeutic products similar to those we are currently investigating. For example, the Pharmaceutical Research and Manufacturers of America recently
estimated that more than 100 pharmaceutical and biotechnology companies are conducting research in the field of neurological disorders, with over 25 drugs under clinical investigation in the U.S. for the treatment of Alzheimers disease.
Virtually all of the major multinational pharmaceutical companies have active projects in these areas. Most of these competitors have substantially greater financial, technical, manufacturing, marketing, distribution and/or other resources than we
do. In addition, many of our competitors have experience in performing human clinical trials of new or improved therapeutic products and obtaining approvals from the FDA and other regulatory agencies. We have no experience in conducting and managing
later-stage clinical testing or in preparing applications necessary to obtain regulatory approvals. Accordingly, it is possible that our competitors may succeed in developing products that are safer or more effective than those that we are
developing and may obtain FDA approvals for their products faster than we can. We expect that competition in this field will continue to intensify.



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We may be unable to recruit and retain our senior management and other key technical personnel on whom we are
dependent.

We are highly dependent upon key management and technical personnel and currently do not carry any insurance policies on
such persons. In particular, we are highly dependent on our Chairman, President and Chief Executive Officer, Roger G. Stoll, Ph.D.; our Chief Scientific Officer and Chief Operating Officer, Mark A. Varney, Ph.D.; and our Chief Medical Officer,
Pierre V. Trân, M.D., M.M.M., all of whom have entered into employment agreements with us. Competition for qualified employees among pharmaceutical and biotechnology companies is intense. The loss of any of our key management or technical
personnel, or our inability to attract, retain and motivate the additional highly-skilled employees and consultants that our business requires, could substantially hurt our business and prospects.

The regulatory approval process is expensive, time consuming, uncertain and may prevent us from obtaining required approvals for the commercialization of some of our
products.

The FDA and other similar agencies in foreign countries have substantial requirements for therapeutic products. Such
requirements often involve lengthy and detailed laboratory, clinical and post-clinical testing procedures and are expensive to complete. It often takes companies many years to satisfy these requirements, depending on the complexity and novelty of
the product. The review process is also extensive, which may delay the approval process even more. According to the Pharmaceutical Research and Manufacturers of America, historically the cost of developing a new pharmaceutical from discovery to
approval was approximately $800 million, and this amount is expected to increase annually.

As of yet, we have not obtained any approvals
to market our products. Further, we cannot assure you that the FDA or other regulatory agency will grant us approval for any of our products on a timely basis, if at all. Even if regulatory clearances are obtained, a marketed product is subject to
continual review, and later discovery of previously unknown problems may result in restrictions on marketing or withdrawal of the product from the market.

Other risks

Our stock price may be volatile and our common stock could decline in value.

The market price of securities of life sciences companies in general has been very unpredictable. The range of sales prices of our common stock for the
fiscal years ended December 31, 2007, 2006 and 2005, as quoted on The American Stock Exchange, was $0.44 to $3.47, $1.19 to $5.94 and $1.96 to $3.03, respectively. The following factors, in addition to factors that affect that market generally,
could significantly impact our business, and the market price of our common stock could decline:



| |  |  | competitors announcing technological innovations or new commercial products;
| | - |  | ----------------------------------------------------------------------------



| |  |  | competitors publicity regarding actual or potential products under development;
| | - |  | --------------------------------------------------------------------------------



| |  |  | regulatory developments in the U.S. and foreign countries;
| | - |  | ----------------------------------------------------------



| |  |  | developments concerning proprietary rights, including patent litigation;
| | - |  | ------------------------------------------------------------------------



| |  |  | public concern over the safety of therapeutic products; and
| | - |  | -----------------------------------------------------------



| |  |  | changes in healthcare reimbursement policies and healthcare regulations.
| | - |  | ------------------------------------------------------------------------



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There is a large number of shares of common stock that may be sold, which may depress the market price of our stock.

As of March 10, 2008, we had approximately 47.5 million shares of common stock outstanding. Additionally, if all warrants and
options outstanding as of such date are exercised prior to their expiration, approximately 25.4 million additional shares of common stock could become freely tradable without restriction. Sales of substantial amounts of common stock in the
public market could adversely affect the prevailing market price of our common stock and could also make it more difficult for us to raise funds through future offerings of common stock.

Our charter document and shareholder rights plan may prevent or delay an attempt by our stockholders to replace or remove management.

Certain provisions of our restated certificate of incorporation, as amended, could make it more difficult for a third party to acquire control of our
business, even if such change in control would be beneficial to our stockholders. Our restated certificate of incorporation, as amended, allows our Board of Directors to issue up to 549,500 shares of preferred stock without stockholder approval.
Pursuant to this authority, in February 2002 our Board of Directors adopted a shareholder rights plan and declared a dividend of a right to purchase one one-thousandth of a share of preferred stock for each outstanding share of our common stock. The
ability of our Board of Directors to issue additional preferred stock and our shareholder rights plan may have the effect of delaying or preventing an attempt by our stockholders to replace or remove existing directors and management.

We may be unable to maintain the standards for listing on The American Stock Exchange, which could adversely affect the liquidity of our common stock.

Our common stock is currently listed on The American Stock Exchange. There are several requirements that we must satisfy in order for our common stock
to continue to be listed on The American Stock Exchange. In the future, we may not comply with all of these listing requirements, which might result in the delisting of our common stock. Delisting from The American Stock Exchange could adversely
affect the liquidity and the price of our common stock and could have a long-term adverse impact on our ability to raise future capital through a sale of shares of our common stock. If our common stock were delisted it would be traded on an
electronic bulletin board established for securities that are not traded on a national securities exchange, Nasdaq or traded in quotations published by the National Quotations Bureau, Inc., commonly referred to as the pink sheets. If
this occurs, it could be difficult to sell our securities or obtain the same level of market information as to the price of shares of our common stock as is currently available.

If our common stock were delisted and determined to be a penny stock, a broker-dealer may find it more difficult to trade our common stock and an investor may find it more difficult to acquire or
dispose of our common stock in the secondary market.

In addition, if our common stock were delisted, it may be subject to the so-called
penny stock rules. The SEC has adopted regulations that define a penny stock to be any equity security that has a market price per share of less than $5.00, subject to certain exceptions, such as any securities listed on a
national securities exchange or quoted on Nasdaq. For any transaction involving a penny stock, unless exempt, the rules impose additional sales practice requirements on broker-dealers, subject to certain exceptions. If our common stock
were delisted and determined to be a penny stock, a broker-dealer may find it more difficult to trade our common stock and an investor may find it more difficult to acquire or dispose of our common stock on the secondary market.

Item 1B. Unresolved Staff Comments

None.



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Item 2. Properties

We lease approximately 32,000 square feet of office, research laboratory and expansion
space in Irvine, California, under an operating lease that expires May 31, 2009. The lease includes an option to allow us to extend the term for up to three years or to renegotiate renewal terms. Current monthly rent on these facilities is
approximately $45,000. We believe that our current facilities will be adequate and suitable for our research and development activities for at least the remainder of the lease term.

Item 3. Legal Proceedings

We are not a party to any material legal proceedings, nor has any material
proceeding been terminated during the fiscal year ended December 31, 2007.

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

None.

PART II

Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock trades on The American Stock Exchange under the symbol, COR. The following table presents quarterly information on the high and low sales prices of the common stock for the fiscal years
ended December 31, 2007 and 2006, as furnished by The American Stock Exchange.



|                                    |  |      |      |     |   |     
|----------------------------------- |  | ---- | ---- | --- | - | ----
|                                    |  | High |      | Low
|Fiscal Year ended December 31, 2007 |  |      |      |     |   |     
|                                    |  |     
|Fourth Quarter                      |  | $    | 1.85 |     | $ | 0.44
|Third Quarter                       |  |      | 3.47 |     |   | 1.63
|Second Quarter                      |  |      | 3.13 |     |   | 2.01
|First Quarter                       |  |      | 2.55 |     |   | 1.02
|                                    |  |     
|Fiscal Year ended December 31, 2006 |  |      |      |     |   |     
|                                    |  |     
|Fourth Quarter                      |  | $    | 3.81 |     | $ | 1.19
|Third Quarter                       |  |      | 3.50 |     |   | 2.50
|Second Quarter                      |  |      | 3.58 |     |   | 2.43
|First Quarter                       |  |      | 5.94 |     |   | 2.25

As of March 10, 2008, there were 449 stockholders of record of our common stock, and
approximately 10,400 beneficial owners. The high and low sales prices for our common stock on March 10, 2008, as reported by The American Stock Exchange, were $0.82 and $0.73, respectively.

We have never paid cash dividends on our common stock and do not anticipate paying such dividends in the foreseeable future. The payment of dividends, if
any, will be determined by the Board of Directors in light of conditions then existing, including our financial condition and requirements, future prospects, restrictions in financing agreements, business conditions and other factors deemed relevant
by the Board of Directors.

During the fiscal year ended December 31, 2007, we did not repurchase any of our securities.



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Stock Performance Graph

Set forth below is a line graph comparing the cumulative stockholder return on our common stock with the cumulative total return of The American Stock Exchange Composite Index and an industry peer group identified by
us (the Peer Group Index). The Peer Group Index consists of TorreyPines Therapeutics, Indevus Pharmaceuticals, Inc., Spectrum Pharmaceuticals, Inc., Neurobiological Technologies, Inc., StemCells, Inc. and Titan Pharmaceuticals, Inc. The
Peer Group Index return consists of the weighted returns of each component issuer according to such issuers respective stock market capitalization at the beginning of each period for which a return is indicated.

The graph assumes an investment of $100 in our common stock on January 1, 2002, and an investment in each of The American Stock Exchange Composite
Index and the Peer Group Index of $100 on January 1, 2002. The graph covers the period from January 1, 2002 to December 31, 2007.

The calculation of cumulative stockholder return for The American Stock Exchange Composite Index and the Peer Group Index includes the reinvestment of dividends. The calculation of cumulative stockholder return on our common stock does not
include reinvestment of dividends because we did not pay dividends on our common stock during the measurement period. The performance shown is not necessarily an indicator of future price performance.

LOGO



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Item 6. Selected Financial Data

We have derived the selected financial data presented below from our
audited financial statements and notes related thereto. The information set forth below is not necessarily indicative of the results of future operations. You should read the selected financial data together with the audited financial statements and
related notes and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Annual Report on Form 10-K. As reported on our Current Report on Form 8-K dated November 10,
2004, we changed our fiscal year end from June 30 to December 31, implementing such change for the six months ended December 31, 2004.

(In thousands, except per share data)



|                                                                        |  |                            |         |   |                            |      |         |                            |      |   |                                  |   |  |                      |        |   |  |   |        |   |  |   |        |  
|----------------------------------------------------------------------- |  | -------------------------- | ------- | - | -------------------------- | ---- | ------- | -------------------------- | ---- | - | -------------------------------- | - |  | -------------------- | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                                                        |  | Year endedDecember 31,2007 |         |   | Year endedDecember 31,2006 |      |         | Year endedDecember 31,2005 |      |   | Six Months endedDecember 31,2004 |   |  | Years ended June 30, |       
|                                                                        |  |                            |         |   |                            | 2004 |         |                            | 2003 |  
|INCOME STATEMENT DATA                                                   |  |                            |         |   |                            |      |         |                            |      |   |                                  |   |  |                      |        |   |  |   |        |   |  |   |        |  
|Revenues:                                                               |  |                            |         |   |                            |      |         |                            |      |   |                                  |   |  |                      |        |   |  |   |        |   |  |   |        |  
|Research and license revenue                                            |  | $                          |        |   |                            | $    | 1,150   |                            |      | $ | 2,473                            |   |  | $                    | 1,788  |   |  | $ | 6,792  |   |  | $ | 4,765  |  
|Grant revenue                                                           |  |                            |        |   |                            |      | 27      |                            |      |   | 104                              |   |  |                      | 108    |   |  |   | 181    |   |  |   | 467    |  
|                                                                        |  |                            |         |   |                            |      |         |                            |      |   |                                  |   |  |                      |        |   |  |   |        |   |  |   |        |  
|Total revenues                                                          |  |                            |        |   |                            |      | 1,177   |                            |      |   | 2,577                            |   |  |                      | 1,896  |   |  |   | 6,973  |   |  |   | 5,232  |  
|                                                                        |  |                            |         |   |                            |      |         |                            |      |   |                                  |   |  |                      |        |   |  |   |        |   |  |   |        |  
|Operating expenses:                                                     |  |                            |         |   |                            |      |         |                            |      |   |                                  |   |  |                      |        |   |  |   |        |   |  |   |        |  
|Research and development                                                |  |                            | 9,327   |   |                            |      | 13,262  |                            |      |   | 11,361                           |   |  |                      | 5,010  |   |  |   | 6,305  |   |  |   | 3,801  |  
|General and administrative                                              |  |                            | 4,320   |   |                            |      | 4,616   |                            |      |   | 3,376                            |   |  |                      | 1,598  |   |  |   | 3,208  |   |  |   | 2,620  |  
|                                                                        |  |                            |         |   |                            |      |         |                            |      |   |                                  |   |  |                      |        |   |  |   |        |   |  |   |        |  
|Total costs and expenses                                                |  |                            | 13,647  |   |                            |      | 17,878  |                            |      |   | 14,737                           |   |  |                      | 6,608  |   |  |   | 9,513  |   |  |   | 6,421  |  
|                                                                        |  |                            |         |   |                            |      |         |                            |      |   |                                  |   |  |                      |        |   |  |   |        |   |  |   |        |  
|Loss from operations                                                    |  |                            | (13,647 | ) |                            |      | (16,701 | )                          |      |   | (12,160                          | ) |  |                      | (4,712 | ) |  |   | (2,540 | ) |  |   | (1,189 | )
|                                                                        |  |                            |         |   |                            |     
|Interest income, net                                                    |  |                            | 678     |   |                            |      | 646     |                            |      |   | 637                              |   |  |                      | 167    |   |  |   | 149    |   |  |   | 14     |  
|                                                                        |  |                            |         |   |                            |     
|Change in fair value of common stock warrants                           |  |                            |        |   |                            |      |        |                            |      |   | (83                              | ) |  |                      | 498    |   |  |   | (3,603 | ) |  |   |       |  
|                                                                        |  |                            |         |   |                            |     
|Net loss applicable to common stock                                     |  | $                          | (12,969 | ) |                            | $    | (16,055 | )                          |      | $ | (11,606                          | ) |  | $                    | (4,046 | ) |  | $ | (5,994 | ) |  | $ | (1,175 | )
|                                                                        |  |                            |         |   |                            |     
|Basic and diluted net loss per share                                    |  | $                          | (0.31   | ) |                            | $    | (0.47   | )                          |      | $ | (0.36                            | ) |  | $                    | (0.14  | ) |  | $ | (0.26  | ) |  | $ | (0.07  | )
|Shares used in basic and diluted calculation                            |  |                            | 42,133  |   |                            |      | 34,349  |                            |      |   | 32,665                           |   |  |                      | 28,355 |   |  |   | 23,182 |   |  |   | 16,868 |  
|                                                                        |  |                            |         |   |                            |     
|Non-cash stock compensation charges included in operating expenses:     |  |                            |         |   |                            |      |         |                            |      |   |                                  |   |  |                      |        |   |  |   |        |   |  |   |        |  
|Research and development                                                |  | $                          | 1,371   |   |                            | $    | 1,997   |                            |      | $ | 183                              |   |  | $                    | 84     |   |  | $ | 189    |   |  | $ | 77     |  
|General and administrative                                              |  |                            | 866     |   |                            |      | 1,234   |                            |      |   | (15                              | ) |  |                      | 68     |   |  |   | 917    |   |  |   | 140    |  
|                                                                        |  |                            |         |   |                            |      |         |                            |      |   |                                  |   |  |                      |        |   |  |   |        |   |  |   |        |  
|                                                                        |  | $                          | 2,237   |   |                            | $    | 3,231   |                            |      | $ | 168                              |   |  | $                    | 152    |   |  | $ | 1,106  |   |  | $ | 217    |  
|                                                                        |  |                            |         |   |                            |     
|BALANCE SHEET DATA                                                      |  |                            |         |   |                            |      |         |                            |      |   |                                  |   |  |                      |        |   |  |   |        |   |  |   |        |  
|Cash and equivalents                                                    |  | $                          | 4,021   |   |                            | $    | 1,649   |                            |      | $ | 2,063                            |   |  | $                    | 9,157  |   |  | $ | 9,977  |   |  | $ | 1,125  |  
|Marketable securities                                                   |  |                            | 13,264  |   |                            |      | 7,799   |                            |      |   | 15,198                           |   |  |                      | 18,839 |   |  |   | 12,211 |   |  |   |       |  
|Working capital                                                         |  |                            | 15,805  |   |                            |      | 7,917   |                            |      |   | 14,710                           |   |  |                      | 26,070 |   |  |   | 20,567 |   |  |   | (1,505 | )
|Total assets                                                            |  |                            | 18,429  |   |                            |      | 10,435  |                            |      |   | 17,989                           |   |  |                      | 29,912 |   |  |   | 22,891 |   |  |   | 2,179  |  
|Unearned revenue, net of current portion, and other long-term liability |  |                            | 25      |   |                            |      | 58      |                            |      |   | 50                               |   |  |                      | 23     |   |  |   | 381    |   |  |   | 247    |  
|Common stock warrants                                                   |  |                            |        |   |                            |      |        |                            |      |   |                                 |   |  |                      | 3,958  |   |  |   |       |   |  |   |       |  
|Total stockholders equity (deficit)                                    |  |                            | 16,677  |   |                            |      | 8,320   |                            |      |   | 15,132                           |   |  |                      | 23,647 |   |  |   | 20,489 |   |  |   | (1,420 | )



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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations

The following
discussion and analysis should be read in conjunction with the audited financial statements and notes related thereto appearing elsewhere herein.

Critical Accounting Policies and Management Estimates

The SEC defines critical accounting policies as those that are, in
managements view, most important to the portrayal of our financial condition and results of operations and most demanding of their judgment. Our discussion and analysis of our financial condition and results of operations are based upon our
financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities.

We base our estimates on
historical experience and on various other assumptions that are believed to be reasonable under the circumstances. This process forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition

In accordance with the SECs Staff Accounting Bulletin No. 104 (SAB 104), amounts received for upfront technology license fees under
multiple-element arrangements are deferred and recognized over the period of committed services or performance, if such arrangements require our on-going services or performance. We record grant revenues as we incur expenses related to the grant
projects. All amounts received under collaborative research agreements or research grants are nonrefundable, regardless of the success of the underlying research.

Revenues from milestone payments are recognized when earned, as evidenced by written acknowledgment from our collaborator, provided that (i) the milestone event is substantive and its achievement was not
reasonably assured at the inception of the agreement, and (ii) our performance obligations after the milestone achievement will continue to be funded by our collaborator at a comparable level to that before the milestone achievement. If both of
these criteria are not met, the milestone payment is recognized over the remaining minimum period of our performance obligations under the agreement.

In November 2002, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board (FASB) reached consensus on Issue 00-21. EITF Issue 00-21 addresses the accounting for
arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. Specifically, Issue 00-21 requires the recognition of revenue from milestone payments over the remaining minimum period of
performance obligations. As required, we apply the principles of Issue 00-21 to multiple element agreements that we enter into or modify after July 1, 2003.

Employee Stock Options and Stock-Based Compensation

As required, as of January 1, 2006 we adopted Statement of
Financial Accounting Standards No. 123(R) (SFAS 123(R)), which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.
Prior periods were not restated.

Prior to January 1, 2006, we accounted for stock-based employee compensation in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). According to APB 25, no compensation expense is recognized since the exercise price of our stock



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options generally equals the market price of the underlying stock on the date of grant. We transitioned to Statement of Financial Accounting Standards
No. 123, Accounting For Stock-Based Compensation (SFAS 123), by utilizing Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure
(SFAS 148). In accordance with SFAS 148, we disclosed the effects of stock-based employee compensation on reported net income or loss and earnings or loss per share in the footnotes to our annual and interim financial statements.

Given that we previously followed APB 25 and SFAS 148 in accounting for our employee stock options, the impact of adopting the expense
recognition requirements of SFAS 123(R) was significant to our results of operations, but not our financial position. Our net loss for the year ended December 31, 2007 and 2006 includes approximately $2,160,000 and $3,050,000 of non-cash
stock-based employee compensation costs, respectively. For the year ended December 31, 2005, our net loss includes approximately $13,000 of non-cash stock-based employee compensation costs.

In accordance with SFAS 123 and EITF Issue 96-18, Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in
Conjunction with Selling Goods and Services, stock options and warrants issued to consultants and other non-employees as compensation for services to be provided to us are accounted for based upon the fair value of the services provided or the
estimated fair market value of the option or warrant, whichever can be more clearly determined. We recognize this expense over the period the services are provided.

Registration Payment Arrangements

In connection with prior private placements of our common stock
and warrants to purchase shares of our common stock, we entered into agreements that committed us to timely register the shares underlying the issued warrants. Those registration agreements specified potential cash penalties if we did not timely
register the related shares with the SEC.

In accordance with EITF 00-19, Accounting for Derivative Financial Instruments Indexed To,
and Potentially Settled In a Companys Own Stock, when the potential cash penalties were included in registration payment arrangements, we recorded the estimated fair value of the warrants as a liability, with an offsetting reduction to
additional paid-in capital received from the private placement. The fair value of the warrants was estimated using the Black-Scholes option pricing model.

The estimated fair value of the warrants was re-measured at each reporting date and on the date of effectiveness of the related registration statement, with the increase in fair value recorded as other expense in our
Statement of Operations. As of the effectiveness of the registration statement, the warrant liability was reclassified to additional paid-in capital, evidencing the non-impact of these adjustments on our financial position and business operations.

In December 2006, the FASB issued FASB Staff Position (FSP) EITF No. 00-19-2, Accounting for Registration Payment
Arrangements. This FSP specifies that companies that enter into agreements to register securities will be required to recognize a liability if a payment to investors for failing to fulfill the agreement is probable and can be reasonably
estimated. This accounting differs from the guidance in EITF 00-19, which required a liability to be recognized and measured at fair value, regardless of probability.

EITF 00-19-2 is effective immediately for registration payment arrangements and the financial instruments subject to those arrangements that we enter into or modify after the date of issuance of this FSP. For our
registration payment arrangements and financial instruments subject to those arrangements that were entered prior to the issuance of this FSP, the guidance was effective beginning January 1, 2007.

Transition to EITF 00-19-2 was to be achieved by reporting a change in accounting principle through a cumulative-effect adjustment to the opening balance
of retained earnings. For purposes of measuring the cumulative-effect adjustment related to the recognition of a contingent liability, we evaluated whether the transfer of consideration under our registration payment arrangements was



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probable and could be reasonably estimated as of the January 1, 2007 adoption date. Given that we did not deem the transfer of consideration under our
existing registration payment arrangements as probable as of December 31, 2006, we did not record a cumulative-effect adjustment in connection with the adoption of this FSP.

In connection with the obligation to maintain effectiveness of the registration statements filed with each of the August 2003, January 2004 and
December 2004 transactions, the Company has estimated the maximum potential amount of undiscounted payments that it could be required to make under the registration arrangements as approximately $276,000, $2,783,000 and $3,762,000, respectively.
Given that the Company did not deem the transfer of consideration under its existing registration payment arrangements as probable as of December 31, 2007, no related expense or liability has been recorded during the year ended
December 31, 2007.

The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the
accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the U.S., with no need for managements judgment in their application. There are also areas in which managements
judgment in selecting any available alternative would not produce a materially different result. See our audited financial statements and notes thereto which begin on page F-1 of this Annual Report on Form 10-K, which contain accounting policies and
other disclosures required by accounting principles generally accepted in the U.S.

Results of Operations

General

In January 1999, we entered into a research
collaboration and exclusive worldwide license agreement with NV Organon (Organon). The agreement will allow Organon to develop and commercialize our proprietary AMPAKINE technology for the treatment of schizophrenia and
depression. In connection with the agreement, we received a $2,000,000 up-front licensing payment and research support payments of approximately $3,000,000 per year for two years.

The agreement with Organon also includes milestone payments based upon clinical development, plus royalty payments on worldwide sales. Through
December 31, 2007, we have received milestone payments totaling $6,000,000 under the agreement with Organon.

In October 2000, we entered into a research collaboration agreement and an exclusive license agreement with Les Laboratoires Servier (Servier). The license agreement will allow Servier to develop and
commercialize select AMPAKINE® compounds for the treatment of (i) declines in cognitive performance associated with aging, (ii) neurodegenerative diseases and
(iii) anxiety disorders. 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 Amyotrophic Lateral Sclerosis. In
early December 2006, we terminated the research collaboration with Servier and as a result the worldwide rights for the AMPAKINE technology for treatment of neurodegenerative diseases were returned to us, other than three compounds
selected by Servier for commercialization.

The agreements with Servier, as amended to date, include a nonrefundable up-front fee of
$5,000,000 and research support payments of $2,025,000 per year through early December 2006 (subject to us providing agreed-upon levels of research personnel). The amount of research support was subject to annual adjustment based upon the increase
in the U.S. Department of Labors Consumer Price Index. The agreements also include potential milestone payments, plus royalty payments on sales in licensed territories.

In October 2002, Servier agreed to provide us with $4,000,000 of additional research support, in exchange for rights to our AMPAKINE
compounds for the potential treatment of anxiety disorders in Serviers licensed territories. The $4,000,000 was paid in quarterly installments of $500,000 over a two-year period, ending in September 2004.



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From inception (February 10, 1987) through December 31, 2007, we sustained losses approximating
$92,727,000. Due to projected fluctuations in funding, continuing losses are likely over the next several years, as our ongoing operating expenses will only be offset, if at all, by possible milestone payments from our agreements with Servier and
Organon, or under planned strategic alliances that we are seeking with other pharmaceutical companies for the clinical development, manufacturing and marketing of our products. The nature and timing of payments to us under the Servier and Organon
agreements or other planned strategic alliances, if and when entered into, are likely to significantly affect our operations and financing activities and to produce substantial period-to-period fluctuations in reported financial results. Over the
longer term, we will require successful commercial development of our products by Servier, Organon, or our other prospective partners to attain sustained profitable operations from royalties or other product-based revenues.

We believe that inflation and changing prices have not had a material impact on our ongoing operations to date.

Years ended December 31, 2007 and 2006

For the
fiscal year ended December 31, 2007, our net loss decreased by 19% to approximately $12,969,000 compared to a net loss of approximately $16,055,000 for the prior year.

Revenues for the fiscal year ended December 31, 2007 decreased to $0 from approximately $1,177,000 reported in the prior year due primarily to
decreased research revenues from our collaboration agreement with Servier. As reported earlier, we terminated the research phase of our collaboration with Servier in early December 2006.

Our research and development expenses for the year ended December 31, 2007 decreased from approximately $13,262,000 to approximately $9,327,000, or
by 30%, from the prior year. The decrease in our non-cash stock compensation charges represents approximately $626,000, or 16%, of this decrease. Most of the remaining decreased expenses reflect prior year clinical expenses incurred before the FDA
clinical hold on CX717, and preclinical expenses to address the clinical hold.

As reported earlier, the FDA placed a clinical hold on
CX717 in late March 2006 due to concerns over some preclinical animal data and not as a result of data from any human clinical trials. After we provided additional toxicological data, the FDA released the clinical hold in October 2006, but imposed a
limited dose range for further clinical testing of the compound.

While we could have continued with our Alzheimers disease study at
low doses, we chose not to given that the original intent of the Alzheimers study was to look at a range of doses up to 1200mg. Without the ability to test several different doses, we felt the study could result in a clinical failure for the
drug without ever having tested it at higher dose levels. The risks associated with proceeding on that basis were deemed unacceptable and instead we chose to delay the study until we could provide the FDA with sufficient information that would allow
us to proceed at all dose levels originally desired for this study.

In April 2007, we submitted further data to the FDA that demonstrates
that the cellular effects that originally concerned the Division of Neurology Products were postmortem, fixative induced effects. In July 2007, the FDA indicated that we may resume our previously approved clinical trials with CX717 in
Alzheimers disease at all requested dose levels.

In September 2007, we filed an Investigational New Drug Application, or IND, for
CX717 with the Division of Psychiatry Products of the FDA to potentially initiate a Phase IIb study evaluating CX717



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for the treatment of Attention Deficit Hyperactivity Disorder, or ADHD. Prior to the FDA clinical hold, we announced positive statistical and clinical
results with CX717 in a Phase IIa pilot clinical trial in adults with that indication.

In October 2007, the FDA rejected our application
to study CX717 in ADHD based upon the results of animal toxicology studies that we filed with the agency. At this time, we do not anticipate re-submitting further data to the FDA for CX717 for the ADHD indication.

We believe that by developing an acute use for CX717, such as treatment of respiratory depression, we may mitigate the risks perceived with higher
chronic doses. The risk/benefit ratio for the treatment of patients with life-threatening disorders, such as respiratory depression, is significantly different than that for the treatment of ADHD. In addition, our preclinical data for improvement of
memory and cognition in animals consistently indicates required dose levels of CX717 that represent a 5 to 10-fold level less than the dose required in animal models of ADHD. Either lower dosage levels for chronic administration and/or acute uses
are thus possible options for the continued development of CX717.

Our general and administrative expenses for the year ended
December 31, 2007 decreased from approximately $4,616,000 to approximately $4,320,000, or by 6%, compared to the prior year, with non-cash stock compensation charges producing the decrease. Total non-cash stock compensation charges for the
current year decreased by approximately $368,000 from the prior year.

Net interest income of approximately $678,000 in fiscal year 2007
was consistent with net interest income of approximately $646,000 for the prior year.

Years ended December 31, 2006 and 2005

For the fiscal year ended December 31, 2006, our net loss increased by 38% to approximately $16,055,000 compared to a net loss of approximately
$11,606,000 for the prior year.

Revenues for the fiscal year ended December 31, 2006 decreased by 54% to approximately $1,177,000
from approximately $2,577,000 reported in the prior year due primarily to decreased research revenues from our research collaboration agreement with Servier. At our request, the collaboration with Servier ended in early December 2006.

Research and development expenses for the fiscal year ended December 31, 2006 increased to approximately $13,262,000 from approximately $11,361,000,
or by 17%, compared to the corresponding prior year period as a result of increased non-cash stock compensation charges related to our required adoption of SFAS 123(R) as of January 1, 2006, and the recording of expense for all share-based
payments to employees, including grants of employee stock options, based on their fair values. Non-cash stock compensation charges accounted for approximately $1,815,000, or 95%, of the increase in expense for the year ended December 31, 2006.

Preclinical development expenses for the fiscal year ended December 31, 2006 included between $3,000,000 and $3,500,000 for studies
initiated to address the clinical hold on our AMPAKINE CX717 by the FDA. As indicated above, the FDA placed the clinical hold on CX717 in late March 2006 due to concerns over preclinical animal data. We submitted a response to the FDA
in early September 2006 and the FDA removed the clinical hold in early October 2006. In agreeing to the removal of the hold, we committed to an FDA specified dose range for CX717. These dose limitations delayed our planned clinical trials with CX717
in ADHD.

Excluding the non-cash stock compensation charges discussed above, our total research and development expenses for the year ended
December 31, 2006 were consistent with those for the prior year with amounts related to addressing the clinical hold on CX717 offset by decreased clinical development expenses.



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Our general and administrative expenses for the year ended December 31, 2006 increased from
approximately $3,376,000 to approximately $4,616,000, or by 37%, compared to the prior year, with non-cash stock compensation charges producing the increase. Total non-cash stock compensation charges in fiscal year 2006 increased by approximately
$1,249,000 from the prior year.

Net interest income of approximately $646,000 in fiscal year 2006 was consistent with net interest income
of approximately $637,000 for the prior year.

Liquidity and Capital Resources

Under the agreements signed with Servier in October 2000, as amended to date, the collaborative research phase of the agreement ended in early December
2006. As a result of this termination Cortex regained the worldwide rights for the use of AMPAKINE compounds for treatment of (a) age related decline in memory and cognition, (b) mild cognitive impairment and
Alzheimers disease (c) neurodegenerative diseases, (d) sexual dysfunction and (e) anxiety. Servier subsequently selected three AMPAKINE compounds that it may develop for potential commercialization. We remain
eligible to receive payments based upon defined clinical development milestones of the licensed compounds and royalties on sales in licensed territories. Under the terms of the agreement with Organon, we may receive additional milestone payments
based on clinical development of the licensed technology and ultimately, royalties on worldwide sales.

In August 2003, we completed a
private placement of an aggregate of 3,333,334 shares of our common stock at $1.50 per share and five-year warrants to purchase up to an additional aggregate of 3,333,334 shares at an exercise price of $2.55 per share. We received approximately
$4,496,000 in net proceeds from the private placement. The warrants are subject to a call right in our favor to the extent that the closing price of our common stock exceeds $6.00 per share for any thirteen consecutive trading day period. During the
year ended December 31, 2006, we received approximately $2,830,000 of proceeds from the exercise of related warrants. During the year ended December 31, 2007, we received approximately $170,000 from the exercise of related warrants. If the
remaining warrants are fully exercised, of which there can be no assurance, these warrants would provide approximately $4,633,000 of additional capital.

In January 2004, we completed a private placement of an aggregate of 6,909,091 shares of our common stock at $2.75 per share and five-year warrants to purchase up to an additional aggregate of 4,490,910 shares at an
exercise price of $3.25 per share. We received approximately $17,500,000 in net proceeds from the private placement. The warrants are subject to a call right in our favor to the extent that the closing price of our common stock exceeds $7.50 per
share for any 13 consecutive trading day period. During the year ended December 31, 2006, we received approximately $1,696,000 from the exercise of related warrants. There was no exercise of related warrants during the year ended
December 31, 2007. If the remaining warrants are fully exercised, of which there can be no assurance, these warrants would provide approximately $12,900,000 of additional capital.

In December 2004, we completed a private placement of an aggregate of 4,233,333 shares of our common stock at $2.66 per share and five-year warrants to
purchase up to an additional aggregate of 2,116,666 shares at an exercise price of $3.00 per share. We received approximately $10,385,000 in net proceeds from the private placement. The warrants are subject to a call right in our favor to the extent
that the closing price of our common stock exceeds $7.50 per share for any 13 consecutive trading day period. During the year ended December 31, 2006, we received approximately $1,023,000 from the exercise of related warrants. There was no
exercise of related warrants during the year ended December 31, 2007. If the remaining warrants are fully exercised, of which there can be no assurance, these warrants would provide approximately $5,327,000 of additional capital.



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In January 2007, we completed a registered direct offering of an aggregate of 5,021,427 shares of our
common stock at $1.12 per share and five-year warrants to purchase up to an additional aggregate of 3,263,927 shares at an exercise price of $1.66 per share. We received approximately $5,080,000 in net proceeds from the offering. The warrants are
subject to a call right in our favor to the extent that the closing price of our common stock exceeds $3.35 for any 13 consecutive trading day period. During the year ended December 31, 2007, we received approximately $443,000 from the exercise
of related warrants. If the remaining warrants are fully exercised, of which there can be no assurance, these warrants would provide approximately $4,975,000 of additional capital.

In August 2007, we completed a registered direct offering of an aggregate of 7,075,000 shares of our common stock at $2.00 per share and five-year
warrants to purchase up to an additional aggregate of 2,830,000 shares at an exercise price of $2.64 per share. We received approximately $13,135,000 in net proceeds from the offering. There was no exercise of related warrants during the year ended
December 31, 2007. If the related warrants are fully exercised, of which there can be no assurance, these warrants would provide approximately $8,172,000 of additional capital.

Cash Position

As of December 31, 2007, we had cash, cash equivalents and marketable securities
totaling approximately $17,284,000 and working capital of approximately $15,805,000. As of December 31, 2006, we had cash, cash equivalents and marketable securities totaling approximately $9,449,000 and working capital of approximately
$7,917,000. The increases in cash and working capital reflect proceeds from our registered direct offerings of our common stock and warrants to purchase shares of our common stock, partially offset by amounts required to fund operations.

For the year ended December 31, 2007, net cash used in operating activities was approximately $10,742,000, and included our net loss for the
period of approximately $12,969,000, adjusted for non-cash stock compensation charges of approximately $2,237,000, depreciation charges aggregating approximately $127,000, and changes in operating assets and liabilities. Net cash used in operating
activities was approximately $13,724,000 during the year ended December 31, 2006, and included our net loss for the period of approximately $16,055,000, adjusted for non-cash stock compensation charges of approximately $3,231,000, depreciation
charges aggregating approximately $111,000, and changes in operating assets and liabilities.

Net cash used in investing activities was
approximately $5,944,000 for the year ended December 31, 2007, and resulted from the purchases of marketable securities and fixed assets of approximately $17,060,000 and $550,000, respectively, partially offset by the maturity and sale of
short-term investments of approximately $11,666,000. For the year ended December 31, 2006, net cash provided by investing activities approximated $7,341,000, and primarily resulted from the maturity and sale of short-term investments of
approximately $16,922,000, partially offset by the purchases of marketable securities and fixed assets of $9,481,000 and $100,000, respectively.

Net cash provided by financing activities approximated $19,058,000 for the year ended December 31, 2007, and primarily represented proceeds from the Companys registered direct offerings of its common stock and warrants to
purchase shares of its common stock in January and August 2007. For the year ended December 31, 2006, net cash provided by financing activities totaled approximately $5,969,000, reflecting proceeds from the exercise of options and warrants to
purchase common stock.



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Commitments

We lease approximately 32,000 square feet of research laboratory, office and expansion space under an operating lease that expires May 31, 2009. The commitments under the lease agreement for the years ending December 31, 2008 and
2009 are approximately $556,000 and $237,000, respectively. From inception (February 10, 1987) through December 31, 2007, expenditures for furniture, equipment and leasehold improvements aggregated approximately $3,709,000.

We are committed to approximately $540,000 for sponsored research to academic and other external institutions, of which approximately $397,000 is payable
within the next twelve months. Commitments for preclinical and clinical development expenses approximate $1,540,000, nearly all of which is payable within the next twelve months.

In June 2000, we received $247,300 from the Institute for the Study of Aging (the Institute), a non-profit foundation supported by the Estee
Lauder Trust. The advance partially offset our limited costs for our testing in patients with MCI that we conducted with our partner, Servier. Provided that we comply with the conditions of the funding agreement, including the restricted use of the
amounts received, repayment of the advance will not be required unless we enter an AMPAKINE compound 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 our common stock. The conversion
price for such form of repayment shall initially equal $4.50 per share, subject to adjustment under certain circumstances.

The following table sets forth
our contractual obligations as of December 31, 2007:



|                                                                      |       |                        |                 |  |           |           |           |   |                  |  |   |         |  |   |        
|--------------------------------------------------------------------- | ----- | ---------------------- | --------------- |  | --------- | --------- | --------- | - | ---------------- |  | - | ------- |  | - | -------
|Contractual Obligations                                               |       | Payments Due by Period
|                                                                      | Total |                        | Less than1 Year |  | 1-3 Years |           | 3-5 Years |   | More than5 Years
|Operating Lease Obligations                                           |       | $                      | 793,000         |  | $         | 556,000   |           | $ | 237,000          |  | $ |        |  | $ |       
|Other Long-Term Liabilities Reflected on our Balance Sheet under GAAP |       |                        | 25,000          |  |           | 25,000    |           |   |                 |  |   |        |  |   |       
|Other Contractual Obligations                                         |       |                        | 2,825,000       |  |           | 2,011,000 |           |   | 309,000          |  |   | 165,000 |  |   | 340,000
|                                                                      |       |                        |                 |  |           |           |           |   |                  |  |   |         |  |   |        
|Total                                                                 |       | $                      | 3,643,000       |  | $         | 2,592,000 |           | $ | 546,000          |  | $ | 165,000 |  | $ | 340,000
|                                                                      |       |                        |                 |  |           |           |           |   |                  |  |   |         |  |   |        

Subsequent to December 31, 2007, we entered into additional agreements committing us to
amounts approximating $1,000,000, all of which is payable within one year.

Staffing

As of December 31, 2007, we had 27 full-time employees. We do not anticipate significant increases in the number of our full-time employees within
the coming year.



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Plant and Equipment

We expect that we will require modest investments in plant and equipment within the coming year.

Outlook

We anticipate that our cash and cash equivalents and marketable securities and the net proceeds from our completed registered direct
offerings of common stock and warrants in January and August 2007 will be sufficient to satisfy our capital requirements into 2009. Additional funds will be required to continue operations beyond that time. We may receive additional milestone
payments from the Organon and Servier agreements, but there is no assurance that we will receive such milestone payments within the desired timeframe, or at all. We may also receive funds from the exercise of warrants to purchase shares of our
common stock. As of December 31, 2007, warrants to purchase up to approximately 13.8 million shares of our common stock were outstanding. If all currently outstanding warrants are fully exercised, of which there can be no assurance, such
exercise would provide approximately $36,600,000 of additional capital. See Risk Factors  Risks related to our business We will need additional capital in the future and, if it is not available on terms acceptable to us, or
at all, we may need to scale back our research and development efforts and may be unable to continue our business operations.

In
order to provide for our longer-term spending requirements, we are presently seeking collaborative or other arrangements with larger pharmaceutical companies. Under these agreements, we intend that such companies would provide additional capital to
us in exchange for exclusive or non-exclusive license or other rights to certain of the technologies and products we are developing. Competition for such arrangements is intense, with a large number of biopharmaceutical companies attempting to
secure alliances with more established pharmaceutical companies. Although we have 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 our short and longer-term funding requirements.

Because there is no assurance that we will secure additional corporate partnerships, we 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 stockholders may result.

Our
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 unsafe, 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 us from marketing them; or that third parties will market superior or equivalent products.
Accordingly, we are unable to predict whether our 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, we do not expect to be able to commercialize any therapeutic drug for at least five years, either directly or through our prospective corporate partners or licensees. There can be no assurance that our proposed products
will prove to be safe or effective or receive regulatory approvals that are required for commercial sale.



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Off-Balance Sheet Arrangements

We do not currently have any off-balance sheet arrangements within the meaning of Item 303(a)(4) of Regulation S-K.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market
risks associated with interest rate fluctuations on our marketable securities and borrowing arrangement. All investments in marketable securities are entered into for purposes other than trading. We are not subject to risks from currency rate
fluctuations as we do not typically conduct transactions in foreign currencies. In addition, we do not utilize hedging contracts or similar instruments.

Our exposure to interest rate risk arises from financial instruments entered into in the normal course of business. Certain of our financial instruments are fixed rate, short-term investments in government and
corporate notes and bonds, which are available for sale (and have been marked to market in the accompanying financial statements). Changes in interest rates generally affect the fair value of the investments, however, because these financial
instruments are considered available for sale, all such changes are reflected in the financial statements in the period affected. We manage interest rate risk on our investment portfolio by matching scheduled investment maturities with
our cash requirements. As of December 31, 2007, our investment portfolio had a carrying amount of approximately $13,264,000. If market interest rates were to increase immediately and uniformly by 10% from levels as of December 31, 2007,
the resulting decline in the fair value of fixed rate bonds held within our portfolio would not be material to our financial position, results of operations and cash flows.

Our borrowing consists solely of our advance from the Institute, which is subject to potential repayment in the event that we enter an
AMPAKINE compound into Phase III clinical testing as a potential treatment for Alzheimers disease. Potential repayment would include interest accruing at a discount to the prime lending rate. Changes in interest rates generally
affect the fair value of such debt, but, based upon historical activity, such changes are not expected to have a material impact on earnings or cash flows. As of December 31, 2007, the principal and accrued interest of the advance amounted to
approximately $305,000.

Item 8. Financial Statements and Supplementary Data

Our financial statements and other information
required by this item are set forth herein in a separate section beginning with the Index to Financial Statements on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not
applicable.

Item 9A. Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules
13a-15(e) and 15(d)-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the
SECs rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.



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We carried out an evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by report, pursuant to Rules 13a-15(b) and 15d-15(b) under the Exchange
Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures, as of the end of the period covered by this report, were effective in timely alerting them to material
information relating to the Company required to be included in our periodic SEC filings.



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Managements Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange
Act Rule 13a-15(f) or 15d-15(f). Management conducted an assessment of the effectiveness, as of December 31, 2007, of our internal control over financial reporting, based on the framework established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment under that framework, management concluded that our internal control over financial reporting was effective as
of December 31, 2007.

The effectiveness of our internal control over financial reporting as of December 31, 2007 has been
audited by Haskell & White LLP, an independent registered public accounting firm, which also audited the financial statements of the Company included in this Annual Report on Form 10-K. Haskell & White LLPs attestation report
on the effectiveness of the Companys internal control over financial reporting as of December 31, 2007 appears on page F-2 of this Annual Report on Form 10-K.

There has been no change in our internal control over financial reporting during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.



|                         
|-------------------------
|/s/ Roger G. Stoll       
|Roger G. Stoll, Ph.D.    
|(Chief Executive Officer)
|                         
|/s/ Maria S. Messinger   
|
|Maria S. Messinger       
|(Chief Financial Officer)

March 12, 2008



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##### Table of Contents

Item 9B. Other Information

The Compensation Committee of our Board of Directors amended the annual
salaries of our executive officers. For the year ending December 31, 2008, Roger G. Stoll, Ph.D., Chairman, President and Chief Executive Officer will receive $370,000, Mark A. Varney, Ph.D., Chief Operating Officer and Chief Scientific Officer
will receive $338,000, Maria S. Messinger, Vice President and Chief Financial Officer and Corporate Secretary will receive $243,000, James H. Coleman, Senior Vice President, Business Development will receive $250,000 and Steven A. Johnson, Ph.D.,
Vice President, Preclinical Development will receive $221,000.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The sections entitled Nominees for
Director, Executive Officers, Other Key Employees, Scientific Consultants, Board Committees  Audit Committee and Compliance with Section 16(a) of the Securities Exchange Act of
1934 included in our Proxy Statement for our 2008 Annual Meeting of Stockholders, to be filed with the SEC on or before April 29, 2008, are incorporated herein by reference.

Code of Ethics

We have adopted a Code of Business Conduct and Ethics, which covers all of our
directors and employees, including our principal executive and financial officers. Any amendment or waiver to our Code of Business Conduct and Ethics that applies to our directors or executive officers will be posted on our website at
www.cortexpharm.com or in a report filed with the SEC on Form 8-K. A copy of our Code of Business Conduct and Ethics is available free of charge upon written request to our Corporate Secretary at 15241 Barranca Parkway, Irvine, California
92618.

Item 11. Executive Compensation

The sections entitled Compensation Discussion and Analysis,
Executive Compensation, Option Matters, Employment and Consulting Agreements, Compensation Committee Interlocks and Insider Participation, Compensation Committee Report and Director
Compensation included in our Proxy Statement for our 2008 Annual Meeting of Stockholders, to be filed with the SEC on or before April 29, 2008, are incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The section entitled PRINCIPAL STOCKHOLDERS included in our Proxy Statement for our 2008 Annual Meeting of Stockholders, to be filed with the SEC on or before April 29, 2008, is incorporated herein by reference.



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##### Table of Contents

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth information regarding outstanding options, warrants and rights and shares reserved for future issuance under our existing
equity compensation plans as of December 31, 2007. Our only stockholder approved equity compensation plans consist of the 1996 Stock Incentive Plan (that expired in October 2006) and the 2006 Stock Incentive Plan. Following the expiration of
the 1996 Stock Incentive Plan all subsequently granted stock options were and will be issued from the 2006 Stock Incentive Plan.



|                                                           |  |                                                                                            |     |  |                                                                             |      |                                                                                                                                    |          
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------ | --- |  | --------------------------------------------------------------------------- | ---- | ---------------------------------------------------------------------------------------------------------------------------------- | ---------
|Plan Category                                              |  | (a)Number of securitiestobe issued upon exerciseof outstanding options,warrants and rights |     |  | (b)Weighted-averageexercise price
ofoutstanding options,warrants and rights |      | (c)Number of securitiesremaining available forissuance under equitycompensation plans(excluding securitiesreflected in column (a))
|Equity compensation plans approved by security holders     |  | 9,791,496                                                                                  |     |  | $                                                                           | 1.90 |                                                                                                                                    | 1,819,419
|Equity compensation plans not approved by security holders |  | 350,000                                                                                    | (1) |  |                                                                             | 2.59 |                                                                                                                                    |         
|                                                           |  |                                                                                            |     |  |                                                                             |      |                                                                                                                                    |          
|Total                                                      |  | 10,141,496                                                                                 |     |  | $                                                                           | 1.92 |                                                                                                                                    | 1,819,419
|                                                           |  |                                                                                            |     |  |                                                                             |      |                                                                                                                                    |          



|(1) | In January 2006, as an inducement to the employment of our Chief Operating Officer and Chief Scientific Officer, Mark A.
Varney, Ph.D., we issued 250,000 options outside of the 1996 Stock Incentive Plan and the 2006 Stock Incentive Plan. The options have a ten-year term and vest in the following installments: 83,334 on January 30, 2007, 83,333 on January 30, 2008 and
83,333 on January 30, 2009. In March 2007, as an inducement to the employment of our Head of Medicinal Chemistry, Leslie J. Street, Ph.D., we issued 100,000 options outside of the 2006 Stock Incentive Plan. The options have a ten-year term and vest
in the following installments: 33,334 on March 5, 2008, 33,333 on March 5, 2009 and 33,333 on March 5, 2010.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Item 13. Certain Relationships and Related Transactions, and Director Independence

The sections entitled
Corporate Governance and Certain Transactions included in our Proxy Statement for our 2008 Annual Meeting of Stockholders, to be filed with the SEC on or before April 29, 2008, are incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

The section entitled RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS included in our Proxy Statement for our 2008 Annual Meeting of Stockholders, to be filed with the SEC on or before April 29, 2008, is incorporated herein by reference.



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##### Table of Contents

PART IV

Item 15. Exhibits and Financial Statement Schedules



|(a) | List of documents filed as part of this report:
|--- | -----------------------------------------------



| | (1) | Financial Statements
| | --- | --------------------

Reference is made to the Index to
Financial Statements on page F-1, where these documents are listed.



| | (2) | Financial Statement Schedules
| | --- | -----------------------------

The financial statement
schedules have been omitted because the required information is not applicable, or not present in amounts sufficient to require submission of the schedules, or because the information is included in the financial statements or notes thereto.



| | (3) | Exhibits
| | --- | --------

See (b) below.



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|(b) | Exhibits
|--- | --------



|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|              | 
|3.1           |  | Restated Certificate of Incorporation dated April 11, 1989, as amended by Certificate of Amendment on June 27, 1989, by Certificate of Designation filed April 29, 1991, by Certificate of
Correction filed May 1, 1991, by Certificate of Amendment of Certificate of Designation filed June 13, 1991, by Certificate of Amendment of Certificate of Incorporation filed November 12, 1992, by Certificate of Amendment of Restated Certificate of
Incorporation filed January 11, 1995, by Certificate of Designation filed December 8, 1995, by Certificate of Designation filed October 15, 1996, by Certificate of Designation filed June 4, 1997, by Certificate of Amendment of Restated Certificate
of Incorporation filed December 21, 1998, and by Certificate of Designation filed February 11, 2002, incorporated by reference to the same numbered Exhibit of the Companys Amendment No. 1 to Registration Statement on Form 8-A, No.001-16467,
filed February 15, 2002, as further amended by Certificate of Amendment of Restated Certificate of Incorporation filed December 15, 2003, incorporated by reference to Exhibit 3.3 to the Companys Quarterly Report on Form 10-Q filed February 12,
2004.
|              | 
|3.2           |  | By-Laws of the Company, as adopted March 4, 1987, and amended on October 8, 1996, incorporated by reference to the same numbered Exhibit to the Companys Annual Report on Form 10-KSB filed
October 15, 1996.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|              | 
|3.4           |  | Certificate of Amendment of Restated Certificate of Incorporation filed March 2, 2006, incorporated by reference to Exhibit 3.4 to the Companys Annual Report on Form 10-K filed March 16,
2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|              | 
|3.5           |  | Certificate of Amendment of By-Laws of the Company, incorporated by reference to the same numbered Exhibit to the Companys Report on Form 8-K filed November 15, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|              | 
|4.1           |  | Rights Agreement, dated as of February 8, 2002, between the Company and American Stock Transfer & Trust Company, which includes as Exhibit A thereto a form of Certificate of Designation for
the Series A Junior Participating Preferred Stock, as Exhibit B thereto the Form of Rights Certificate and as Exhibit C thereto a Summary of Terms of Stockholder Rights Plan, incorporated by reference to Exhibit 4.2 to the Companys Amendment
No. 1 to Registration Statement on Form 8-A, No. 001-16467, filed February 15, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|              | 
|4.2           |  | Placement Agency Agreement, dated January 16, 2007, by and between Cortex Pharmaceuticals, Inc. and Roth Capital Partners, LLC, Form of Subscription Agreement and Form of Common Stock Purchase
Warrant issued by Cortex Pharmaceuticals, Inc., incorporated by reference to Exhibits 1.1, 1.2 and 4.1, respectively, to the Companys Report on Form 8-K filed January 19, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|              | 
|4.3           |  | Placement Agency Agreement, dated August 24, 2007, by and between Cortex Pharmaceuticals, Inc. and JMP Securities LLC and Rodman and Renshaw, LLC, Form of Subscription Agreement and Form of
Common Stock Purchase Warrant issued by Cortex Pharmaceuticals, Inc., incorporated by reference to Exhibits 1.1, 1.2 and 4.1, respectively, to the Companys Report on Form 8-K filed August 27, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|              | 
|10.2          |  | Consulting Agreement, dated October 30, 1987, between the Company and Carl W. Cotman, Ph.D., incorporated by reference to the same numbered Exhibit to the Companys Registration Statement
on Form S-1, No. 33-28284, effective on July 18, 1989.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|              | 
|10.3          |  | Consulting Agreement, dated as October 30, 1987, between the Company and Gary S. Lynch, Ph.D., incorporated by reference to the same numbered Exhibit to the Companys Registration Statement
on Form S-1, No. 33-28284, effective on July 18, 1989. *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|              | 
|10.19         |  | License Agreement dated March 27, 1991 between the Company and the Regents of the University of California, incorporated by reference to the same numbered Exhibit to the Companys Amendment
on Form 8 filed November 27, 1991 to the Companys Annual Report on Form 10-KSB filed September 30, 1991. (Portions of this Exhibit are omitted and were filed separately with the Secretary of the Commission pursuant to the Companys
application requesting confidential treatment under Rule 24b-2 under the Securities Exchange Act of 1934).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|              | 
|10.31         |  | License Agreement dated June 25, 1993, as amended May 28, 2003, between the Company and the Regents of the University of California, incorporated by reference to the same numbered Exhibit to the
Companys Quarterly Report on Form 10-Q filed February 12, 2004. (Portions of this Exhibit are omitted and were filed separately with the Secretary of the Commission pursuant to the Companys application requesting confidential treatment
under Rule 24b-2 of the Securities Exchange Act of 1934).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|              | 
|10.44         |  | Lease Agreement, dated January 31, 1994, for the Companys facilities in Irvine, California, incorporated by reference to the same numbered Exhibit to the Companys Quarterly Report on
Form 10-QSB filed May 16, 1994.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                



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|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|              | 
|10.60         |  | Amended and Restated 1996 Stock Incentive Plan, incorporated by reference to the same numbered Exhibit to the Companys Quarterly Report on Form 10-Q as filed on November 14,
2002.*                                                                                                                                                                                                                                                                                                                
|              | 
|10.64         |  | Research and Collaboration and License Agreement between the Company and N.V. Organon, dated January 13, 1999, incorporated by reference to the same numbered Exhibit to the Companys
Quarterly Report on Form 10-QSB as filed on February 16, 1999. (Portions of this Exhibit were omitted and filed separately with the Secretary of the Commission pursuant to the Companys application requesting confidential treatment under Rule
24b-2 of the Securities Exchange Act of 1934.)             
|              | 
|10.65         |  | Amendment No. 1 to the Lease Agreement for the Companys facilities in Irvine, California, dated February 1, 1999, incorporated by reference to the same numbered Exhibit to the
Companys Annual Report on Form 10-KSB filed September 28, 1999.                                                                                                                                                                                                                                                    
|              | 
|10.67         |  | Collaborative Research, Joint Clinical Research and Licensing Agreements with Les Laboratoires Servier dated October 13, 2000, incorporated by reference to the same numbered Exhibit to the
Companys Quarterly Report on Form 10-QSB filed November 14, 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).            
|              | 
|10.69         |  | Employment agreement dated May 17, 2000, between the Company and James H. Coleman, incorporated by reference to the same numbered Exhibit to the Companys Quarterly Report on Form 10-QSB
filed February 12, 2001.*                                                                                                                                                                                                                                                                                 
|              | 
|10.70         |  | Severance agreement dated October 26, 2000, between the Company and Maria S. Messinger, incorporated by reference to the same numbered Exhibit to the Companys Quarterly Report on Form
10-QSB filed February 12, 2001.*                                                                                                                                                                                                                                                                            
|              | 
|10.73         |  | Amendment dated October 3, 2002 to the Collaboration Research Agreement with Les Laboratoires Servier dated October 13, 2000, incorporated by reference to the same numbered Exhibit to the
Companys Annual Report on Form 10-K filed October 15, 2002.                                                                                                                                                                                                                                             
|              | 
|10.74         |  | Employment agreement dated October 29, 2002 between the Company and Roger G. Stoll, Ph.D., incorporated by reference to the same numbered Exhibit to the Companys Quarterly Report on Form
10-Q as filed on November 14, 2002.*                                                                                                                                                                                                                                                                     
|              | 
|10.75         |  | Securities Purchase Agreement dated August 21, 2003, by and among Cortex Pharmaceuticals, Inc. and the investors named therein, including the Registration Rights Agreement attached as Exhibit A
thereto and a form of Common Stock Purchase Warrant attached as Exhibit C thereto, incorporated by reference to the same numbered Exhibit to the Companys Report on Form 8-K filed August 22, 2003.                                                                                               
|              | 
|10.76         |  | First Amendment dated April 8, 2003 to the employment agreement dated October 29, 2002 between the Company and Roger G. Stoll, Ph.D., incorporated by reference to the same numbered Exhibit to
the Companys Annual Report on Form 10-K filed September 19, 2003.*                                                                                                                                                                                                                                  
|              | 
|10.77         |  | Amendment dated December 16, 2003 to the Collaboration Research Agreement with Les Laboratoires Servier dated October 13, 2000, incorporated by reference to the same numbered Exhibit to the
Companys Quarterly Report on Form 10-Q filed February 12, 2004. (Portions of this Exhibit are omitted and were filed separately with the Secretary of the Commission pursuant to the Companys application requesting confidential treatment
under Rule 24b-2 of the Securities Exchange Act of 1934).
|              | 
|10.78         |  | Securities Purchase Agreement dated January 7, 2004, by and among Cortex Pharmaceuticals, Inc. and the investors named therein, including the Registration Rights Agreement attached as Exhibit A
thereto and a form of Common Stock Purchase Warrant attached as Exhibit C thereto, incorporated by reference to Exhibit 10.75 to the Companys Report on Form 8-K filed January 9, 2004.                                                                                                           
|              | 
|10.79         |  | Amendment No. 2 to the Lease Agreement for the Companys facilities in Irvine, California, dated March 9, 2004, incorporated by reference to the same numbered Exhibit to the Companys
Annual Report on Form 10-K filed on September 27, 2004.                                                                                                                                                                                                                                                      
|              | 
|10.80         |  | Form of Incentive/Non-qualified Stock Option Agreement under the Companys Amended and Restated 1996 Stock Incentive Plan, incorporated by reference to the same numbered Exhibit to the
Companys Annual Report on Form 10-K filed on September 27, 2004.*                                                                                                                                                                                                                                          
|              | 
|10.81         |  | Form of Restricted Stock Award Agreement under the Companys Amended and Restated 1996 Stock Incentive Plan, incorporated by reference to the same numbered Exhibit to the Companys
Annual Report on Form 10-K filed on September 27, 2004.*                                                                                                                                                                                                                                                        
|              | 
|10.82         |  | Amendment dated January 1, 2004 to the employment agreement dated May 17, 2000 between the Company and James H. Coleman, incorporated by reference to the same numbered Exhibit to the
Companys Annual Report on Form 10-K filed on September 27, 2004.*                                                                                                                                                                                                                                            



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|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                                                               
|              | 
|10.84         |  | Consulting Agreement dated April 16, 2004 between the Company and Gary D. Tollefson, M.D., Ph.D., incorporated by reference to the same numbered Exhibit to the Companys Quarterly Report on
Form 10-Q filed on November 15, 2004.*                                                                                                                                                                      
|              | 
|10.86         |  | Second Amendment dated November 10, 2004 to the employment agreement dated October 29, 2002 between the Company and Roger G. Stoll, Ph.D., incorporated by reference to the same numbered Exhibit
to the Companys Quarterly Report on Form 10-Q filed on November 15, 2004.*                                                                                                                             
|              | 
|10.87         |  | Securities Purchase Agreement dated December 14, 2004, by and among Cortex Pharmaceuticals, Inc. and the investors named therein, including the Registration Rights Agreement attached as Exhibit
A thereto and a form of Common Stock Purchase Warrant attached as Exhibit C thereto, incorporated by reference to the same numbered Exhibit to the Companys Report on Form 8-K filed December 20, 2004.
|              | 
|10.88         |  | Form of Notice of Grant of Stock Options and Stock Option Agreement under the Companys Amended and Restated 1996 Stock Incentive Plan, incorporated by reference to the same numbered
Exhibit to the Companys Transition Report on Form 10-K filed on March 21, 2005.*                                                                                                                                  
|              | 
|10.89         |  | Stock Ownership Policy for the Companys Directors and Executive Officers as adopted by the Board of Directors on December 16, 2004, incorporated by reference to the same numbered Exhibit
to the Companys Transition Report on Form 10-K filed on March 21, 2005.*                                                                                                                                     
|              | 
|10.90         |  | Third Amendment dated August 13, 2005 to the employment agreement dated October 29, 2002 between the Company and Roger G. Stoll, Ph.D, incorporated by reference to Exhibit 10.1 to the
Companys Report on Form 8-K filed August 17, 2005.*                                                                                                                                                              
|              | 
|10.92         |  | Employment letter of agreement dated January 9, 2006 between the Company and Mark Varney, Ph.D., incorporated by reference to the same numbered Exhibit to the Companys Annual Report on
Form 10- K filed March 16, 2006.*                                                                                                                                                                               
|              | 
|10.93         |  | Non-qualified Stock Option Agreement dated January 30, 2006 between the Company and Mark Varney, Ph.D., incorporated by reference to the same numbered Exhibit to the Companys Quarterly
Report on Form 10-Q filed May 9, 2006.*                                                                                                                                                                         
|              | 
|10.94         |  | Cortex Pharmaceuticals, Inc. 2006 Stock Incentive Plan, incorporated by reference to the same numbered Exhibit to the Companys Report on Form 8-K filed May 11, 2006.*                                                                                                                                                                                                                                   
|              | 
|10.95         |  | Amendment dated May 16, 2006 to the Consulting Agreement dated April 16, 2004 between the Company and Gary D. Tollefson, M.D., Ph.D., incorporated by reference to the same numbered Exhibit to
the Companys Report on Form 8-K filed May 22, 2006.*                                                                                                                                                     
|              | 
|10.96         |  | Form of Notice of Grant of Stock Options and Stock Option Agreement under the Companys 2006 Stock Incentive Plan, incorporated by reference to the same numbered Exhibit to the
Companys Quarterly Report on Form 10-Q filed August 8, 2006.*                                                                                                                                                           
|              | 
|10.97         |  | Form of Incentive/Non-qualified Stock Option Agreement under the Companys 2006 Stock Incentive Plan, incorporated by reference to the same numbered Exhibit to the Companys Quarterly
Report on Form 10-Q filed August 8, 2006.*                                                                                                                                                                        
|              | 
|10.98         |  | Amendment No. 3, dated April 1, 2006, to the Lease Agreement for the Companys facilities in Irvine, California, incorporated by reference to the same numbered Exhibit to the Companys
Quarterly Report on Form 10-Q filed August 8, 2006.                                                                                                                                                              
|              | 
|10.100        |  | Negative Equity Agreement dated February 1, 2007 between the Company and Mark A. Varney, Ph.D., incorporated by reference to the same numbered Exhibit to the Companys Quarterly Report on
Form 10-Q filed May 10, 2007.*                                                                                                                                                                                
|              | 
|10.101        |  | Amendment No. 1 to the Companys 2006 Stock Incentive Plan, incorporated by reference to the same numbered Exhibit to the Companys Current Report on Form 8-K filed May 15,
2007.*                                                                                                                                                                                                                       
|              | 
|10.102        |  | Amendment to the Exclusive License Agreement between the Company and The Regents of the University of California, dated as of June 1, 2007, incorporated by reference to the same numbered Exhibit
to the Companys Current Report on Form 8-K filed June 7, 2007.                                                                                                                                        
|              | 
|10.103        |  | Amendment No. 2 dated April 16, 2007 to the Consulting Agreement dated April 16, 2004 between the Company and Gary D. Tollefson, M.D., Ph.D., incorporated by reference to the same numbered
Exhibit to the Companys Quarterly Report on Form 10-Q filed August 9, 2007.*                                                                                                                                
|              | 
|10.104        |  | Employment letter of agreement dated September 26, 2007 between the Company and Pierre V. Trân, M.D., M.M.M., incorporated by reference to the same numbered Exhibit to the Companys
Quarterly Report on Form 10-Q filed November 8, 2007.*                                                                                                                                                              



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|              |  |                                                                                                                                                                                                                                                                                                                                               
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                   
|              | 
|10.105        |  | Patent License Agreement between the Company and the University of Alberta, dated as of May 9, 2007. (Portions of this Exhibit are omitted and were filed separately with the Secretary of the
Commission pursuant to the Companys application requesting confidential treatment under Rule 24b-2 under the Securities Exchange Act of 1934).
|              | 
|21            |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                               
|              | 
|23.1          |  | Consent of Haskell & White LLP, Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                
|              | 
|24            |  | Power of Attorney (see page S-1).                                                                                                                                                                                                                                                                                                             
|              | 
|31.1          |  | Certification by Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                          
|              | 
|31.2          |  | Certification by Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                          
|              | 
|32            |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                       



|* | Each of these Exhibits constitutes a management contract, compensatory plan, or arrangement.
|- | --------------------------------------------------------------------------------------------



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##### Table of Contents

Signatures

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                     |  |     |  |                                                
|-------------------- |  | --- |  | -----------------------------------------------
|                     |  |     |  | CORTEX PHARMACEUTICALS, INC.                   
|                     |  |    
|Date: March 17, 2008 |  | By: |  | /s/ Roger G. Stoll, Ph.D.                      
|                     |  |     |  | Roger G. Stoll, Ph.D.                          
|                     |  |     |  | Chairman, President and Chief Executive Officer

We, the undersigned directors and officers of Cortex Pharmaceuticals, Inc., do hereby constitute and appoint each
of Roger G. Stoll, Ph.D. and Maria S. Messinger as our true and lawful attorneys-in-fact and agents with power of substitution, to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any
and all instruments for us and in our names in the capacities indicated below, which said attorneys-in-fact and agents, or either of them, may deem necessary or advisable to enable said corporation to comply with the Securities and Exchange Act of
1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Annual Report on Form 10-K, including specifically but without limitation, power and authority to sign for us or any of
us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto; and we do hereby ratify and confirm all that said attorney-in-fact and agent, shall do or cause to be done by virtue hereof.

In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.



|                                             |  |                                                              |  |               
|-------------------------------------------- |  | ------------------------------------------------------------ |  | --------------
|Signature                                    |  | Title                                                        |  | Date          
|                                             |  |                                                             
|/s/ Roger G. Stoll, Ph.D.                    |  | Chairman of the Board, President and Chief Executive Officer |  | March 17, 2008
|Roger G. Stoll, Ph.D.                        |  |                                                              | 
|(Principal Executive Officer)                |  |                                                              |  |               
|                                             |  |                                                             
|/s/ Maria S. Messinger                       |  | Vice President, Chief Financial Officer and Secretary        |  | March 17, 2008
|Maria S. Messinger                           |  |                                                              |  |               
|(Principal Financial and Accounting Officer) |  |                                                              |  |               
|                                             |  |                                                             
|/s/ Robert F. Allnutt                        |  | Director                                                     |  | March 17, 2008
|Robert F. Allnutt                            |  |                                                              |  |               
|                                             |  |                                                             
|/s/ John F. Benedik                          |  | Director                                                     |  | March 17, 2008
|John F. Benedik                              |  |                                                              |  |               
|                                             |  |                                                             
|/s/ Charles J. Casamento                     |  | Director                                                     |  | March 17, 2008
|Charles J. Casamento                         |  |                                                              |  |               
|                                             |  |                                                             
|/s/ Carl W. Cotman, Ph.D.                    |  | Director                                                     |  | March 17, 2008
|Carl W. Cotman, Ph.D.                        |  |                                                              |  |               
|                                             |  |                                                             
|/s/ Peter F. Drake, Ph.D.                    |  | Director                                                     |  | March 17, 2008
|Peter F. Drake, Ph.D.                        |  |                                                              |  |               
|                                             |  |                                                             
|/s/ M. Ross Johnson, Ph.D.                   |  | Director                                                     |  | March 17, 2008
|M. Ross Johnson, Ph.D.                       |  |                                                              |  |               
|                                             |  |                                                             
|/s/ Gary D. Tollefson, M.D., Ph.D.           |  | Director                                                     |  | March 17, 2008
|Gary D. Tollefson, M.D., Ph.D.               |  |                                                              |  |               
|                                             |  |                                                             
|/s/ Mark A. Varney, Ph.D.                    |  | Director                                                     |  | March 17, 2008
|Mark A. Varney, Ph.D.                        |  |                                                              |  |               



S - 1



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##### Table of Contents

I
ndex to Financial Statements



|                                                                                                     |  |     
|---------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                     |  | Page
|Report of Independent Registered Public Accounting Firm                                              |  | F-2 
|                                                                                                     | 
|Balance Sheets  As of December 31, 2007 and December 31, 2006                                       |  | F-3 
|                                                                                                     | 
|Statements of Operations  For the years ended December 31, 2007, 2006 and 2005                      |  | F-4 
|                                                                                                     | 
|Statements of Stockholders Equity  For the period from December 31, 2004 through December 31, 2007 |  | F-5 
|                                                                                                     | 
|Statements of Cash Flows  For the years ended December 31, 2007, 2006 and 2005                      |  | F-7 
|                                                                                                     | 
|Notes to Financial Statements                                                                        |  | F-8 



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Cortex Pharmaceuticals, Inc.

We have audited the accompanying balance
sheets of Cortex Pharmaceuticals, Inc. as of December 31, 2007 and 2006, and the related statements of income, stockholders equity, and cash flows for each of the years in the three-year period ended December 31, 2007. We also have
audited Cortex Pharmaceuticals, Inc.s internal control over financing reporting as of December 31, 2007, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Cortex Pharmaceuticals, Inc.s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the companys internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of
financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis
for our opinions.

A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the companys assets that could have a material effect on the financial
statements.

Because of its inherent limitation, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cortex Pharmaceuticals, Inc. as of
December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, Cortex Pharmaceuticals, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control 
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

As discussed in Note 1 to the financial
statements, in 2006, the Company changed its method of accounting for share-based payments in accordance with the guidance provided in Statement of Financial Accounting Standards No. 123(R), Share-Based Payment. As discussed in Note 9 to the
financial statements, in 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109.



|                   |  |                        
|------------------ |  | -----------------------
|                   |  | /s/ HASKELL & WHITE LLP
|Irvine, California |  |                        
|March 12, 2008     |  |                        



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##### Table of Contents

Cortex Pharmaceuticals, Inc.

BALANCE SHEETS



|                                                                                                                                                                                                                     |  |                  |             |   |                  |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                                                                                                     |  | December 31,2007 |             |   | December 31,2006 |  
|Assets                                                                                                                                                                                                               |  |                  |             |   |                  |   |             |  
|                                                                                                                                                                                                                     |  |                 
|Current assets:                                                                                                                                                                                                      |  |                  |             |   |                  |   |             |  
|Cash and cash equivalents                                                                                                                                                                                            |  | $                | 4,020,881   |   |                  | $ | 1,649,414   |  
|Marketable securities                                                                                                                                                                                                |  |                  | 13,263,560  |   |                  |   | 7,799,281   |  
|Accounts receivable                                                                                                                                                                                                  |  |                  |            |   |                  |   | 160,088     |  
|Other current assets                                                                                                                                                                                                 |  |                  | 246,960     |   |                  |   | 364,819     |  
|                                                                                                                                                                                                                     |  |                  |             |   |                  |   |             |  
|Total current assets                                                                                                                                                                                                 |  |                  | 17,531,401  |   |                  |   | 9,973,602   |  
|                                                                                                                                                                                                                     |  |                 
|Furniture, equipment and leasehold improvements, net                                                                                                                                                                 |  |                  | 850,647     |   |                  |   | 427,884     |  
|Other                                                                                                                                                                                                                |  |                  | 46,667      |   |                  |   | 33,407      |  
|                                                                                                                                                                                                                     |  |                  |             |   |                  |   |             |  
|                                                                                                                                                                                                                     |  | $                | 18,428,715  |   |                  | $ | 10,434,893  |  
|                                                                                                                                                                                                                     |  |                  |             |   |                  |   |             |  
|Liabilities and Stockholders Equity                                                                                                                                                                                 |  |                  |             |   |                  |   |             |  
|                                                                                                                                                                                                                     |  |                 
|Current liabilities:                                                                                                                                                                                                 |  |                  |             |   |                  |   |             |  
|Accounts payable                                                                                                                                                                                                     |  | $                | 970,702     |   |                  | $ | 1,413,138   |  
|Accrued wages, salaries and related expenses                                                                                                                                                                         |  |                  | 398,344     |   |                  |   | 347,813     |  
|Advance for MCI project                                                                                                                                                                                              |  |                  | 305,422     |   |                  |   | 295,468     |  
|Deferred rent                                                                                                                                                                                                        |  |                  | 52,226      |   |                  |   |            |  
|                                                                                                                                                                                                                     |  |                  |             |   |                  |   |             |  
|Total current liabilities                                                                                                                                                                                            |  |                  | 1,726,694   |   |                  |   | 2,056,419   |  
|                                                                                                                                                                                                                     |  |                 
|Other non-current liability                                                                                                                                                                                          |  |                  | 25,119      |   |                  |   | 58,050      |  
|                                                                                                                                                                                                                     |  |                  |             |   |                  |   |             |  
|Total liabilities                                                                                                                                                                                                    |  |                  | 1,751,813   |   |                  |   | 2,114,469   |  
|                                                                                                                                                                                                                     |  |                  |             |   |                  |   |             |  
|Commitments and Contingencies (Note 7)                                                                                                                                                                               |  |                  |             |   |                  |   |             |  
|                                                                                                                                                                                                                     |  |                 
|Stockholders equity (deficit):                                                                                                                                                                                      |  |                  |             |   |                  |   |             |  
|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; common shares issuable upon conversion: 3,679 |  |                  | 21,703      |   |                  |   | 21,703      |  
|Common stock, $0.001 par value; shares authorized: 75,000,000; shares issued and outstanding: 47,542,426 (December 31, 2007) and 34,953,021
(December 31, 2006)                                                      |  |                  | 47,542      |   |                  |   | 34,953      |  
|Additional paid-in capital                                                                                                                                                                                           |  |                  | 111,339,508 |   |                  |   | 90,056,734  |  
|Unrealized gain (loss), available for sale marketable securities                                                                                                                                                     |  |                  | 27,073      |   |                  |   | (3,205      | )
|Accumulated deficit                                                                                                                                                                                                  |  |                  | (94,758,924 | ) |                  |   | (81,789,761 | )
|                                                                                                                                                                                                                     |  |                  |             |   |                  |   |             |  
|Total stockholders equity                                                                                                                                                                                           |  |                  | 16,676,902  |   |                  |   | 8,320,424   |  
|                                                                                                                                                                                                                     |  |                  |             |   |                  |   |             |  
|                                                                                                                                                                                                                     |  | $                | 18,428,715  |   |                  | $ | 10,434,893  |  
|                                                                                                                                                                                                                     |  |                  |             |   |                  |   |             |  

See accompanying notes.



F - 3



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##### Table of Contents

Cortex Pharmaceuticals, Inc.

STATEMENTS OF OPERATIONS



|                                                                                  |  |                            |             |   |                            |   |             |                            |  |   |             |  
|--------------------------------------------------------------------------------- |  | -------------------------- | ----------- | - | -------------------------- | - | ----------- | -------------------------- |  | - | ----------- | -
|                                                                                  |  | Year endedDecember 31,2007 |             |   | Year endedDecember 31,2006 |   |             | Year endedDecember 31,2005 | 
|Revenues:                                                                         |  |                            |             |   |                            |   |             |                            |  |   |             |  
|Research and license revenue                                                      |  | $                          |            |   |                            | $ | 1,150,608   |                            |  | $ | 2,473,747   |  
|Grant revenue                                                                     |  |                            |            |   |                            |   | 26,851      |                            |  |   | 103,723     |  
|                                                                                  |  |                            |             |   |                            |   |             |                            |  |   |             |  
|Total revenues                                                                    |  |                            |            |   |                            |   | 1,177,459   |                            |  |   | 2,577,470   |  
|                                                                                  |  |                            |             |   |                            |   |             |                            |  |   |             |  
|Operating expenses (A):                                                           |  |                            |             |   |                            |   |             |                            |  |   |             |  
|Research and development                                                          |  |                            | 9,327,298   |   |                            |   | 13,261,768  |                            |  |   | 11,361,097  |  
|General and administrative                                                        |  |                            | 4,319,918   |   |                            |   | 4,616,312   |                            |  |   | 3,376,480   |  
|                                                                                  |  |                            |             |   |                            |   |             |                            |  |   |             |  
|Total operating expenses                                                          |  |                            | 13,647,216  |   |                            |   | 17,878,080  |                            |  |   | 14,737,577  |  
|                                                                                  |  |                            |             |   |                            |   |             |                            |  |   |             |  
|Loss from operations                                                              |  |                            | (13,647,216 | ) |                            |   | (16,700,621 | )                          |  |   | (12,160,107 | )
|Interest income, net                                                              |  |                            | 678,053     |   |                            |   | 645,820     |                            |  |   | 637,373     |  
|Change in fair value of common stock warrants                                     |  |                            |            |   |                            |   |            |                            |  |   | (82,991     | )
|                                                                                  |  |                            |             |   |                            |   |             |                            |  |   |             |  
|Net loss applicable to common stock                                               |  | $                          | (12,969,163 | ) |                            | $ | (16,054,801 | )                          |  | $ | (11,605,725 | )
|                                                                                  |  |                            |             |   |                            |   |             |                            |  |   |             |  
|Net loss per share, basic and diluted                                             |  | $                          | (0.31       | ) |                            | $ | (0.47       | )                          |  | $ | (0.36       | )
|                                                                                  |  |                            |             |   |                            |   |             |                            |  |   |             |  
|Shares used in basic and diluted calculation                                      |  |                            | 42,133,152  |   |                            |   | 34,348,941  |                            |  |   | 32,665,016  |  
|                                                                                  |  |                            |             |   |                            |   |             |                            |  |   |             |  
|(A) Operating expenses include the following non-cash stock compensation charges: |  |                            |             |   |                            |   |             |                            |  |   |             |  
|Research and development                                                          |  | $                          | 1,371,351   |   |                            | $ | 1,997,352   |                            |  | $ | 182,572     |  
|General and administrative                                                        |  |                            | 865,831     |   |                            |   | 1,233,898   |                            |  |   | (14,950     | )
|                                                                                  |  |                            |             |   |                            |   |             |                            |  |   |             |  
|                                                                                  |  | $                          | 2,237,182   |   |                            | $ | 3,231,250   |                            |  | $ | 167,622     |  
|                                                                                  |  |                            |             |   |                            |   |             |                            |  |   |             |  

See accompanying notes.



F - 4



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##### Table of Contents

Cortex Pharmaceuticals, Inc.

STATEMENTS OF STOCKHOLDERS EQUITY



|                                                                                                       |  |                                   |        |             |   |        |                           |  |   |                      |   |  |                                          |          |   |                    |   |         |       |  |   |             |   |  |   |             |  
|------------------------------------------------------------------------------------------------------ |  | --------------------------------- | ------ | ----------- | - | ------ | ------------------------- |  | - | -------------------- | - |  | ---------------------------------------- | -------- | - | ------------------ | - | ------- | ----- |  | - | ----------- | - |  | - | ----------- | -
|                                                                                                       |  | Series Bconvertiblepreferredstock |        | Commonstock |   |        | Additionalpaid-in capital |  |   | Deferredcompensation |   |  | Accumulatedothercomprehensivegain (loss) |          |   | Accumulateddeficit |   |         | Total | 
|Balance, December 31, 2004                                                                             |  | $                                 | 21,703 |             | $ | 32,688 |                           |  | $ | 77,964,857           |   |  | $                                        | (195,250 | ) |                    | $ | (48,116 | )     |  | $ | (54,129,235 | ) |  | $ | 23,646,647  |  
|Issuance of 106,322 shares of common stock upon exercise of stock options                              |  |                                   |       |             |   | 107    |                           |  |   | 39,763               |   |  |                                          |         |   |                    |   |        |       |  |   |            |   |  |   | 39,870      |  
|Issuance and vesting of stock options and warrants for consultants and other service providers         |  |                                   |       |             |   |       |                           |  |   | 161,617              |   |  |                                          |         |   |                    |   |        |       |  |   |            |   |  |   | 161,617     |  
|Amortization of deferred compensation for issued restricted stock                                      |  |                                   |       |             |   |       |                           |  |   |                     |   |  |                                          | 53,250   |   |                    |   |        |       |  |   |            |   |  |   | 53,250      |  
|Non-cash compensation charges for options re-priced in 1998                                            |  |                                   |       |             |   |       |                           |  |   | (47,245              | ) |  |                                          |         |   |                    |   |        |       |  |   |            |   |  |   | (47,245     | )
|Change in value of warrants issued with sales of common stock in December 2004                         |  |                                   |       |             |   |       |                           |  |   | 63,500               |   |  |                                          |         |   |                    |   |        |       |  |   |            |   |  |   | 63,500      |  
|Amortization of capitalized financing costs for sales of common stock in December 2004                 |  |                                   |       |             |   |       |                           |  |   | 19,491               |   |  |                                          |         |   |                    |   |        |       |  |   |            |   |  |   | 19,491      |  
|Reclassification of estimated value of warrants issued with sales of common stock in December 2004     |  |                                   |       |             |   |       |                           |  |   | 3,958,165            |   |  |                                          |         |   |                    |   |        |       |  |   |            |   |  |   | 3,958,165   |  
|Reclassification of unamortized capitalized financing costs for sales of common stock in December 2004 |  |                                   |       |             |   |       |                           |  |   | (1,159,935           | ) |  |                                          |         |   |                    |   |        |       |  |   |            |   |  |   | (1,159,935  | )
|Comprehensive loss                                                                                     |  |                                   |        |             |   |        |                           |  |   |                      |   |  |                                          |          |   |                    |   |         |       |  |   |             |   |  |   |             |  
|Net loss                                                                                               |  |                                   |       |             |   |       |                           |  |   |                     |   |  |                                          |         |   |                    |   |        |       |  |   | (11,605,725 | ) |  |   | (11,605,725 | )
|Unrealized gain on available for sale U.S. Government and other marketable securities                  |  |                                   |       |             |   |       |                           |  |   |                     |   |  |                                          |         |   |                    |   | 2,381   |       |  |   |            |   |  |   | 2,381       |  
|                                                                                                       |  |                                   |        |             |   |        |                           |  |   |                      |   |  |                                          |          |   |                    |   |         |       |  |   |             |   |  |   |             |  
|Comprehensive loss                                                                                     |  |                                   |       |             |   |       |                           |  |   |                     |   |  |                                          |         |   |                    |   | 2,381   |       |  |   | (11,605,725 | ) |  |   | (11,603,344 | )
|                                                                                                       |  |                                   |        |             |   |        |                           |  |   |                      |   |  |                                          |          |   |                    |   |         |       |  |   |             |   |  |   |             |  
|Balance, December 31, 2005                                                                             |  | $                                 | 21,703 |             | $ | 32,795 |                           |  | $ | 81,000,213           |   |  | $                                        | (142,000 | ) |                    | $ | (45,735 | )     |  | $ | (65,734,960 | ) |  | $ | 15,132,016  |  
|                                                                                                       |  |                                   |        |             |   |        |                           |  |   |                      |   |  |                                          |          |   |                    |   |         |       |  |   |             |   |  |   |             |  
|Issuance of 2,146,563 shares of common stock upon exercise of warrants                                 |  |                                   |       |             |   | 2,147  |                           |  |   | 5,940,170            |   |  |                                          |         |   |                    |   |        |       |  |   |            |   |  |   | 5,942,317   |  
|Issuance of 61,500 shares of common stock upon exercise of stock options                               |  |                                   |       |             |   | 61     |                           |  |   | 27,051               |   |  |                                          |         |   |                    |   |        |       |  |   |            |   |  |   | 27,112      |  
|Vesting of stock options issued to consultants and other service providers                             |  |                                   |       |             |   |       |                           |  |   | 181,186              |   |  |                                          |         |   |                    |   |        |       |  |   |            |   |  |   | 181,186     |  
|Amortization of deferred compensation for issued restricted stock                                      |  |                                   |       |             |   |       |                           |  |   |                     |   |  |                                          | 53,445   |   |                    |   |        |       |  |   |            |   |  |   | 53,445      |  
|Forfeiture of 50,000 shares of restricted stock                                                        |  |                                   |       |             |   | (50    | )                         |  |   | (88,505              | ) |  |                                          | 88,555   |   |                    |   |        |       |  |   |            |   |  |   |            |  
|Non-cash stock-based employee compensation charges                                                     |  |                                   |       |             |   |       |                           |  |   | 2,996,619            |   |  |                                          |         |   |                    |   |        |       |  |   |            |   |  |   | 2,996,619   |  
|Comprehensive loss                                                                                     |  |                                   |        |             |   |        |                           |  |   |                      |   |  |                                          |          |   |                    |   |         |       |  |   |             |   |  |   |             |  
|Net loss                                                                                               |  |                                   |       |             |   |       |                           |  |   |                     |   |  |                                          |         |   |                    |   |        |       |  |   | (16,054,801 | ) |  |   | (16,054,801 | )
|Unrealized gain on available for sale U.S. Government and other marketable securities                  |  |                                   |       |             |   |       |                           |  |   |                     |   |  |                                          |         |   |                    |   | 42,530  |       |  |   |            |   |  |   | 42,530      |  
|                                                                                                       |  |                                   |        |             |   |        |                           |  |   |                      |   |  |                                          |          |   |                    |   |         |       |  |   |             |   |  |   |             |  
|Comprehensive loss                                                                                     |  |                                   |       |             |   |       |                           |  |   |                     |   |  |                                          |         |   |                    |   | 42,530  |       |  |   | (16,054,801 | ) |  |   | (16,012,271 | )
|                                                                                                       |  |                                   |        |             |   |        |                           |  |   |                      |   |  |                                          |          |   |                    |   |         |       |  |   |             |   |  |   |             |  
|Balance, December 31, 2006                                                                             |  | $                                 | 21,703 |             | $ | 34,953 |                           |  | $ | 90,056,734           |   |  | $                                        |         |   |                    | $ | (3,205  | )     |  | $ | (81,789,761 | ) |  | $ | 8,320,424   |  
|                                                                                                       |  |                                   |        |             |   |        |                           |  |   |                      |   |  |                                          |          |   |                    |   |         |       |  |   |             |   |  |   |             |  

Continued



F - 5



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##### Table of Contents

Cortex Pharmaceuticals, Inc.

STATEMENTS OF STOCKHOLDERS EQUITY

(Continued)



|                                                                                               |  |                                   |        |             |   |                           |  |                      |             |                                          |   |   |                    |   |        |       |  |   |             |   |  |   |             |  
|---------------------------------------------------------------------------------------------- |  | --------------------------------- | ------ | ----------- | - | ------------------------- |  | -------------------- | ----------- | ---------------------------------------- | - | - | ------------------ | - | ------ | ----- |  | - | ----------- | - |  | - | ----------- | -
|                                                                                               |  | Series Bconvertiblepreferredstock |        | Commonstock |   | Additionalpaid-in capital |  | Deferredcompensation |             | Accumulatedothercomprehensivegain (loss) |   |   | Accumulateddeficit |   |        | Total | 
|Balance, December 31, 2006                                                                     |  | $                                 | 21,703 |             | $ | 34,953                    |  | $                    | 90,056,734  |                                          | $ |  |                    | $ | (3,205 | )     |  | $ | (81,789,761 | ) |  | $ | 8,320,424   |  
|Sale of 5,021,427 shares of common stock, $1.12 per share, net of expenses                     |  |                                   |       |             |   | 5,022                     |  |                      | 5,075,279   |                                          |   |  |                    |   |       |       |  |   |            |   |  |   | 5,080,301   |  
|Sale of 7,075,000 shares of common stock, $2.00 per share, net of expenses                     |  |                                   |       |             |   | 7,075                     |  |                      | 13,128,336  |                                          |   |  |                    |   |       |       |  |   |            |   |  |   | 13,135,411  |  
|Issuance of 333,667 shares of common stock upon exercise of warrants                           |  |                                   |       |             |   | 333                       |  |                      | 612,887     |                                          |   |  |                    |   |       |       |  |   |            |   |  |   | 613,220     |  
|Issuance of 159,311 shares of common stock upon exercise of stock options                      |  |                                   |       |             |   | 159                       |  |                      | 229,091     |                                          |   |  |                    |   |       |       |  |   |            |   |  |   | 229,250     |  
|Issuance and vesting of stock options and warrants for consultants and other service providers |  |                                   |       |             |   |                          |  |                      | 77,039      |                                          |   |  |                    |   |       |       |  |   |            |   |  |   | 77,039      |  
|Non-cash stock-based employee compensation charges                                             |  |                                   |       |             |   |                          |  |                      | 2,160,142   |                                          |   |  |                    |   |       |       |  |   |            |   |  |   | 2,160,142   |  
|Comprehensive lossNet loss                                                                     |  |                                   |       |             |   |                          |  |                      |            |                                          |   |  |                    |   |       |       |  |   | (12,969,163 | ) |  |   | (12,969,163 | )
|Unrealized gain on available for sale U.S. Government and other marketable securities          |  |                                   |       |             |   |                          |  |                      |            |                                          |   |  |                    |   | 30,278 |       |  |   |            |   |  |   | 30,278      |  
|                                                                                               |  |                                   |        |             |   |                           |  |                      |             |                                          |   |   |                    |   |        |       |  |   |             |   |  |   |             |  
|Comprehensive loss                                                                             |  |                                   |       |             |   |                          |  |                      |            |                                          |   |  |                    |   | 30,278 |       |  |   | (12,969,163 | ) |  |   | (12,938,885 | )
|                                                                                               |  |                                   |        |             |   |                           |  |                      |             |                                          |   |   |                    |   |        |       |  |   |             |   |  |   |             |  
|Balance, December 31, 2007                                                                     |  | $                                 | 21,703 |             | $ | 47,542                    |  | $                    | 111,339,508 |                                          | $ |  |                    | $ | 27,073 |       |  | $ | (94,758,924 | ) |  | $ | 16,676,902  |  
|                                                                                               |  |                                   |        |             |   |                           |  |                      |             |                                          |   |   |                    |   |        |       |  |   |             |   |  |   |             |  

See accompanying notes.



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##### Table of Contents

Cortex Pharmaceuticals, Inc.

STATEMENTS OF CASH FLOWS



|                                                                                            |  |                            |             |   |                            |   |             |                            |  |   |             |  
|------------------------------------------------------------------------------------------- |  | -------------------------- | ----------- | - | -------------------------- | - | ----------- | -------------------------- |  | - | ----------- | -
|                                                                                            |  | Year endedDecember 31,2007 |             |   | Year endedDecember 31,2006 |   |             | Year endedDecember 31,2005 | 
|Cash flows from operating activities:                                                       |  |                            |             |   |                            |   |             |                            |  |   |             |  
|Net loss applicable to common stock                                                         |  | $                          | (12,969,163 | ) |                            | $ | (16,054,801 | )                          |  | $ | (11,605,725 | )
|Adjustments to reconcile net loss to net cash used in operating activities:                 |  |                            |             |   |                            |   |             |                            |  |   |             |  
|Depreciation and amortization                                                               |  |                            | 126,851     |   |                            |   | 110,788     |                            |  |   | 106,484     |  
|Stock option compensation expense                                                           |  |                            | 2,237,182   |   |                            |   | 3,231,250   |                            |  |   | 167,622     |  
|Amortization of capitalized financing costs                                                 |  |                            |            |   |                            |   |            |                            |  |   | 19,491      |  
|Change in fair value of common stock warrants                                               |  |                            |            |   |                            |   |            |                            |  |   | 63,500      |  
|Loss on impairment of fixed assets                                                          |  |                            |            |   |                            |   |            |                            |  |   | 18,049      |  
|Changes in operating assets/liabilities:                                                    |  |                            |             |   |                            |   |             |                            |  |   |             |  
|Accrued interest on marketable securities                                                   |  |                            | (32,699     | ) |                            |   | 18,961      |                            |  |   | 137,374     |  
|Accounts receivable                                                                         |  |                            | 160,088     |   |                            |   | (145,162    | )                          |  |   | 26,812      |  
|Other current assets                                                                        |  |                            | 117,859     |   |                            |   | (124,284    | )                          |  |   | 77,315      |  
|Accounts payable and accrued expenses                                                       |  |                            | (339,679    | ) |                            |   | (634,198    | )                          |  |   | 765,586     |  
|Unearned revenue                                                                            |  |                            |            |   |                            |   | (117,779    | )                          |  |   | (224,271    | )
|Changes in other assets and other liabilities                                               |  |                            | (42,766     | ) |                            |   | (8,533      | )                          |  |   | 12,868      |  
|                                                                                            |  |                            |             |   |                            |   |             |                            |  |   |             |  
|Net cash used in operating activities                                                       |  |                            | (10,742,327 | ) |                            |   | (13,723,758 | )                          |  |   | (10,434,895 | )
|                                                                                            |  |                            |             |   |                            |   |             |                            |  |   |             |  
|Cash flows from investing activities:                                                       |  |                            |             |   |                            |   |             |                            |  |   |             |  
|Purchase of marketable securities                                                           |  |                            | (17,059,966 | ) |                            |   | (9,480,622  | )                          |  |   | (19,421,417 | )
|Proceeds from maturities of marketable securities                                           |  |                            | 11,665,800  |   |                            |   | 16,921,665  |                            |  |   | 22,927,846  |  
|Purchase of fixed assets                                                                    |  |                            | (550,222    | ) |                            |   | (99,831     | )                          |  |   | (181,977    | )
|                                                                                            |  |                            |             |   |                            |   |             |                            |  |   |             |  
|Net cash (used in) provided by investing activities                                         |  |                            | (5,944,388  | ) |                            |   | 7,341,212   |                            |  |   | 3,324,452   |  
|                                                                                            |  |                            |             |   |                            |   |             |                            |  |   |             |  
|Cash flows from financing activities:                                                       |  |                            |             |   |                            |   |             |                            |  |   |             |  
|Proceeds from issuance of common stock in January 2007 registered direct offering, net      |  |                            | 5,080,301   |   |                            |   |            |                            |  |   |            |  
|Proceeds from issuance of common stock in August 2007 registered direct offering, net       |  |                            | 13,135,411  |   |                            |   |            |                            |  |   |            |  
|Adjustment to net proceeds from issuance of common stock in December 2004 private placement |  |                            |            |   |                            |   |            |                            |  |   | (24,211     | )
|Proceeds from issuance of common stock upon exercise of warrants                            |  |                            | 613,220     |   |                            |   | 5,942,317   |                            |  |   |            |  
|Proceeds from issuance of common stock upon exercise of stock options                       |  |                            | 229,250     |   |                            |   | 27,112      |                            |  |   | 39,870      |  
|                                                                                            |  |                            |             |   |                            |   |             |                            |  |   |             |  
|Net cash provided by financing activities                                                   |  |                            | 19,058,182  |   |                            |   | 5,969,429   |                            |  |   | 15,659      |  
|                                                                                            |  |                            |             |   |                            |   |             |                            |  |   |             |  
|Increase (decrease) in cash and cash equivalents                                            |  |                            | 2,371,467   |   |                            |   | (413,117    | )                          |  |   | (7,094,784  | )
|Cash and cash equivalents, beginning of period                                              |  |                            | 1,649,414   |   |                            |   | 2,062,531   |                            |  |   | 9,157,315   |  
|                                                                                            |  |                            |             |   |                            |   |             |                            |  |   |             |  
|Cash and cash equivalents, end of period                                                    |  | $                          | 4,020,881   |   |                            | $ | 1,649,414   |                            |  | $ | 2,062,531   |  
|                                                                                            |  |                            |             |   |                            |   |             |                            |  |   |             |  

See accompanying notes.



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##### Table of Contents

Cortex Pharmaceuticals, Inc.

NOTES TO FINANCIAL STATEMENTS

Note 1  Business and Summary of Significant Accounting Policies

Business Cortex Pharmaceuticals, Inc. (the Company) was formed to engage in the discovery, development and commercialization of innovative pharmaceuticals for the treatment of neurological and psychiatric
disorders. Since its formation in 1987, the Company has been engaged in research and early clinical development activities.

In January 1999, the Company entered into a research collaboration and exclusive worldwide license agreement with NV Organon (Organon) that will enable Organon to develop and commercialize the
Companys AMPAKINE® technology for the treatment of schizophrenia and depression (Note 5). In October 2000, the Company entered into a research collaboration agreement
and an exclusive license agreement with Les Laboratoires Servier (Servier) (Note 4). The agreements, as amended to date, will enable Servier to develop and commercialize select AMPAKINE compounds for the treatment of
(i) declines in cognitive performance associated with aging, (ii) neurodegenerative diseases, such as Alzheimers disease, and (iii) anxiety disorders. In early December 2006, the Company terminated the research collaboration
with Servier. The license agreement with Servier, as amended to date, continues in full force and effect in accordance with its terms.

From inception
through December 31, 2007, the Company has generated only modest operating revenues, the majority of which it derived from its agreements with Servier and Organon, as further described in Notes 4 and 5, respectively. There were no revenues for
the year ended December 31, 2007, but these agreements contributed 98% and 96% of total revenues for the years ended December 31, 2006 and 2005.

Under the agreement with Servier, during the years ended December 31, 2006 and 2005 the Company recorded research and licensing revenues of approximately $1,151,000 and $2,474,000, respectively. During the same periods, the Company
incurred direct and indirect expenses for the Servier research collaboration totaling approximately $992,000 and $2,222,000, respectively.

There were no
research or license revenues under the Organon agreement for the years ended December 31, 2007, 2006, or 2005. During the same periods the Company incurred no direct or indirect expenses for the Organon research collaboration.

Cortex anticipates that it has sufficient capital to maintain its operations into 2009; however, successful completion of the Companys development program and its
transition, ultimately, to attaining profitable operations is dependent upon obtaining additional financing adequate to fulfill its research and development activities, and achieving a level of revenue adequate to support the Companys cost
structure. There can be no assurance that the Company will be successful in these areas. To supplement its existing resources, the Company likely will need to raise additional capital through the sale of debt or equity. There can be no assurance
that such capital will be available on favorable terms, or at all; if additional funds are raised by issuing equity securities, dilution to existing stockholders is likely to result.

The Company is seeking collaborative or other arrangements with additional pharmaceutical companies, under which 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 corporate partnering arrangements with major pharmaceutical companies is intense, with a large number of biopharmaceutical companies
attempting to arrive at such arrangements. Accordingly, although the Company is presently engaged in discussions with a number of candidate companies, there can be no assurance that an agreement will arise from these discussions in a timely manner,
or at all, or that any agreement that may arise from these discussions will successfully reduce the Companys short-term or long-term funding requirements.

Cash Equivalents The Company considers all highly liquid short-term investments with maturities of less than three months when acquired to be cash equivalents.



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##### Table of Contents

Marketable Securities  Marketable securities are carried at fair value, with unrealized gains and losses,
net of any tax, reported as a separate component of stockholders equity. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income.
Realized gains and losses and declines in value judged to be other-than-temporary on short-term investments are included in interest income. The cost of securities sold is based on the specific identification method. Interest and dividends on
securities classified as available-for-sale are included in interest income.

Concentrations of Credit Risk  Financial instruments that
potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and short-term investments. The Company limits its exposure to credit loss by investing its cash with high credit quality financial
institutions.

Furniture, Equipment and Leasehold Improvements  Furniture, equipment and leasehold improvements are recorded at cost and
depreciated on a straight-line basis over the lesser of their estimated useful lives, ranging from five to ten years, or the life of the lease, as appropriate.

Long-Lived Assets  The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the total amount of an asset may not be recoverable. An impairment loss is recognized when
estimated future cash flows expected to result from the use of the asset and the eventual disposition are less than the assets carrying amount. The Company did not recognize any significant impairment losses during any of the periods
presented.

Revenue Recognition  The Company recognizes revenue when all four of the following criteria are met: (i) persuasive evidence
that an arrangement exists; (ii) delivery of the products and/or services has occurred; (iii) the fees earned can be readily determined; and (iv) collectibility of the fees is reasonably assured.

The Company recognized research revenue from its collaboration with Servier (Note 4) as services were performed under the agreement, which included compensation to the
Company based upon an annual rate for each full-time equivalent employee that dedicated research to the project. The agreements provided scheduled quarterly payments to the Company in advance of the period during which the services were to be
performed. The Company recorded the resultant revenue from the agreements as it performed the contracted research services.

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 nonrefundable, regardless of the success of the underlying research. The Company did not have
any active grants during the year ended December 31, 2007.

Revenues from milestone payments are recognized when earned, as evidenced by written
acknowledgement from the collaborator, provided that (i) the milestone event is substantive and its achievement was not reasonably assured at the inception of the agreement, and (ii) the Companys performance obligations, if any,
after the milestone achievement will continue to be funded by the collaborator at a comparable level to that before the milestone was achieved. If both of these criteria are not met, the milestone payment would be recognized over the remaining
minimum period of the Companys performance obligations under the arrangement.

If a collaborator develops and markets a product that utilizes the
Companys technology, the Company will be eligible to receive royalties based on net sales of the product, as defined by the relative agreement. The Company will recognize such royalties, if any, at the time that the royalties become payable to
the Company from the collaborator.

In November 2002, the Emerging Issues Task Force (EITF) of the FASB reached consensus on Issue 00-21. EITF
Issue 00-21 addresses the accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. Specifically, Issue 00-21 requires the recognition of revenue from milestone payments over
the remaining minimum period of performance obligations under such multiple element arrangements. As required, the Company applies the principles of Issue 00-21 to multiple element research and licensing agreements that it enters into or modifies
after July 1, 2003.



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In accordance with the Securities and Exchange Commissions Staff Accounting Bulletin No. 104, Revenue
Recognition (SAB 104), amounts received for upfront technology license fees under multiple-element arrangements are deferred and recognized on a straight-line basis over the period of committed services or performance, which
approximates the level of efforts provided, if such arrangements require the Companys on-going services or performance.

Cortex amortized the
revenues from Serviers $5,000,000 nonrefundable upfront fee ratably over the research phase of the agreement, as amended, which began in December 2000 and ended in early December 2006.

Employee Stock Options and Stock-Based Compensation Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123(R), Share Based Payment, using a modified prospective application. Earlier periods were not restated. SFAS No. 123(R) is a revision of SFAS No. 123, Accounting for Stock-Based
Compensation and supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). SFAS No. 123(R) requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the financial statements based on their fair values.

Prior to adopting SFAS No. 123(R), as permitted, the
Company elected to follow APB 25 in accounting for its employee stock options. According to APB 25, no compensation expense was recognized since the exercise price of the Companys stock options generally equaled the market price of the
underlying stock on the date of grant. The Company transitioned to SFAS No. 123 by utilizing SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure (SFAS No. 148). In accordance
with SFAS No. 148, the Company disclosed the effects of stock-based employee compensation on reported net income or loss and earnings or loss per share in the footnotes to its annual and interim financial statements.

Given that the Company previously followed APB 25 and SFAS No. 148 in accounting for its employee stock options, the impact of adopting the expense recognition
requirements of SFAS 123(R) was significant to the Companys results of operations, but not its financial position. The Companys net loss for the years ended December 31, 2007, 2006 and 2005 includes approximately $2,160,000,
$3,050,000 and $13,000 of non-cash stock-based employee compensation costs, respectively. During the year ended December 31, 2006, non-cash expenses related to adopting SFAS 123(R) increased the Companys basic and diluted net loss by
$0.09 per share.

For options granted during the years ended December 31, 2007 and 2006, the fair value of each option award was estimated using the
Black-Scholes option pricing model and the following assumptions:



|                                                                             |  |                        |   |  |           |  
|---------------------------------------------------------------------------- |  | ---------------------- | - |  | --------- | -
|                                                                             |  | Year endedDecember 31, |  
|                                                                             |  | 2007                   |   |  | 2006      |  
|Weighted average risk-free interest rate                                     |  | 3.92                   | % |  | 4.75      | %
|Dividend yield                                                               |  | 0                      | % |  | 0         | %
|Volatility factor of the expected market price of the Companys common stock |  | 0.95                   | % |  | 0.86      | %
|Weighted average life                                                        |  | 5.7 years              |   |  | 4.3 years |  

Expected volatility is based on the historical volatility of the Companys stock. The Company also uses
historical data to estimate the expected term of options granted and employee termination rates. The risk-free rate for periods within the contractual life of the options is based on the U.S. Treasury yield curve in effect at the time of grant.

For the year ended December 31, 2005, the following pro forma information regarding net loss and net loss per share has been determined as if the
Company had accounted for its employee stock plans under the fair value method. The fair value was estimated at the date of grant using the Black-Scholes option pricing model and the



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##### Table of Contents

following assumptions for the years ended December 31, 2005: weighted average risk-free interest rate of 4.3%; dividend yields of 0%; volatility factor
of the expected market price of the Companys common stock of 82%; and a weighted average life of 5.3 years:



|                                                                                                         |  |                             |             |  
|-------------------------------------------------------------------------------------------------------- |  | --------------------------- | ----------- | -
|                                                                                                         |  | Year endedDecember 31, 2005 |            
|Net loss applicable to common stock, as reported                                                         |  | $                           | (11,605,725 | )
|Stock-based employee compensation expense included in reported net loss                                  |  |                             | (40,034     | )
|Total stock-based employee compensation expense determined under fair value based method for all options |  |                             | (1,768,753  | )
|                                                                                                         |  |                             |             |  
|Pro forma net loss applicable to common stockholders                                                     |  | $                           | (13,414,512 | )
|                                                                                                         |  |                             |             |  
|Basic and diluted net loss per share available to common stockholders, as reported                       |  | $                           | (0.36       | )
|Basic and diluted net loss per share available to common stockholders, pro forma                         |  | $                           | (0.41       | )

The estimated weighted average fair value of options granted during the years ended December 31, 2007, 2006
and 2005 was $0.71, $1.26 and $1.63, respectively.

As of December 31, 2007, there was approximately $1,300,000 of total unrecognized compensation
cost related to non-vested share-based employee compensation arrangements. That non-cash cost is expected to be recognized over a weighted-average period of 1.3 years.

The Company continues to follow EITF Issue 96-18, Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services, for stock
options and warrants issued to consultants and other non-employees. In accordance with EITF Issue 96-18, these stock options and warrants issued as compensation for services to be provided to the Company are accounted for based upon the fair value
of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. The Company recognizes this expense over the period in which the services are provided. The Companys net loss for
the years ended December 31, 2007, 2006 and 2005 includes expenses of approximately $77,000, $181,000 and $154,000, respectively, for non-cash stock-based compensation for options issued to consultants and other non-employees.

The Company issues new shares to satisfy stock option and warrant exercises. The total intrinsic value of options exercised during the years ended December 31,
2007, 2006 and 2005 was approximately $104,900, $95,400 and $215,200, respectively. The effect of potentially issuable shares of common stock was not included in the calculation of diluted loss per share given that the effect would be anti-dilutive.

Research and Development Costs  All costs related to research and development activities are treated as expenses in the period incurred.

Comprehensive Income In accordance with Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income, all components of comprehensive loss, including net loss, are reported in the financial statements in the period in which they are recognized. Comprehensive loss is defined as the change in equity during a period from transactions and
other events and circumstances from non-owner sources. Net loss and other comprehensive loss, including unrealized gains and losses on investments, are reported net of any related tax effect to arrive at comprehensive loss.

Net Loss per Share  In accordance with Statement of Financial Accounting Standard No. 128, Earnings per Share (SFAS 128), net
loss per share is computed based on the weighted average number of common shares outstanding.



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As of December 31, 2007, the Company has reserved approximately 24 million shares of common stock for issuance
upon exercise of outstanding stock options and stock purchase warrants, as well as for conversion of the Companys Series B preferred stock, as further described in Note 3. The effect of the potentially issuable shares of common stock was not
included in the calculation of diluted loss per share given that the effect would be anti-dilutive.

Use of Estimates  The preparation of
financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts may differ from those estimates.

Note 2  Detail of Selected Balance Sheet Accounts

The
following is a summary of marketable securities as of December 31, 2007:



|                                      |  |      |            |                      |   |                       |  |   |                     |   |  |   |           
|------------------------------------- |  | ---- | ---------- | -------------------- | - | --------------------- |  | - | ------------------- | - |  | - | ----------
|                                      |  | Cost |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|Corporate obligations                 |  | $    | 4,646,268  |                      | $ | 6,855                 |  | $ | (3,731              | ) |  | $ | 4,649,392 
|Mortgage backed government securities |  |      | 1,493,585  |                      |   | 3,295                 |  |   |                    |   |  |   | 1,496,880 
|Certificates of deposit               |  |      | 372,929    |                      |   | 2,113                 |  |   |                    |   |  |   | 375,042   
|Other asset backed securities         |  |      | 6,723,705  |                      |   | 18,735                |  |   | (194                | ) |  |   | 6,742,246 
|                                      |  |      |            |                      |   |                       |  |   |                     |   |  |   |           
|Total marketable securities           |  | $    | 13,236,487 |                      | $ | 30,998                |  | $ | (3,925              | ) |  | $ | 13,263,560
|                                      |  |      |            |                      |   |                       |  |   |                     |   |  |   |           

The amortized cost and estimated fair value of available-for-sale marketable securities as of December 31,
2007, by contractual maturity, are as follows:



|                                  |  |      |            |                      |   |                       |  |   |                     |   |  |   |           
|--------------------------------- |  | ---- | ---------- | -------------------- | - | --------------------- |  | - | ------------------- | - |  | - | ----------
|                                  |  | Cost |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|Maturities                        |  |      |            |                      |   |                       |  |   |                     |   |  |   |           
|Within one year                   |  | $    | 4,877,876  |                      | $ | 8,607                 |  | $ | (1,139              | ) |  | $ | 4,885,344 
|After one year through five years |  |      | 8,358,611  |                      |   | 22,391                |  |   | (2,786              | ) |  |   | 8,378,216 
|                                  |  |      |            |                      |   |                       |  |   |                     |   |  |   |           
|Total marketable securities       |  | $    | 13,236,487 |                      | $ | 30,998                |  | $ | (3,925              | ) |  | $ | 13,263,560
|                                  |  |      |            |                      |   |                       |  |   |                     |   |  |   |           



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The following is a summary of marketable securities as of December 31, 2006:



|                                      |  |      |           |                      |   |                       |  |   |                     |   |  |   |          
|------------------------------------- |  | ---- | --------- | -------------------- | - | --------------------- |  | - | ------------------- | - |  | - | ---------
|                                      |  | Cost |           | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|Corporate obligations                 |  | $    | 2,370,629 |                      | $ | 15                    |  | $ | (1,651              | ) |  | $ | 2,368,993
|Mortgage backed government securities |  |      | 2,396,121 |                      |   |                      |  |   | (1,194              | ) |  |   | 2,394,927
|Other asset backed securities         |  |      | 3,035,736 |                      |   | 477                   |  |   | (852                | ) |  |   | 3,035,361
|                                      |  |      |           |                      |   |                       |  |   |                     |   |  |   |          
|Total marketable securities           |  | $    | 7,802,486 |                      | $ | 492                   |  | $ | (3,697              | ) |  | $ | 7,799,281
|                                      |  |      |           |                      |   |                       |  |   |                     |   |  |   |          

The amortized cost and estimated fair value of available-for-sale marketable securities as of December 31,
2006, by contractual maturity, are as follows:



|                                  |  |      |           |                      |   |                       |  |   |                     |   |  |   |          
|--------------------------------- |  | ---- | --------- | -------------------- | - | --------------------- |  | - | ------------------- | - |  | - | ---------
|                                  |  | Cost |           | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|Maturities                        |  |      |           |                      |   |                       |  |   |                     |   |  |   |          
|Within one year                   |  | $    | 4,808,325 |                      | $ |                      |  | $ | (2,846              | ) |  | $ | 4,805,479
|After one year through five years |  |      | 2,994,161 |                      |   | 492                   |  |   | (851                | ) |  |   | 2,993,802
|                                  |  |      |           |                      |   |                       |  |   |                     |   |  |   |          
|Total marketable securities       |  | $    | 7,802,486 |                      | $ | 492                   |  | $ | (3,697              | ) |  | $ | 7,799,281
|                                  |  |      |           |                      |   |                       |  |   |                     |   |  |   |          

Gross realized gains and losses on sales of marketable securities were not significant in the years ended
December 31, 2007, 2006 and 2005. The Company manages risk on its investment portfolio by matching scheduled investment maturities with its cash requirements.

Furniture, equipment and leasehold improvements consist of the following:



|                         |  |              |            |   |      |   |            |  
|------------------------ |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                         |  | December 31, |           
|                         |  | 2007         |            |   | 2006 |  
|Laboratory equipment     |  | $            | 2,145,014  |   |      | $ | 1,652,330  |  
|Leasehold improvements   |  |              | 768,046    |   |      |   | 751,280    |  
|Furniture and equipment  |  |              | 184,515    |   |      |   | 169,734    |  
|Computers and software   |  |              | 402,217    |   |      |   | 379,067    |  
|                         |  |              |            |   |      |   |            |  
|                         |  |              | 3,499,792  |   |      |   | 2,952,411  |  
|Accumulated depreciation |  |              | (2,649,145 | ) |      |   | (2,524,527 | )
|                         |  |              |            |   |      |   |            |  
|                         |  | $            | 850,647    |   |      | $ | 427,884    |  
|                         |  |              |            |   |      |   |            |  

Note 3  Stockholders Equity

Preferred Stock

The Company has authorized a total of 5,000,000 shares of preferred stock, par value $0.001
per share, of which 1,250,000 shares have been designated as 9% Cumulative Convertible Preferred Stock (non-voting, 9% Preferred); 3,200,000 shares have been designated as Series B Convertible Preferred Stock (non-voting,
Series B Preferred); 500 shares have been designated as Series D Convertible Preferred Stock (non-voting, Series D Preferred); 35,000 have been designated as Series A Junior Participating Preferred Stock (non-voting,
Series A Junior Participating) and 514,500 shares are presently undesignated and may be issued with such rights and powers as the Board of Directors may designate.

Series B Preferred outstanding as of December 31, 2007 and 2006 consisted of 37,500 shares issued in a May 1991 private placement. Each share of Series B Preferred is convertible into approximately 0.09812
shares of



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common stock at an effective conversion price of $6.795 per share of common stock, subject to adjustment under certain circumstances. As of December 31,
2007, the remaining shares of Series B Preferred outstanding are convertible into 3,679 shares of common stock. The Company may redeem the Series B Preferred at a price of $0.6667 per share, an amount equal to its liquidation preference, at any time
upon 30 days prior notice.

Common Stock and Common Stock Purchase Warrants

On August 21, 2003, the Company issued 3,333,334 shares of common stock to accredited investors in a private placement transaction for $1.50 per share, providing
gross proceeds of $5,000,000. Net proceeds from the transaction, after issuance costs and placement fees, were approximately $4,500,000. In connection with the transaction, the Company also issued five-year warrants to the investors to purchase up
to an additional 3,333,334 shares of the Companys common stock at an exercise price of $2.55 per share. During the year ended December 31, 2006, warrants to purchase 1,110,002 common shares were exercised, resulting in proceeds of
approximately $2,830,000. During the year ended December 31, 2007, warrants to purchase another 66,667 common shares were exercised, producing proceeds of approximately $170,000. As of December 31, 2007, warrants to purchase 1,816,668
shares of common stock remained outstanding.

In connection with the August 2003 private placement, the Company also issued warrants to two placement
agents to purchase 30,000 and 83,061 shares of the Companys common stock, respectively. The warrant to purchase 30,000 shares of the Companys common stock has an exercise price of $1.50 per share and a five-year term. The warrant to
purchase 83,061 shares of the Companys common stock has an exercise price of $2.71 per share and a three-year term. Of the warrants issued to the placement agents, during the year ended December 31, 2006, warrants to purchase 85,061
common shares were exercised, providing proceeds of approximately $228,000. As of December 31, 2007, of the warrants issued to the placement agents, warrants to purchase 1,000 shares of common stock remained outstanding. All of the warrants
issued in the August 2003 transaction provide a call right in favor to the Company to the extent that the price per share of the Companys common stock exceeds $6.00 per share for 13 consecutive trading days, subject to certain circumstances.

On January 7, 2004, the Company issued 6,909,091 shares of common stock to accredited investors in a private placement transaction for $2.75 per
share, resulting in gross proceeds of $19,000,000. Net proceeds from the transaction, after issuance costs and placement fees, were approximately $17,500,000. In connection with the January 2004 transaction, the Company issued five-year warrants to
the investors to purchase up to 4,490,910 shares of the Companys common stock at an exercise price of $3.25 per share. The Company also issued two additional warrants to purchase 54,750 and 272,959 shares of the Companys common stock,
respectively, to two placement agents. The warrant to purchase 54,750 shares of the Companys common stock has an exercise price of $2.75 per share and a five-year term. The warrant to purchase 272,959 shares of the Companys common stock
has an exercise price of $3.48 per share and a three-year term. Of the warrants issued to the private placement investors, during the year ended December 31, 2006, warrants to purchase 521,773 shares of common stock were exercised, resulting in
proceeds of approximately $1,696,000. Of the warrants issued to the placement agents for the transaction, during the year ended December 31, 2006, warrants to purchase 50,750 shares of common stock were exercised, resulting in proceeds of
approximately $140,000. As of December 31, 2007, of the warrants issued to investors in the private placement, warrants to purchase 3,969,137 shares of common stock remained outstanding. Of the warrants issued to the placement agents in the
transaction, as of December 31, 2007 warrants to purchase 4,000 shares of common stock remained outstanding. All of the warrants issued in the January 2004 transaction provide a call right in favor to the Company to the extent that the price
per share of the Companys common stock exceeds $7.50 per share for 13 consecutive trading days, subject to certain circumstances.

On
December 14, 2004, the Company issued 4,233,333 shares of common stock to accredited investors in a private placement transaction for $2.66 per share, resulting in gross proceeds of $11,260,663. Net proceeds from the transaction, after issuance
costs and placement fees, were approximately $10,400,000. In connection with the December 2004 transaction, the Company issued five-year warrants to the investors to purchase up to 2,116,666 shares of the Company common stock at an exercise
price of $3.00 per share. The Company also issued three-year warrants to purchase 164,289 shares of the Companys common stock at an exercise price of



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$3.43 per share to the placement agent for the transaction. During the year ended December 31, 2006, warrants to purchase 340,977 shares of common stock
were exercised by the private placement investors, resulting in proceeds of approximately $1,023,000. As of December 31, 2007, warrants issued to the investors to purchase 1,775,689 shares of common stock remained outstanding. The warrants
issued to the placement agent expired unexercised. All of the warrants issued in the December 2004 transaction provide a call right in favor to the Company to the extent that the price per share of the Companys common stock exceeds $7.50 per
share for 13 consecutive trading days, subject to certain circumstances.

Pursuant to the terms of the registration rights agreements entered into in
connection with each of the above transactions, within defined timelines the Company was required to file, and did file, with the Securities and Exchange Commission (the SEC) a registration statement under the Securities Act of 1933, as
amended, covering the resale of all of the common stock purchased and the common stock underlying the issued warrants, including the common stock underlying the placement agents warrants.

The registration rights agreement for each transaction further provides that if a registration statement is not filed or does not become effective within the defined
time period, then in addition to any other rights the holders may have, the Company would be required to pay each holder an amount in cash, as liquidated damages, equal to 2% per month of the aggregate purchase price paid by such holder in the
private placements for the common stock and warrants then held, prorated daily.

The registration statement for each transaction was filed and declared
effective by the SEC within the allowed timeframe. As a result, the Company was not required to pay any liquidated damages in connection with the initial registration for any transaction.

In accordance with EITF 00-19, Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled In a Companys Own Stock, (EITF
00-19) and the terms of the warrants and the transaction documents, at the closing date for the first transaction, August 21, 2003, the fair value of the warrants was recorded as a liability, with an offsetting reduction to additional paid-in
capital received from the private placement.

The fair value of the warrants was estimated using the Black-Scholes option pricing model and was re-measured
at the date of effectiveness of the registration statement. The increase in fair value of the warrants from the closing date of the transaction to the effective date of the registration statement was recorded as a charge to other expense in the
Statement of Operations for the year ended June 30, 2004. The warrant liability was reclassified to additional paid-in capital as of the date of effectiveness of the registration statement, or December 8, 2003.

In accordance with EITF 00-19, and the terms of the warrants and the transaction documents, at the closing date for the second transaction, January 7, 2004, the
fair value of the warrants was recorded as a liability, with an offsetting reduction to additional paid-in capital received in the January private placement.

The fair value of the warrants was estimated using the Black-Scholes option pricing model on the closing date of the transaction. The fair value of the warrants was re-measured on the date of effectiveness of the applicable registration
statement, with no resulting increase in fair value. The warrant liability was reclassified to additional paid-in capital as of the date of effectiveness for the registration statement, or March 18, 2004.

In accordance with EITF 00-19, and the terms of the warrants and the transaction documents, at the closing date for the third transaction, December 14, 2004, the
fair value of the warrants was recorded as a liability, with an offsetting reduction to additional paid-in capital received in the December private placement.

The fair value of the warrants was estimated using the Black-Scholes option pricing model on the closing date of the transaction. The fair value of the warrants was re-measured at December 31, 2004, with a resulting decrease in fair
value.



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The fair value of the warrants was re-measured at January 26, 2005, the date of effectiveness of the registration
statement, and the increase in estimated fair value was recorded as other expense in the Statement of Operations for the year ended December 31, 2005. As of the effectiveness of the registration statement, the warrant liability was reclassified
to additional paid-in capital.

For each private placement transaction, the Company amortized related offering costs until the respective registration
statements were declared effective by the SEC. This amortization was recorded as other expense in the Statement of Operations. Once the registration statements were declared effective, the Company reclassified any unamortized capitalized financing
costs to additional paid-in capital.

As stated above, the accounting required by EITF 00-19 was triggered by the terms of the Companys agreements
for the private placements it completed in August 2003, January 2004 and December 2004, specifically the potential penalties if the Company did not timely register the common stock underlying the warrants issued in each transaction. The related
registration statements were declared effective by the SEC within the contractual deadlines and the Company incurred no penalties. The application of EITF 00-19 had no impact on the Companys working capital, liquidity, or business operations.

In December 2006, the FASB issued FASB Staff Position (FSP) EITF No. 00-19-2, Accounting for Registration Payment Arrangements.
This FSP specifies that companies that enter into agreements to register securities will be required to recognize a liability if a payment to investors for failing to fulfill the agreement is probable and can be reasonably estimated. This accounting
differs from the guidance in EITF 00-19, which required a liability to be recognized and measured at fair value, regardless of probability.

EITF No.
00-19-2 is effective immediately for registration payment arrangements and the financial instruments subject to those arrangements that are entered into or modified after the date of issuance of this FSP. For the Companys registration payment
arrangements and financial instruments subject to those arrangements that were entered into prior to the issuance of this FSP, the guidance was effective beginning January 1, 2007.

Transition to EITF 00-19-2 was to be achieved by reporting a change in accounting principle through a cumulative-effect adjustment to the opening balance of retained earnings. For purposes of measuring the
cumulative-effect adjustment related to the recognition of a contingent liability, the Company evaluated whether the transfer of consideration under its registration payment arrangements was probable and could be reasonably estimated as of the
January 1, 2007 adoption date. Given that the Company did not deem the transfer of consideration under its existing registration payments arrangements as probable as of January 1, 2007, the Company did not record a cumulative-effect
adjustment in connection with the adoption of this FSP.

In connection with the obligation to maintain effectiveness of the registration statements filed
with each of the August 2003, January 2004 and December 2004 transactions, the Company has estimated the maximum potential amount of undiscounted payments that it could be required to make under the registration arrangements as approximately
$276,000, $2,783,000 and $3,762,000, respectively. Given that the Company did not deem the transfer of consideration under its existing registration payment arrangements as probable as of December 31, 2007, no related expense or liability has
been recorded during the year ended December 31, 2007.

On January 22, 2007, the Company completed a registered direct offering with several
institutional investors for shares of its common stock and warrants to purchase common stock for an aggregate purchase price of approximately $5,624,000. Net proceeds from the offering were approximately $5,080,000. Under the terms of the
transaction, the Company sold an aggregate of 5,021,427 shares of its common stock and warrants to purchase 3,263,927 shares of its common stock. The warrants have an exercise price of $1.66 per share and are exercisable on or before
January 21, 2012. The warrants are subject to a call provision in favor of the Company to the extent that the closing price of the Companys common stock exceeds $3.35 for any 13 consecutive trading-day period.



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During the year ended December 31, 2007, the Company received approximately $443,000 from the exercise of related
warrants. If the remaining warrants are fully exercised, of which there can be no assurance, these warrants would provide approximately $4,975,000 of additional capital.

On August 29, 2007, the Company completed a registered direct offering with several institutional investors for shares of its common stock and warrants to purchase common stock for an aggregate purchase price of
$14,150,000. Net proceeds from the offering were approximately $13,135,000. Under the terms of the transaction, the Company sold an aggregate of 7,075,000 shares of its common stock and warrants to purchase 2,830,000 shares of its common stock to
the investors. The investors warrants have an exercise price of $2.64 per share and are exercisable on or before August 28, 2012. In addition, the Company issued warrants to purchase up to an aggregate of 176,875 shares of its common
stock to the placement agents in the offering. The placement agents warrants have an exercise price of $3.96 per share and are exercisable on or before August 28, 2012. If the investor and placement agent warrants are fully exercised, of
which there can be no assurance, these warrants would provide approximately $8,172,000 of additional capital.

Given the terms of the related agreements
for the January 2007 and August 2007 registered direct offerings, including the registration of the issued shares and shares underlying the issued warrants on the Companys Form S-3 No. 333-138844 filed on November 20, 2006 and
declared effective by the SEC on November 30, 2006 (before the completion of the transactions), the securities issued in these offerings were not subject to the requirements of EITF 00-19 or EITF 00-19-2.

In connection with the engagement of a consultant for investor relations purposes, from February 2003 through December 2004, the Company issued five-year warrants to
purchase up to an aggregate of 188,000 shares of its common stock at a weighted-average exercise price of $1.59 per share. During the year ended December 31, 2005, the Company issued warrants to purchase another 8,000 shares of its common stock
at a weighted-average exercise price of $2.77 per share. The above warrants are fully exercisable and resulted in expense of approximately $13,000 for the year ended December 31, 2005. The exercise prices for these warrants were derived from
the market value of the Companys common stock on the date of issuance. As of December 31, 2007, related warrants to purchase 141,000 shares of common stock remained outstanding at a weighted average exercise price of $1.97 per share.

In connection with business development activities, in July 2005 the Company issued a five-year warrant to purchase 100,000 shares of its common stock at
an exercise price of $2.75 per share. The warrant is subject to certain conditions in order to become exercisable, which conditions remain unmet as of December 31, 2007.

In connection with an employment agreement with an executive officer, in August 2004 the Company issued 100,000 restricted shares of its common stock (Restricted Shares). The Restricted Shares were
scheduled to vest in equal installments over a four-year period from the date of issuance and were subject to forfeiture in the event that employment of the executive officer terminated before the applicable vesting dates. The fair market value of
the Restricted Shares as of the issuance date, or $213,000, was recorded as deferred compensation and related expense was amortized over the vesting period. When the executive officer resigned from the Company during the year ended December 31,
2006, 50,000 Restricted Shares had vested and 50,000 Restricted Shares were forfeited. In connection with the resignation, in December 2006 the unamortized balance of deferred compensation of approximately $89,000 was reclassified into additional
paid-in capital. No additional Restricted Shares were granted during the years ended December 31, 2006 or 2007.

As of December 31, 2007, the
Company had reserved an aggregate of 3,679 shares for issuance upon conversion of the Series B Preferred; 13,811,296 shares for issuance upon exercise of warrants; 10,141,496 shares for issuance upon exercise of outstanding stock options; and
1,819,419 shares for issuance upon exercise of stock options available for future grant.



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Warrant transactions by the Company for the years ended December 31, 2005, 2006 and 2007 are summarized below:



|                                    |  |                 |   |  |                                         |     
|----------------------------------- |  | --------------- | - |  | --------------------------------------- | ----
|                                    |  | Numberof shares |   |  | Weighted averageexercise priceper
share
|Outstanding as of December 31, 2004 |  | 10,399,972      |   |  | $                                       | 2.97
|Issued                              |  | 108,000         |   |  |                                         | 2.75
|Exercised                           |  |                |   |  |                                         |    
|Expired                             |  | (50,000         | ) |  |                                         | 3.02
|                                    |  |                 |   |  |                                         |     
|Outstanding as of December 31, 2005 |  | 10,457,972      |   |  | $                                       | 2.97
|Issued                              |  |                |   |  |                                         |    
|Exercised                           |  | (2,146,563      | ) |  |                                         | 2.77
|Expired                             |  |                |   |  |                                         |    
|                                    |  |                 |   |  |                                         |     
|Outstanding as of December 31, 2006 |  | 8,311,409       |   |  | $                                       | 3.02
|Issued                              |  | 6,270,802       |   |  |                                         | 2.17
|Exercised                           |  | (333,667        | ) |  |                                         | 1.84
|Expired                             |  | (437,248        | ) |  |                                         | 3.46
|                                    |  |                 |   |  |                                         |     
|Outstanding as of December 31, 2007 |  | 13,811,296      |   |  | $                                       | 2.65
|                                    |  |                 |   |  |                                         |     

Information regarding warrants outstanding at December 31, 2007 is as follows:



|                         |  |                                                      |  |                                          |  |                               |     
|------------------------ |  | ---------------------------------------------------- |  | ---------------------------------------- |  | ----------------------------- | ----
|Range of exercise prices |  | Numberoutstanding andexercisable atDecember 31, 2007 |  | Weightedaverageremainingcontractual life |  | Weightedaverageexercise price
|$ 0.72 - 0.80            |  | 53,000                                               |  | 0.1 years                                |  | $                             | 0.79
|1.50 - 2.19              |  | 3,021,927                                            |  | 4.0 years                                |  |                               | 1.66
|2.27 - 3.25              |  | 10,543,494                                           |  | 2.1 years                                |  |                               | 2.92
|3.43 - 4.29              |  | 192,875                                              |  | 4.3 years                                |  |                               | 3.95
|                         |  |                                                      |  |                                          |  |                               |     
|                         |  | 13,811,296                                           |  |                                          |  |                               |     
|                         |  |                                                      |  |                                          |  |                               |     

Stock Option and Stock Purchase Plan

The Companys 1996 Stock Incentive Plan (the 1996 Plan), which terminated pursuant to its terms on October 25, 2006, provided for the granting of options and rights to purchase up to an aggregate
of 10,213,474 shares of the Companys authorized but unissued common stock to qualified employees, officers, directors, consultants and other service providers. Options previously granted under the 1996 Plan generally vest over a three-year
period, although some options granted to officers included more accelerated vesting. Options previously granted under the 1996 Plan generally expire ten years from the date of grant, but some options granted to consultants expire five years from the
date of grant.

On March 30, 2006, the Companys Board of Directors approved the 2006 Stock Incentive Plan (the 2006 Plan), which
subsequently was approved by the Companys stockholders on May 10, 2006. Since the approval of the 2006 Plan, no further options have been or will be granted under the 1996 Plan. The 2006 Plan provides for the granting of options and
rights to purchase up to an aggregate of 4,363,799 shares of the Companys authorized but unissued common stock (subject to adjustment under certain circumstances, such as stock splits, recapitalizations and reorganization) to qualified
employees, officers, directors, consultants and other service providers.

Under the 2006 Plan, the Company may issue a variety of equity vehicles to
provide flexibility in implementing equity awards, including incentive stock options, nonqualified stock options, restricted stock



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grants, stock appreciation rights, stock payment awards, restricted stock units and dividend equivalents. The exercise price of stock options offered under
the 2006 Plan must be at least 100% of the fair market value of the common stock on the date of grant. If the person to whom an incentive stock option is granted is a 10% stockholder of the Company on the date of grant, the exercise price per share
shall not be less than 110% of the fair market value on the date of grant. Vesting and expiration provisions for options granted under the 2006 Plan are similar to those under the 1996 Plan.

Subject to any restrictions under federal or securities laws, the Chief Executive Officer may award stock options to new non executive-officer employees and consultants,
with a market value at the time of hire equivalent to up to one time the employees annual salary or consultants anticipated consulting fees. The Chief Executive Officer shall have the discretion to increase or decrease such awards based
on market and recruiting factors subject to a limit per person of options to purchase 50,000 shares. Additionally, on an annual basis, the Chief Executive Officer may grant continuing employees and consultants, based upon performance and objectives,
a stock option for that number of shares up to 40% of the employees annual salary or the consultants fees, but not to exceed 50,000 shares per person per year. Any option grant exceeding 50,000 shares per person per year requires
approval by the Compensation Committee of the Board of Directors. These options shall be granted with an exercise price equal to the fair market value of the Companys common stock on the date of issuance, have a ten-year term, vest annually
over a three-year period from the dates of grant and have other terms consistent with the 2006 Plan.

Each non-employee director (other than those who
serve on the Board of Directors to oversee an investment in the Company) is automatically granted options to purchase 30,000 shares of common stock upon commencement of service as a director and, prior to 2006, each non-employee director also was
automatically granted additional options to purchase 25,000 shares of common stock on the date of the Annual Meeting of Stockholders. However, due to a change in the Companys fiscal year from June 30 to December 31 and the timing of
the Annual Meeting of Stockholders, these automatic grants were made at the Annual Meeting of Stockholders in December 2005, but not at the Annual Meeting of Stockholders in May 2006. There were no option grants to the non-employee directors during
2006. During the year ended December 31, 2007, the date for the automatic annual grant of options to purchase 25,000 shares of common stock was changed to the date of the first meeting of the Board of Directors for the relative calendar year.
Stock option issuances to non-employee directors who serve on the Board of Directors to oversee an investment in the Company are determined separately. Subsequent to December 31, 2007, the annual automatic grant to non-employee directors was
increased to options to purchase 30,000 shares of common stock. The nonqualified options to non-employee directors have an exercise price equal to 100% of the fair market value of the common stock on the date of grant, have a ten-year term and vest
in equal increments of 33% on the anniversary dates of the dates of grant.

As of December 31, 2007, options to purchase an aggregate of 7,432,593
shares of common stock were exercisable under the Companys stock option plans. During the years ended December 31, 2007, 2006 and 2005, the Company did not issue options to purchase shares of common stock with exercise prices below the
fair market value of the common stock on the dates of grant.



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Stock option transactions under the Companys stock option plan for the years ended December 31, 2005, 2006 and
2007 are summarized below:



|                               |  |            |   |  |                                       |      |                                           |           |                          |   |      
|------------------------------ |  | ---------- | - |  | ------------------------------------- | ---- | ----------------------------------------- | --------- | ------------------------ | - | -----
|                               |  | Shares     |   |  | WeightedAveragePer ShareExercisePrice |      | Weighted AverageRemainingContractual Term |           | AggregateIntrinsic Value
|Balance, December 31, 2004     |  | 6,436,543  |   |  | $                                     | 1.97 |                                           |           |                          |   |      
|Granted                        |  | 1,391,500  |   |  |                                       | 2.35 |                                           |           |                          |   |      
|Exercised                      |  | (106,322   | ) |  |                                       | 0.38 |                                           |           |                          |   |      
|Expired                        |  | (12,000    | ) |  |                                       | 0.73 |                                           |           |                          |   |      
|Forfeited                      |  | (165,000   | ) |  |                                       | 2.55 |                                           |           |                          |   |      
|                               |  |            |   |  |                                       |      |                                           |           |                          |   |      
|Balance, December 31, 2005     |  | 7,544,721  |   |  | $                                     | 2.05 |                                           |           |                          |   |      
|Granted                        |  | 2,532,267  |   |  |                                       | 1.98 |                                           |           |                          |   |      
|Exercised                      |  | (61,500    | ) |  |                                       | 0.44 |                                           |           |                          |   |      
|Expired                        |  | (5,000     | ) |  |                                       | 0.38 |                                           |           |                          |   |      
|Forfeited                      |  | (243,332   | ) |  |                                       | 2.26 |                                           |           |                          |   |      
|                               |  |            |   |  |                                       |      |                                           |           |                          |   |      
|Balance, December 31, 2006     |  | 9,767,156  |   |  | $                                     | 2.04 |                                           |           |                          |   |      
|Granted                        |  | 1,237,130  |   |  |                                       | 0.97 |                                           |           |                          |   |      
|Exercised                      |  | (159,311   | ) |  |                                       | 1.44 |                                           |           |                          |   |      
|Expired                        |  | (484,814   | ) |  |                                       | 1.99 |                                           |           |                          |   |      
|Forfeited                      |  | (218,665   | ) |  |                                       | 2.03 |                                           |           |                          |   |      
|                               |  |            |   |  |                                       |      |                                           |           |                          |   |      
|Balance, December 31, 2007     |  | 10,141,496 |   |  | $                                     | 1.92 |                                           | 6.7 years |                          | $ | 3,715
|                               |  |            |   |  |                                       |      |                                           |           |                          |   |      
|Exercisable, December 31, 2007 |  | 7,432,593  |   |  | $                                     | 2.04 |                                           | 6.0 years |                          | $ | 3,715
|                               |  |            |   |  |                                       |      |                                           |           |                          |   |      

As of December 31, 2007, options available for future grant under the 2006 Stock Incentive Plan amounted to
1,819,419.

Information regarding stock options outstanding at December 31, 2007 is as follows:



|                        |  |                                      |  |                                          |  |                               |  |                                      |  |                              
|----------------------- |  | ------------------------------------ |  | ---------------------------------------- |  | ----------------------------- |  | ------------------------------------ |  | -----------------------------
|                        |  | Options Outstanding                  |  | Options Exercisable                     
|Range ofexercise prices |  | Numberoutstanding atDecember 31,2007 |  | Weightedaverageremainingcontractual life |  | Weightedaverageexercise price |  | Numberexercisable atDecember 31,2007 |  | Weightedaverageexercise price
|$ 0.38 - $ 0.72         |  | 1,070,846                            |  | 7.4 years                                |  | $ 0.62                        |  | 543,762                              |  | $ 0.57                       
|0.72 -    0.85          |  | 1,430,067                            |  | 4.5 years                                |  | 0.77                          |  | 1,430,067                            |  | 0.77                         
|0.85 -    1.30          |  | 1,830,863                            |  | 8.6 years                                |  | 1.25                          |  | 582,867                              |  | 1.25                         
|1.30 -    2.40          |  | 1,683,319                            |  | 7.2 years                                |  | 2.25                          |  | 1,181,328                            |  | 2.27                         
|2.40 -    2.72          |  | 1,354,475                            |  | 6.5 years                                |  | 2.68                          |  | 1,344,475                            |  | 2.68                         
|2.72 -    2.84          |  | 1,436,685                            |  | 5.7 years                                |  | 2.76                          |  | 1,406,685                            |  | 2.76                         
|2.84 -    4.44          |  | 1,335,241                            |  | 7.0 years                                |  | 3.03                          |  | 943,409                              |  | 3.07                         
|                        |  |                                      |  |                                          |  |                               |  |                                      |  |                              
|                        |  | 10,141,496                           |  | 6.7 years                                |  | 1.92                          |  | 7,432,593                            |  | 2.04                         
|                        |  |                                      |  |                                          |  |                               |  |                                      |  |                              

Stockholder Rights Plan

On February 5, 2002, the Companys Board of Directors approved the adoption of a Stockholder Rights Plan to protect stockholder interests against takeover strategies that may not provide maximum stockholder
value. A dividend of one Right for each outstanding share of the Companys common stock was distributed to stockholders of record on February 15, 2002. Each share of common stock presently outstanding and issued since February 15,
2002 also includes one Right. Each share of common stock that may be issued after the date hereof but prior to the Distribution Date (as defined below) will also include one Right. The Rights automatically attach to outstanding shares of common
stock detailed above and no separate certificates are issued. The Rights trade only together with the Companys common stock.



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##### Table of Contents

Each Right allows its holder to purchase one one-thousandth of a
share (a Unit) of Series A Junior Participating Preferred Stock at a purchase price of $75.00 per Unit. The Rights are not currently exercisable, but will become exercisable on the 10thbusiness day following the occurrence of certain events relating to a person or group (Acquiring Person) acquiring or attempting to acquire fifteen percent (15%) or
more of the outstanding shares of the Companys common stock (the Distribution Date). If the Rights become exercisable, then any Rights held by the Acquiring Person are void. In such event, each other holder of a Right that has not
been exercised will have the right upon exercise to purchase shares of the Companys common stock (or common stock of the Acquiring Person in certain situations) having a value equal to two times the exercise price of the Right. Unless redeemed
or exchanged earlier by the Company, the Rights expire on February 15, 2012.

The Company has 35,000 shares of Series A Junior Participating Preferred
Stock authorized (35,000,000 Units), of which no shares or Units are issued or outstanding at December 31, 2006. Each Unit would entitle the holder to (A) one vote, voting together with the shares of common stock; (B) in the event
that the Companys assets are liquidated, a payment of $1.00 or an amount equal to the payment to be distributed per share of common stock, whichever is greater; and (C) in the event of any merger, consolidation or other transaction in
which shares of common stock are exchanged, a payment in the amount equal to the payment received per share of common stock. The number of Rights per share of common stock, and the purchase price, are subject to adjustment in the event of each and
any stock split, stock dividend or similar event.

Note 4  Research and License Agreement with Les Laboratoires Servier

In October 2000, the Company entered into a research collaboration agreement and an exclusive license agreement with Les Laboratoires Servier. The agreements will allow
Servier to develop and commercialize select AMPAKINE compounds for the treatment of (i) declines in cognitive performance associated with aging, (ii) neurodegenerative diseases and (iii) anxiety disorders. 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 Amyotrophic Lateral Sclerosis. In early December 2006, the Company
terminated the research collaboration with Servier. However, the exclusive license agreement with Servier, as amended to date, will continue in full force and effect in accordance with its terms for the three compounds selected by Servier at
termination. 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 exclusive license agreement also excludes South America
(except Argentina, Brazil and Venezuela), Australia and New Zealand. Cortex, as a result of the termination, recovered worldwide marketing rights for all of the indications originally licensed to Servier.

In connection with the agreements, Servier paid Cortex a nonrefundable, up-front payment of $5,000,000. The upfront payment was amortized as revenue over the research
support period, as extended by the amendments entered into in October 2002 and December 2003. The October 2000 agreements included research support through early December 2006, subject to Cortex providing agreed-upon levels of research. The amount
of support was subject to annual adjustment based upon the increase in the U.S. Department of Labors Consumer Price Index. During the years ended December 31, 2006 and 2005, the Company recorded research support from Servier of
approximately $1,025,000 and $2,222,000, respectively. The agreements also include milestone payments based upon clinical development and royalty payments on sales in licensed territories.

In October 2002, Servier agreed to provide Cortex with $4,000,000 of additional research support, in exchange for rights to the Companys AMPAKINE
compounds for the potential treatment of anxiety disorders, in Serviers licensed territories. The $4,000,000 was received in quarterly installments of $500,000 over a two-year period, with the final payment received during the quarter ended
September 30, 2004.



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##### Table of Contents

Note 5  Research and License Agreement with NV Organon

In January 1999, the Company entered into a research collaboration and exclusive worldwide license agreement with NV Organon. The agreement will enable Organon to develop
and commercialize the Companys proprietary AMPAKINE technology for the treatment of schizophrenia and depression.

In connection with
the Organon agreement, the Company received an up-front payment of $2,000,000. The agreement also included support of approximately $3,000,000 per year for the period from January 1999 through January 2001, during which time the Company provided
research services to Organon.

During the fiscal year ended June 30, 2000, the Company received its first milestone under the agreement, triggered
when Organon selected an AMPAKINE compound to pursue in Phase I clinical testing as a potential treatment for schizophrenia. During the fiscal year ended June 30, 2002, Organon notified Cortex of its intent to continue developing
the selected compound by entering Phase II clinical testing, triggering a second milestone payment of $2,000,000, which the Company received in September 2001. During the fiscal year ended June 30, 2004, Organon paid Cortex another $2,000,000
milestone in order to retain its rights to Cortexs AMPAKINE technology in the field of depression. Cortex remains eligible for additional milestone payments based upon further clinical development of the licensed technology by
Organon, and ultimately, royalties on worldwide product sales, if any. Unless terminated earlier, the agreement continues until the expiration of all of Organons royalty obligations, which continue until the expiration of patents covering the
AMPAKINE technology or compounds licensed under the agreement.

Note 6  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.

Provided that Cortex complies with the conditions of the funding agreement, repayment of the advance shall be forgiven unless Cortex enters one of its
AMPAKINE compounds into Phase III clinical trials for Alzheimers disease. Upon such potential clinical trials, repayment would include the principal amount plus accrued interest computed at a rate equal to one-half of the prime
lending rate. In lieu of cash, in the event of repayment the Institute may elect to receive the outstanding principal balance and any accrued interest thereon as shares of Cortex common stock. The conversion price for such form of repayment shall
initially equal $4.50 per share, subject to adjustment under certain circumstances. Included in the balance sheet is accrued principal and interest of $305,422 and $295,468 and at December 31, 2007 and 2006, respectively.

Note 7  Commitments

The Company leases its offices and
research laboratories under an operating lease that expires May 31, 2009. The related lease agreement includes scheduled rent increases that are recorded on a straight-line basis over the lease term. Subject to certain conditions, the lease
provides the Company an option to extend the term of the lease for three one-year periods at the prevailing market rental rate at the time any extension is set to commence. Rent expense under this lease for the years ended December 31, 2007,
2006 and 2005 was approximately $511,000, $516,000 and $504,000, respectively. Commitments under the lease for the years ending December 31, 2008 and 2009 are approximately $556,000 and $237,000, respectively.

As of December 31, 2007, the Company has employment agreements with two of its executive officers that involve annual salary payments approximating $590,000 and
provide for bonuses under certain circumstances. The agreements expire in May 2008 and August 2008.

The Company has entered into severance agreements with
each of its executive officers. In the event of a termination of employment, under certain circumstances, these severance agreements provide defined benefits to the executive officers, including compensation equal to 12 months of the executive
officers then current salary.



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##### Table of Contents

Commitments for preclinical and clinical studies amount to approximately $1,540,000. Subsequent to December 31,
2007, the Company entered into additional agreements for preclinical and clinical studies totaling approximately $1,000,000. Separately, commitments under sponsored research agreements for services to be rendered approximated $540,000, of which
approximately $397,000 is payable within the next twelve months.

The Company has entered agreements with an academic institution that provide the Company
exclusive rights to certain of the technologies that the Company is developing. Under the terms of the agreements, the Company is committed to royalty payments. These payments include minimum annual royalties of approximately $70,000 for the year
ended December 31, 2007 and for each year thereafter for the remaining life of the patents covering the subject technologies, with September 2017 the date of the last to expire related patent. The agreements commit the Company to spend a
minimum of $250,000 per year to advance the AMPAKINE compounds until the Company begins marketing an AMPAKINE compound. The agreements also commit the Company to pay up to an additional $875,000 upon achievement of
certain clinical testing and regulatory approval milestones, and to remit a portion of certain remuneration received in connection with sublicensing agreements.

Note 8  Related Party Transactions

During the years ended December 31, 2007, 2006 and 2005, the Company paid scientific and
other consulting fees to directors and/or stockholders aggregating approximately $160,000, $174,000 and $196,000, respectively. Under certain circumstances, the Company is obligated to make royalty payments to certain of its scientific consultants,
some of whom are stockholders, upon successful commercialization of certain of its products by the Company or its licensees.

Note 9  Income Taxes

The Company uses the liability method of accounting for income taxes as set forth in Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS 109). Under the liability method, deferred taxes are determined based on differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. As of
December 31, 2007, the Company had federal and California tax net operating loss carryforwards of approximately $73,800,000 and $50,000,000, respectively. The difference between the federal and California tax loss carryforwards is primarily
attributable to the capitalization of research and development expenses for California franchise tax purposes. The federal and California net operating loss carryforwards will expire at various dates from 2008 through 2027. The Company also has
federal and California research and development tax credit carryforwards totaling approximately $1,900,000 and $1,100,000, respectively. The federal research and development tax credit carryforwards will expire at various dates from 2008 through
2027. The California research and development tax credit carryforward does not expire and will carryforward indefinitely until utilized.

The
Companys effective tax rate is different from the federal statutory rate of 35% due primarily to operating losses that receive no tax benefit as a result of a valuation allowance recorded for such losses.

Pursuant to Internal Revenue Code Sections 382 and 383, use of the Companys net operating loss and credit carryforwards may be limited if a cumulative change in
ownership of more than 50% occurs within any three-year period since the last ownership change. The Company may have had a change in control under these Sections. However, the Company does not anticipate performing a complete analysis of the
limitation on the annual use of the net operating loss and tax credit carryforwards until the time that it projects it will be able to utilize these tax attributes.

Significant components of the Companys deferred tax assets as of December 31, 2007 and December 31, 2006 are shown below. A valuation allowance of $34,806,000 as of December 31, 2007 has been
established against the Companys deferred tax assets as realization of such assets is uncertain. The increase in the valuation allowance of $4,746,000 from December 31, 2006 to December 31, 2007 relates primarily to continuing net
operating losses.



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##### Table of Contents

Deferred tax assets consist of the following:



|                                            |  |                  |             |   |                  |   |             |  
|------------------------------------------- |  | ---------------- | ----------- | - | ---------------- | - | ----------- | -
|                                            |  | December 31,2007 |             |   | December 31,2006 |  
|Net operating loss carryforwards            |  | $                | 28,736,000  |   |                  | $ | 24,976,000  |  
|Research and development credits            |  |                  | 2,752,000   |   |                  |   | 1,913,000   |  
|Capitalized research and development costs  |  |                  | 1,186,000   |   |                  |   | 1,050,000   |  
|Non-cash stock-based compensation           |  |                  | 1,839,000   |   |                  |   | 1,769,000   |  
|Depreciation                                |  |                  | 100,000     |   |                  |   | 157,000     |  
|Other, net                                  |  |                  | 193,000     |   |                  |   | 195,000     |  
|                                            |  |                  |             |   |                  |   |             |  
|Net deferred tax assets                     |  |                  | 34,806,000  |   |                  |   | 30,060,000  |  
|Valuation allowance for deferred tax assets |  |                  | (34,806,000 | ) |                  |   | (30,060,000 | )
|                                            |  |                  |             |   |                  |   |             |  
|Total deferred tax assets                   |  | $                |            |   |                  | $ |            |  
|                                            |  |                  |             |   |                  |   |             |  

In June 2006, The FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109. Interpretation No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with SFAS 109. This Interpretation
prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Interpretation No. 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure and transition. Interpretation No. 48 is effective for fiscal years beginning after December 15, 2006. The cumulative effect, if any, of applying the
Interpretation is to be reported as an adjustment to the opening balance of retained earnings in the year of adoption. The impact of the Companys reassessment of its tax positions in accordance with Interpretation No. 48 did not have an
effect on the Companys results of operations, financial condition or liquidity. As of December 31, 2007, the Company does not have any unrecognized tax benefits related to various federal and state income tax matters. The Company will
recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.

The Company is subject to U.S. federal income tax as
well as income tax of multiple state tax jurisdictions. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ending December 31, 2004 through 2006. The Company and its
subsidiaries state income tax returns are open to audit under the statute of limitations for the years ended December 31, 2003 through 2006. The Company does not anticipate any material amount of unrecognized tax benefits within the next
12 months.

Note 10  Quarterly Financial Information (Unaudited)

Summarized quarterly financial data for the years ended December 31, 2007 and 2006, respectively is as follows:



|                                 |  |                                 |            |   |                                |   |            |                                     |  |   |                                    |   |  |   |            |  
|-------------------------------- |  | ------------------------------- | ---------- | - | ------------------------------ | - | ---------- | ----------------------------------- |  | - | ---------------------------------- | - |  | - | ---------- | -
|                                 |  | Three MonthsEndedMarch 31, 2007 |            |   | Three MonthsEndedJune 30, 2007 |   |            | Three MonthsEndedSeptember 30, 2007 |  |   | Three MonthsEndedDecember 31, 2007 |  
|2007 Quarters                    |  |                                 |            |   |                                |   |            |                                     |  |   |                                    |   |  |   |            |  
|Total revenues                   |  | $                               |           |   |                                | $ |           |                                     |  | $ |                                   |   |  | $ |           |  
|Total costs and expenses         |  |                                 | 4,026,918  |   |                                |   | 2,972,324  |                                     |  |   | 3,123,223                          |   |  |   | 3,524,751  |  
|Loss from operations             |  |                                 | (4,026,918 | ) |                                |   | (2,972,324 | )                                   |  |   | (3,123,223                         | ) |  |   | (3,524,751 | )
|Net loss                         |  | $                               | (3,884,066 | ) |                                | $ | (2,850,191 | )                                   |  | $ | (2,962,211                         | ) |  | $ | (3,272,695 | )
|Basic and diluted loss per share |  | $                               | (0.10      | ) |                                | $ | (0.07      | )                                   |  | $ | (0.07                              | ) |  | $ | (0.07      | )
|                                 |  |                                 |            |  
|                                 |  | Three MonthsEndedMarch 31, 2006 |            |   | Three MonthsEndedJune 30, 2006 |   |            | Three MonthsEndedSeptember 30, 2006 |  |   | Three MonthsEndedDecember 31, 2006 |  
|2006 Quarters                    |  |                                 |            |   |                                |   |            |                                     |  |   |                                    |   |  |   |            |  
|Total revenues                   |  | $                               | 230,882    |   |                                | $ | 231,734    |                                     |  | $ | 401,570                            |   |  | $ | 313,273    |  
|Total costs and expenses         |  |                                 | 4,940,859  |   |                                |   | 4,820,064  |                                     |  |   | 4,205,874                          |   |  |   | 3,911,283  |  
|Loss from operations             |  |                                 | (4,709,977 | ) |                                |   | (4,588,330 | )                                   |  |   | (3,804,304                         | ) |  |   | (3,598,010 | )
|Net loss                         |  | $                               | (4,559,542 | ) |                                | $ | (4,398,095 | )                                   |  | $ | (3,634,723                         | ) |  | $ | (3,462,441 | )
|Basic and diluted loss per share |  | $                               | (0.14      | ) |                                | $ | (0.13      | )                                   |  | $ | (0.10                              | ) |  | $ | (0.10      | )



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##### Table of Contents

Cortex Pharmaceuticals, Inc.

Annual Report on Form 10-K

Year ended December 31, 2007

Exhibit Index



|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                          
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | SequentiallyNumbered Page
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|3.1           |  | Restated Certificate of Incorporation dated April 11, 1989, as amended by Certificate of Amendment of June 27, 1989, by Certificate of Designation filed April 29, 1991, by Certificate of
Correction filed May 1, 1991, by Certificate of Amendment of Certificate of Designation filed June 13, 1991, by Certificate of Amendment of Certificate of Incorporation filed November 12, 1992, by Certificate of Amendment of Restated
Certificate of Incorporation filed January 11, 1995, by Certificate of Designation filed December 8, 1995, by Certificate of Designation filed October 15, 1996, by Certificate of Designation filed June 4, 1997, by Certificate of Amendment of
Restated Certificate of Incorporation filed December 21, 1998, and by Certificate of Designation filed February 11, 2002, incorporated by reference to the same numbered Exhibit of the Companys Amendment No. 1 to Registration Statement on Form
8-A, No. 001-16467, filed February 15, 2002, as further amended by Certificate of Amendment of Restated Certificate of Incorporation filed December 15, 2003, incorporated by reference to Exhibit 3.3 to the Companys Quarterly Report on Form
10-Q filed February 12, 2004. |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|3.2           |  | By-Laws of the Company, as adopted March 4, 1987, and amended on October 8, 1996, incorporated by reference to the same numbered Exhibit to the Companys Annual Report on Form 10-KSB
filed October 15, 1996.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|3.4           |  | Certificate of Amendment of Restated Certificate of Incorporation filed March 2, 2006, Incorporated by reference to the Companys Annual Report on Form 10-K filed March 16,
2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|3.5           |  | Certificate of Amendment of By-Laws of the Company, incorporated by reference to the same numbered Exhibit to the Companys Report on Form 8-K filed November 15, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.1           |  | Rights Agreement, dated as of February 8, 2002, between the Company and American Stock Transfer & Trust Company, which includes as Exhibit A thereto a form of Certificate of Designation
for the Series A Junior Participating Preferred Stock, as Exhibit B thereto the Form of Rights Certificate and as Exhibit C thereto a Summary of Terms of Stockholder Rights Plan, incorporated by reference to Exhibit 4.2 to the Companys
Amendment No. 1 to Registration Statement on Form 8-A, No. 001-16467, filed February 15, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                          
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.2           |  | Placement Agency Agreement, dated January 16, 2007, by and between Cortex Pharmaceuticals, Inc. and Roth Capital Partners, LLC, Form of Subscription Agreement and Form of Common Stock
Purchase Warrant issued by Cortex Pharmaceuticals, Inc., incorporated by reference to Exhibits 1.1, 1.2 and 4.1, respectively, to the Companys Report on Form 8-K filed January 19, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.3           |  | Placement Agency Agreement, dated August 24, 2007, by and between Cortex Pharmaceuticals, Inc. and JMP Securities LLC and Rodman and Renshaw, LLC, Form of Subscription Agreement and Form of
Common Stock Purchase Warrant issued by Cortex Pharmaceuticals, Inc., incorporated by reference to Exhibits 1.1, 1.2 and 4.1, respectively, to the Companys Report on Form 8-K filed August 27, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                          
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.2          |  | Consulting Agreement, dated October 30, 1987, between the Company and Carl W. Cotman, Ph.D., incorporated by reference to the same numbered Exhibit to the Companys Registration
Statement on Form S-1, No. 33-28284, effective on July 18, 1989.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.3          |  | Consulting Agreement, dated as October 30, 1987, between the Company and Gary S. Lynch, Ph.D., incorporated by reference to the same numbered Exhibit to the Companys Registration
Statement on Form S-1, No. 33-28284, effective on July 18, 1989.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                         



EXH - 1



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##### Table of Contents

|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                          
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | SequentiallyNumbered Page
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.19         |  | License Agreement dated March 27, 1991 between the Company and the Regents of the University of California, incorporated by reference to the same numbered Exhibit to the Companys
Amendment on Form 8 filed November 27, 1991 to the Companys Annual Report on Form 10-K filed September 30, 1991. (Portions of this Exhibit are omitted and were filed separately with the Secretary of the Commission pursuant to the
Companys application requesting confidential treatment under Rule 24b-2 under the Securities Exchange Act of 1934). |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.31         |  | License Agreement dated June 25, 1993, as amended, between the Company and the Regents of the University of California, incorporated by reference to the same numbered Exhibit to the
Companys Quarterly Report on Form 10-Q filed February 12, 2004. (Portions of this exhibit are omitted and were filed separately with the Secretary of the Commission pursuant to the Companys application requesting confidential treatment
under Rule 24b-2 of the Securities Exchange Act of 1934).                                                   |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.44         |  | Lease Agreement, dated January 31, 1994, for the Companys facilities in Irvine, California, incorporated by reference to the same numbered Exhibit to the Companys Quarterly Report
on Form 10-QSB filed May 16, 1994.                                                                                                                                                                                                                                                                                                                        |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.60         |  | Amended and Restated 1996 Stock Incentive Plan, incorporated by reference to the same numbered Exhibit to the Companys Quarterly Report on Form 10-Q as filed on November 14,
2002.*                                                                                                                                                                                                                                                                                                                                                           |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.64         |  | Research and Collaboration and License Agreement between the Company and N.V. Organon, dated January 13, 1999, incorporated by reference to the same numbered Exhibit to the Companys
quarterly report on Form 10-QSB as filed on February 16, 1999. (Portions of this Exhibit were omitted and filed separately with the Secretary of the Commission pursuant to the Companys application requesting confidential treatment under Rule
24-b2 of the Securities Exchange Act of 1934.)                                                        |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.65         |  | Amendment No. 1 to the Lease Agreement for the Companys facilities in Irvine, California, dated February 1, 1999, incorporated by reference to the same numbered Exhibit to the
Companys Annual Report on Form 10-KSB filed September 28, 1999.                                                                                                                                                                                                                                                                                               |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.67         |  | Collaborative Research, Joint Clinical Research and Licensing Agreements with Les Laboratoires Servier dated October 13, 2000, incorporated by reference to the same numbered Exhibit to the
Companys Quarterly Report on Form 10-QSB filed November 14, 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).                                                       |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.69         |  | Employment agreement dated May 17, 2000, between the Company and James H. Coleman, incorporated by reference to the same numbered Exhibit to the Companys Report on Form 10-QSB filed
February 12, 2001.*                                                                                                                                                                                                                                                                                                                                      |  |                          
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.70         |  | Severance agreement dated October 26, 2000, between the Company and Maria S. Messinger, incorporated by reference to the same numbered Exhibit to the Companys Quarterly Report on Form
10-QSB filed February 12, 2001.*                                                                                                                                                                                                                                                                                                                       |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.73         |  | Amendment dated October 3, 2002 to the Collaboration Research Agreement with Les Laboratoires Servier dated October 13, 2000, incorporated by reference to the same numbered Exhibit to the
Companys Annual Report on Form 10-K filed October 15, 2002.                                                                                                                                                                                                                                                                                        |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.74         |  | Employment agreement dated October 29, 2002 between the Company and Roger G. Stoll, Ph.D., incorporated by reference to the same numbered exhibit to the Companys Quarterly Report on
Form 10-Q, as filed on November 14, 2002.*                                                                                                                                                                                                                                                                                                               |  |                         



EXH - 2



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##### Table of Contents

|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                          
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | SequentiallyNumbered Page
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.75         |  | Securities Purchase Agreement dated August 21, 2003, by and among Cortex Pharmaceuticals, Inc. and the investors named therein, including the Registration Rights Agreement attached as Exhibit
A thereto and a form of Common Stock Purchase Warrant attached as Exhibit C thereto, incorporated by reference to the same numbered Exhibit to the Companys Report on Form 8-K filed August 22, 2003.                                                                                                |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.76         |  | First Amendment dated August 8, 2003 to the employment agreement between the Company and Roger G. Stoll, Ph.D., incorporated by reference to the same numbered Exhibit to the Companys
Annual Report on Form 10-K filed September 19, 2003.*                                                                                                                                                                                                                                                         |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.77         |  | Amendment dated December 16, 2003 to the Collaboration Research Agreement with Les Laboratoires Servier dated October 13, 2000, incorporated by reference to the same numbered Exhibit to the
Companys Quarterly Report on Form 10-Q filed February 12, 2004. (Portions of this Exhibit are omitted and were filed separately with the Secretary of the Commission pursuant to the Companys application requesting confidential treatment
under Rule 24b-2 of the Securities Exchange Act of 1934). |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.78         |  | Securities Purchase Agreement dated January 7, 2004, by and among Cortex Pharmaceuticals, Inc. and the investors named therein, including the Registration Rights Agreement attached as Exhibit
A thereto and a form of Common Stock Purchase Warrant attached as Exhibit C thereto, incorporated by reference to the same numbered Exhibit to the Companys Report on Form 8-K filed January 9, 2004.                                                                                                |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.79         |  | Amendment No. 2 to the Lease Agreement for the Companys facilities in Irvine, California, dated March 9, 2004, incorporated by reference to the same numbered Exhibit to the
Companys Annual Report on Form 10-K filed on September 27, 2004.                                                                                                                                                                                                                                                       |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.80         |  | Form of Incentive/Nonqualified Stock Option Agreement under the Companys Amended and Restated 1996 Stock Incentive Plan, incorporated by reference to the same numbered Exhibit to the
Companys Annual Report on Form 10-K filed on September 27, 2004.*                                                                                                                                                                                                                                            |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.81         |  | Form of Restricted Stock Award under the Companys Amended and Restated 1996 Stock Incentive Plan, incorporated by reference to the same numbered Exhibit to the Companys Annual
Report on Form 10-K filed on September 27, 2004.*                                                                                                                                                                                                                                                                   |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.82         |  | Amendment dated January 1, 2004 to the employment agreement dated May 17, 2000 between the Company and James H. Coleman, incorporated by reference to the same numbered Exhibit to the
Companys Annual Report on Form 10-K filed on September 27, 2004.*                                                                                                                                                                                                                                             |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.84         |  | Consulting Agreement dated April 16, 2004 between the Company and Gary D. Tollefson, M.D., Ph.D., incorporated by reference to the same numbered Exhibit to the Companys Quarterly Report
on Form 10-Q filed on November 15, 2004.*                                                                                                                                                                                                                                                                  |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.86         |  | Second Amendment dated November 10, 2004 to the employment agreement dated October 29, 2002 between the Company and Roger G. Stoll, Ph.D., incorporated by reference to the same numbered
Exhibit to the Companys Quarterly Report on Form 10-Q filed on November 15, 2004.*                                                                                                                                                                                                                         |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.87         |  | Securities Purchase Agreement dated December 14, 2004, by and among Cortex Pharmaceuticals, Inc. and the investors named therein, including the Registration Rights Agreement attached as
Exhibit A thereto and a form of Common Stock Purchase Warrant attached as Exhibit C thereto, incorporated by reference to the same numbered Exhibit to the Companys Report on Form 8-K filed December 20, 2004.                                                                                            |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.88         |  | Form of Notice of Grant of Stock Options and Stock Option Agreement under the Companys Amended and Restated 1996 Stock Incentive Plan, incorporated by reference to the same numbered
Exhibit to the Companys Annual Report on Form 10-K filed March 21, 2005.*                                                                                                                                                                                                                                     |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.89         |  | Stock Ownership Policy for the Companys Directors and Executive Officers as adopted by the Companys Board of Directors on December 16, 2004, incorporated by reference to the same
numbered Exhibit to the Companys Annual Report on Form 10-K filed March 21, 2005.*                                                                                                                                                                                                                              |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.90         |  | Third Amendment dated August 13, 2005 to the employment agreement dated October 29, 2002 between the Company and Roger G. Stoll, Ph.D, incorporated by reference to Exhibit 10.1 to the
Companys Report on Form 8-K filed August 17, 2005.*                                                                                                                                                                                                                                                          |  |                         



EXH - 3



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##### Table of Contents

|              |  |                                                                                                                                                                                                                                                                                                                                                |  |                          
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                    |  | SequentiallyNumbered Page
|              |  |                                                                                                                                                                                                                                                                                                                                               
|10.92         |  | Employment letter of agreement dated January 9, 2006 between the Company and Mark Varney, Ph.D., incorporated by reference to the same numbered Exhibit to the Companys Annual Report on
Form 10-K filed March 16, 2006.*                                                                                                                     |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                               
|10.93         |  | Non-qualified Stock Option Agreement dated January 30, 2006 between the Company and Mark Varney, Ph.D., incorporated by reference to the same numbered Exhibit to the Companys Quarterly
Report on Form 10-Q filed May 9, 2006.*                                                                                                              |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                               
|10.94         |  | Cortex Pharmaceuticals, Inc. 2006 Stock Incentive Plan, incorporated by reference to the same numbered Exhibit to the Companys Report on Form 8-K filed May 11, 2006.*                                                                                                                                                                        |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                               
|10.95         |  | Amendment dated May 16, 2006 to the Consulting Agreement dated April 16, 2004 between the Company and Gary D. Tollefson, M.D., Ph.D., incorporated by reference to the same numbered Exhibit to
the Companys Report on Form 8-K filed May 22, 2006.*                                                                                          |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                               
|10.96         |  | Form of Notice of Grant of Stock Options and Stock Option Agreement under the Companys 2006 Stock Incentive Plan, incorporated by reference to the same numbered Exhibit to the
Companys Quarterly Report on Form 10-Q filed August 8, 2006.*                                                                                                |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                               
|10.97         |  | Form of Incentive/Non-qualified Stock Option Agreement under the Companys 2006 Stock Plan, incorporated by reference to the same numbered Exhibit to the Companys Quarterly Report
on Form 10-Q filed August 8, 2006.*                                                                                                                       |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                               
|10.98         |  | Amendment No. 3, dated April 1, 2006, to the Lease Agreement for the Companys facilities in Irvine, California, incorporated by reference to the same numbered Exhibit to the
Companys Quarterly Report on Form 10-Q filed August 8, 2006.                                                                                                   |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                               
|10.100        |  | Negative Equity Agreement dated February 1, 2007 between the Company and Mark A. Varney, Ph.D., incorporated by reference to the same numbered Exhibit to the Companys Quarterly Report
on Form 10-Q filed May 10, 2007.*                                                                                                                     |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                               
|10.101        |  | Amendment No. 1 to the Companys 2006 Stock Incentive Plan, incorporated by reference to the same numbered Exhibit to the Companys Current Report on Form 8-K filed May 15, 2007.*                                                                                                                                                            |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                               
|10.102        |  | Amendment to the Exclusive License Agreement between the Company and The Regents of the University of California, dated as of June 1, 2007, incorporated by reference to the same numbered
Exhibit to the Companys Current Report on Form 8-K filed June 7, 2007.                                                                             |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                               
|10.103        |  | Amendment No. 2 dated April 16, 2007 to the Consulting Agreement dated April 16, 2004 between the Company and Gary D. Tollefson, M.D., Ph.D., incorporated by reference to the same numbered
Exhibit to the Companys Quarterly Report on Form 10-Q filed August 9, 2007.*                                                                     |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                               
|10.104        |  | Employment letter of agreement dated September 26, 2007 between the Company and Pierre V. Trân, M.D., M.M.M., incorporated by reference to the same numbered Exhibit to the
Companys Quarterly Report on Form 10-Q filed November 8, 2007.*                                                                                                   |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                               
|10.105        |  | Patent License Agreement between the Company and the University of Alberta, dated as of May 9, 2007. (Portions of this Exhibit are omitted and were filed separately with the Secretary of the
Commission pursuant to the Companys application requesting confidential treatment under Rule 24b-2 under the Securities Exchange Act of 1934). |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                               
|21            |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                               
|23.1          |  | Consent of Haskell & White LLP, Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                 |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                               
|24            |  | Power of Attorney (included as part of the signature page of this Annual Report on Form 10-K).                                                                                                                                                                                                                                                 |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                               
|31.1          |  | Certification by Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                           |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                               
|31.2          |  | Certification by Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                           |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                               
|32            |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                        |  |                         



|* | Each of these Exhibits constitutes a management contract, compensatory plan or arrangement.
|- | -------------------------------------------------------------------------------------------



EXH - 4