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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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



For the fiscal year ended



OR



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



For the transition period from July 1, 2004 to December 31, 2004



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:



Common Stock,
$0.001 par value

(Title of Class)



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.    x



Indicate by check mark whether the registrant is an accelerated filer (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, 2004 was $73,753,300 (based on the closing sale price
of the common stock as reported by The American Stock Exchange on such date). As of March 15, 2005, there were 32,753,122 shares of the registrants common stock outstanding.



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TABLE OF CONTENTS



|                           |  |                                                                                                              |  |     
|-------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|                           |  |                                                                                                              |  | Page
|PART I                     |  |                                                                                                             
|                           |  |                                                                                                             
|Item 1.                    |  | Business                                                                                                     |  | 3   
|                           |  |                                                                                                             
|Item 2.                    |  | Properties                                                                                                   |  | 26  
|                           |  |                                                                                                             
|Item 3.                    |  | Legal Proceedings                                                                                            |  | 27  
|                           |  |                                                                                                             
|Item 4.                    |  | Submission of Matters to a Vote of Security Holders                                                          |  | 27  
|                           | 
|PART II                    |  |                                                                                                             
|                           |  |                                                                                                             
|Item 5.                    |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 28  
|                           |  |                                                                                                             
|Item 6.                    |  | Selected Financial Data                                                                                      |  | 30  
|                           |  |                                                                                                             
|Item 7.                    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 31  
|                           |  |                                                                                                             
|Item 7A.                   |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 40  
|                           |  |                                                                                                             
|Item 8.                    |  | Financial Statements and Supplementary Data                                                                  |  | 40  
|                           |  |                                                                                                             
|Item 9.                    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 40  
|                           |  |                                                                                                             
|Item 9A.                   |  | Controls and Procedures                                                                                      |  | 41  
|                           |  |                                                                                                             
|Item 9B.                   |  | Other Information                                                                                            |  | 41  
|                           | 
|PART III                   |  |                                                                                                             
|                           |  |                                                                                                             
|Item 10.                   |  | Directors and Executive Officers of the Registrant                                                           |  | 42  
|                           |  |                                                                                                             
|Item 11.                   |  | Executive Compensation                                                                                       |  | 48  
|                           |  |                                                                                                             
|Item 12.                   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 54  
|                           |  |                                                                                                             
|Item 13.                   |  | Certain Relationships and Related Transactions                                                               |  | 57  
|                           |  |                                                                                                             
|Item 14.                   |  | Principal Accountant Fees and Services                                                                       |  | 57  
|                           | 
|PART IV                    |  |                                                                                                             
|                           |  |                                                                                                             
|Item 15.                   |  | Exhibits and Financial Statement Schedules                                                                   |  | 59  
|                           | 
|Signatures                 |  | S-1                                                                                                         
|                           | 
|Financial Statements       |  | F-1                                                                                                         
|                           | 
|Exhibit Index and Exhibits |  | EXH-1                                                                                                       



(Attached to this Report
on Form 10-K)



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In this Transition 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 Transition 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 and the Company intends 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, 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 the Companys proposed products and (iv) the need for, and availability of, additional financing.



The forward-looking statements included herein are based on current expectations that involve a number of risks and
uncertainties. These forward-looking statements are based on assumptions regarding the Companys business and technology, which involve judgments with respect to, among other things, future scientific, economic and competitive conditions, and
future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes that the assumptions underlying the forward-looking statements are
reasonable, 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 the Company or any other person that the objectives or plans of the Company will be achieved.



PART I



|Item 1. | Business
|------- | --------



The primary focus at Cortex is to develop a novel pharmacology that positively modulates AMPA-type glutamate receptors, a complex of proteins that is
involved in communication between nerve cells in the human brain. Cortex is developing a family of chemical compounds known as AMPAKINE®compounds that enhance the activity of this receptor. Cortex believes that AMPAKINE compounds hold promise for correcting 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.



AMPAKINE compounds, which act on chemical pathways that impact at least 85% of all the neurotransmission occurring in the brain, have been
demonstrated to enhance memory and cognition in both animals and humans. The compounds can be taken orally or intravenously, and rapidly pass through the blood-brain barrier. The improved financial condition of Cortex during the past two years has
allowed it to significantly invest into the AMPAKINE technology. During the past year a new AMPAKINE compound, CX717, was advanced into clinical development and key efficacy trials for the compound are currently
underway.



The AMPAKINE program addresses large
potential markets. According to research data from IMS Health, in 2003 worldwide sales for central nervous system products to treat brain-related disorders and diseases exceeded $57 billion, with growth at more than 19% on an annualized basis. The
Companys 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. At the same time, Cortex plans to develop internally a selected set of indications, many of which will allow it to apply for
Orphan Drug status. Such designation by the Food



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and Drug Administration is usually applied to products where the number of patients in the United States (U.S.) in the given disease category is
less than 200,000 per year. 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 sales force targeted at selected medical
centers in the U.S. The key indications that Cortex plans to pursue internally include (a) restoration of memory and diminution of loss of memory due to electroconvulsive therapy, (b) narcolepsy and (c) Fragile X syndrome.



Cortex also may pursue other Orphan Drug indications and upon any related
approval, may expand its clinical potential into non-Orphan Drug indications. As an example, if the Company obtains approval for an indication related to Fragile X syndrome, expansion into treatment of autism may follow. While the market potential
in the U.S. for most of the listed Orphan Drug indications varies between $200 million and $400 million per indication, Cortex estimates that the consolidated potential for all indications, including expansion into non-Orphan Drug indications,
provides the Company a market potential of over $3 billion. This amount does not include any revenues from any potential license of the Companys intellectual property. Cortex will continue to seek at least one more significant license
agreement with a larger pharmaceutical company, while the Company prepares itself for potential entrance into the pharmaceutical market with its own product.



In January 1999, the Company entered into a research collaboration and exclusive worldwide license agreement with NV Organon (Organon), a
subsidiary of Akzo Nobel. The agreement grants Organon worldwide rights to develop and commercialize the Companys AMPAKINE technology for the treatment of schizophrenia and depression. In October 2000, the Company entered into a
research collaboration and license agreement with Les Laboratoires Servier (Servier). The agreement, as amended in October 2002, will allow Servier to develop and commercialize the Companys AMPAKINE technology in
defined territories of Europe, Asia, the Middle East and certain South American countries as a treatment for memory impairment associated with aging and neurodegenerative diseases. The indications covered include, but are not limited to,
Alzheimers disease, mild cognitive impairment, sexual dysfunction, anxiety disorders and the dementia associated with Parkinsons disease, multiple sclerosis and Amyotrophic Lateral Sclerosis.



Cortex continues to actively pursue collaborative or licensing arrangements
with other pharmaceutical companies. 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.



For the six-month periods ended December 31, 2004 and 2003, the Companys total operating expenses were approximately $6,608,000 and $4,914,000, respectively. For the twelve-month periods ended June 30, 2004, 2003 and 2002, the
Companys total operating expenses were approximately $9,513,000, $6,421,000 and $7,487,000, respectively. The increased expenses for the six months ended December 31, 2004 and twelve months ended June 30, 2004 included increased research and
development costs for initiating toxicology and Phase I clinical testing of the AMPAKINE CX717. Expenses for the twelve months ended June 30, 2004 also included $1,106,000 of non-cash stock compensation charges. For the six-month
periods ended December 31, 2004 and 2003, the Companys research and development expenses were approximately $4,926,000 and $2,869,000, respectively. For the twelve-month periods ended June 30, 2004, 2003 and 2002, the Companys research
and development expenses were approximately $6,116,000, $3,724,000 and $4,918,000, respectively.



Cortex faces a number of risks in moving its technology through research, development and commercialization. The Company has never had revenues from
commercial sales, has never been profitable on an annual basis and has incurred net losses approximating $52,097,000 through December 31, 2004. Cortex does not anticipate profitability in the short term and will continue to require external funding,
either from the private or public equity markets or from corporate partners and licenses of the Companys technology. As of yet, neither Cortex nor any of its corporate partners has obtained FDA



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approval to market any of the Companys products. All of these risks, and others, are described in Risk Factors starting on page 21.



The Companys executive offices are located at 15231
Barranca Parkway, Irvine, California 92618, and its telephone number is (949) 727-3157.



The Companys website is www.cortexpharm.com. The Company makes available free of charge through its website its 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.



As reported on the Companys Current Report on Form 8-K dated November 10, 2004, the Company changed its fiscal year end from June 30 to December 31.
As a result, the Company is reporting a six-month transition period ended December 31, 2004 in order to change its fiscal year to match the calendar year.



AMPA Receptor Modulator Program



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



AMPAKINE compounds facilitate the activity of the AMPA receptor, which binds the neurotransmitter glutamate.
The AMPAKINE compounds interact in a highly specific manner with the AMPA receptor in the brain, lowering the amount of neurotransmitter required to generate a response, and increasing the magnitude of the response to any given amount
of glutamate. Cortex believes 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 that utilize glutamate as a neurotransmitter.



It is
well known that the majority of excitatory synaptic connections in the brain utilize glutamate, and such synaptic connections decline with age. Thus, brain disorders associated with aging may be amenable to treatment with AMPAKINE
compounds. Such disorders include mild cognitive impairment, 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 commonly is found in the same synapses with these other neurotransmitters, it may play a role in the rebalancing of neurotransmission. AMPAKINE compounds may provide a
new approach to treat both neurological and psychiatric disorders by directly modulating the AMPA receptor to enhance the release of glutamate, thereby rebalancing deleterious effects from other neurotransmitters. A study with
AMPAKINE compounds in patients with schizophrenia indicated improvement in a number of symptoms also common to patients with Attention Deficit Hyperactivity Disorder (ADHD). The Company and its collaborators have obtained
other encouraging preliminary results in animal models of sleep deprivation, Fragile X syndrome, depression, libido and stroke.



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 22 for a discussion of certain risks related to the development and commercialization of the Companys products, including, without limitation, risks related to its
clinical trials.



Lead Development Candidate  AMPAKINE
CX717



One of the most compelling animal studies conducted
with the AMPAKINE CX717 involves a model that examines the effects of sleep deprivation on cognitive performance in non-human primates. As



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reported by Wake Forest University School of Medicine scientists at the 2003 Annual Meeting of Society for Neurosciences, the model utilizes a colony of
rhesus macaque monkeys. The monkeys are trained to use a cursor to respond to computer images projected onto a white screen.



A monkey initiates the task by placing a cursor on the start circle. Shortly thereafter, the computer screen displays a specific image. The screen then
goes blank for between 1 and 60 seconds, after which the computer screen displays from two to six randomly selected images. From these images, the monkey must select the image that matches the one displayed at the start of the exercise. This
technique is called a delayed-match-to-sample task.



The
monkeys are trained to respond at a high overall level of performance. Under carefully controlled conditions and constant monitoring, the monkeys were then individually sleep deprived for between 30 and 36 hours, and then re-tested in the task. When
the monkeys were sleep deprived, their performance accuracy on the task was reduced by 15% to 25%, and their reaction times slowed by at least 50%.



A single dose of 0.8 mg/kg of CX717 completely reversed the performance deficits associated with sleep deprivation. Additionally, in those monkeys given
CX717, specific brain electroencephalogram changes that occur after sleep deprivation were returned to the non sleep deprived state.



Based upon these results, and extensive required safety testing in rats and dogs, as well as monkeys, Cortex has initiated Phase I studies of CX717 in the
United Kingdom. The studies are being conducted with the assistance of Quintiles  Guys Drug Research Unit, a large and well-respected clinical research organization. All of the Phase I safety trials except one in elderly subjects have
been completed, resulting in the gathering of safety and kinetic date from over 100 human subjects.



The first of these studies was a randomized, double-blind single rising dose study to explore the safety, tolerability and pharmacokinetics (the time
course of absorption, distribution, metabolism and excretion of the drug from the body) of CX717 in healthy young men between the ages of 18 and 45. Eight men per dose group randomly received CX717 (n = six) or placebo (n = two). To date, the
Company has dosed patients with up to 1600 mg of CX717 in this protocol and has not yet reached a maximum tolerated single dose. Cortex has decided that further single dose increases are not warranted in this study and instead has moved on to
multiple doses over a period of ten days to substantially increase the exposure levels of CX717 and to help define the maximum tolerated dose. On a single dose basis, the 54 volunteers who have received CX717 tolerated the drug very well.



A second study explored the effect of food taken immediately
before administration in a single dose group of eight young, healthy men in an open label, two-way crossover design. Of the eight male subjects, four are fed and four are fasted during each arm of the crossover. The results of this study
demonstrated that there was no statistical difference between the rate and amount of drug absorption when given with food as compared to the fasting state. These results are encouraging in the Companys consideration of potential future
clinical trials of longer duration where administration of meals will be necessary. If the compound is successful in additional clinical trials, the eventual dosage regimens for patients may be greatly simplified.



The third study was a randomized, double-blind multiple rising dose study to
examine the safety and tolerability of CX717 in young, healthy men. Four groups of eight volunteers (CX717 = six; placebo = 2) received daily doses of CX717 for ten (10) days. Safety and pharmacokinetics were fully assessed on days one and ten, with
single samples taken at pre-dosing during intervening days. The doses utilized were 100 mg once per day, 300 mg once per day, 500 mg twice per day and 800 mg twice per day for ten (10) days. All of the four doses have been administered successfully
to the four groups of subjects for ten days with excellent safety results. While at the highest doses some repeated sleep interruptions, headaches and dizziness were reported, a maximum tolerated dose was not reached.



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The fourth of the studies is a randomized, double-blind, multiple dose study in eight (8) healthy,
elderly men and eight (8) healthy elderly women to examine the safety, tolerability and pharmacokinetics of CX717 with 300 mg administered once daily for ten (10) days. This study was initiated in 2004, but slow enrollment has held up completion of
this phase of the safety trials. The treatment phase of the study was completed in early March 2005 and analysis is currently underway. Additional pharmacodynamic parameters will be measured in this group of elderly subjects.



The pharmacokinetic results to date from the 100 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 unchanged drug levels and area under the curve values were found, both indicating an
excellent absorption profile for the drug. Additionally, using the single dose kinetic parameters, Cortex has been able to accurately predict the results of the multi-dosing trials. The simulations and the actual data overlapped as would be expected
if the kinetic data was accurate. In summary, to date Cortex has found the drug to have an excellent safety profile, seemingly well absorbed and linear kinetics over a large range of doses in normal volunteers. The doses administered to the normal
volunteers were up to 16 times greater than those needed to produce efficacy results in the primates. If the clinical efficacy in humans can be demonstrated over the same dosage ranges as has been found in non-human primates, the potential for once
a day dosing seems feasible.



In addition to the safety and
tolerance studies that continue and daily dosing over a ten-day period, Cortex also initiated a kinetic study to evaluate the absorption of an oral solution as compared to oral capsules filled with drug of two different particle sizes. The results
from this study are as expected: the oral solution was most rapidly absorbed, followed by the capsule containing the smaller particles. The capsule with the larger drug particles had the slowest absorption. This dissolution rate controlled
absorption process is quite common and will allow the Company to improve the dosage forms to be used in the planned Phase IIb efficacy trials to be initiated later during calendar year 2005. No significant differences were found in the amount of
drug absorbed by the subjects or in the elimination half-life for the drug among the various dosage forms tested.



The Company is currently underway in a Phase I/II pilot efficacy in sleep deprivation in the U.K. Cortex hopes to have results from this trial by the end
of April 2005, which may provide it with a dose range for future efficacy studies. Cortex plans to conduct several small pilot efficacy trials with CX717 during the first nine months of calendar 2005. The Company also plans to immediately initiate a
three-month toxicology study for CX717 so that by the last quarter of 2005, it potentially may begin longer Phase IIb efficacy studies for this drug. Cortex submitted a Notice of Claimed Investigational Exemption for a New Drug (IND)
with the Food and Drug Administration for CX717 in late December 2004. The Company received permission to proceed with the studies in January 2005.



Based on the pharmacokinetic and safety profile of CX717 in the Phase I studies and the compounds behavioral characteristics, Cortex may conduct
small Phase II pilot efficacy studies in the indications that are listed below.



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Potential Applications for CX717 and Follow-Up AMPAKINE Compounds



Alzheimers Disease



Impairment of memory and cognition is a significant health care problem that
is growing 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 Cortex believes AMPAKINE molecules may play a valuable role,
enhancing the effectiveness of the brain cells 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 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 Brain Derived
Neurotrophic Factor, 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.



Attention Deficit
Hyperactivity Disorder



ADHD is the most commonly
diagnosed psychological disorder of children. 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. According to the NIMH, national public school spending on behalf of students with ADHD may have exceeded $3 billion in 1995.



Symptoms of ADHD include an inability to sustain attention and concentration, along with developmentally inappropriate levels of activity, distractability
and impulsivity. Children with the disorder may have functional impairment across multiple settings including home, school and peer relationships. ADHD has also been linked to long-term adverse effects on academic performance, vocational success and
social and emotional development. These effects not only impact the individual patients, but also their families, schools and communities. For many, the symptoms and impact of the disorder continue into adulthood.



Psychostimulants, including amphetamine, methylphenidate and pemoline,
represent the most widely researched and commonly prescribed treatments for the disorder. One theory suggests that ADHD results from difficulties in inhibiting responses to internal and external stimuli. Evidence suggests that



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those areas of the brain thought to be involved in planning, foresight, and consideration of alternative responses may be under-stimulated in patients with
ADHD. Stimulant medication may work on these areas of the brain to increase neural activity to more normal levels.



Because 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.



Cortex believes that AMPAKINE compounds
may represent a novel, non-scheduled approach (not regulated by the Drug Enforcement Agency) for treating ADHD patients, but until the development of CX717 has lacked an AMPAKINE compound with the appropriate potency and duration of
activity to treat ADHD on a once a day basis. Given the impressive behavioral improvement in attention and performance in primate studies with CX717 and of the longer acting AMPAKINE compounds, Cortexs consultants have
recommended that it considers a pilot trial in an ADHD population. Given the unmet medical need for a safe and non-scheduled treatment (drugs with low potential for addiction) for ADHD, Cortex may decide to pursue such a pilot trial. Cortex retains
worldwide rights for this indication.



Narcolepsy and Other Day-Time
Sleepiness Disorders



Narcolepsy represents a
disabling neurological disorder involving excessive day-time sleepiness 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. Prevalence of narcolepsy in the U.S. is under 200,000. The disorder is known to occur in equal frequency in both sexes and to affect all ethnic populations.



According to the National Institute of Neurological Disorders and Stroke,
patients with narcolepsy experience sleep attacks that can last for up to 30 minutes, regardless of the amount or quality of the prior nights sleep. The sleep attacks may occur at work, social events, while eating, talking and driving, and in
other similarly inappropriate circumstances.



There is
currently no cure for the disorder, although the symptoms may be controlled with behavioral and medical therapy. The therapeutic focus is to promote and enhance wakefulness and counteract excessive day-time sleepiness. The Company believes that
AMPAKINE compounds may be useful in treating day-time sleepiness, which is a key need for individuals with narcolepsy.



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.



An internal biological clock in the brain regulates our sleep needs and
patterns. Almost everyones clock is set for sleep at night, especially in the early morning hours between midnight and dawn. When our lives force us to work against our biological clocks, sleep problems are unavoidable.



The National Sleep Foundation estimates that 20 percent of American employees
work non-traditional schedules. For these workers, getting enough sleep is a common problem.



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Dr. Sam Deadwyler, Professor and Vice Chairman, Department of Physiology and Pharmacology at Wake Forest
University School of Medicine, as part of a grant received from the Defense Advanced Research Projects Agency (DARPA) has studied the effects of sleep deprivation on cognitive performance and associated brain imaging changes in primates
(to be published). Primates were trained to a high level of successful performance in a visual delayed-match-to-sample task. The animals were then individually sleep-deprived for 30-36 hours before being re-tested. Performance accuracy on the task
was significantly reduced by 15-25%, and reaction times slowed by at least 50% in all monkeys as a result of the sleep deprivation.



In November 2003, at the Annual Society of Neuroscience Meeting, Dr. Deadwyler reported the results from a new sleep deprivation study in primates with
the more potent AMPAKINE CX717. The results suggested that with CX717, a single dose of 0.5 to 1.5 mg/Kg produced an optimal response on short term memory, which would be the equivalent of approximately 75-100 mg per day in an average
human patient.



Expansion of the use of AMPAKINE
compounds to the treatment of narcolepsy may be possible. Narcolepsy represents an Orphan Drug indication that would reduce both the cost and time to market for a potential therapeutic agent from Cortex. The decision on whether CX717 will be
evaluated in narcoleptic patients or any other Orphan Drug indication will be made by Cortex after the data from the Phase I/II sleep deprivation study becomes available.



In June 2004, Cortex announced that Dr. Deadwyler has received a grant of approximately $5,100,000 from DARPA to continue
his research at Wake Forest University on the effects of sleep deprivation in primates, including the effects of CX717 and other AMPAKINE compounds.



Memory Loss Due to Electroconvulsive Therapy



Electroconvulsive therapy (ECT) is the most effective treatment of major depression, with approximately 100,000
patients receiving ECT in the U.S. ECT works by the intentional induction of a controlled generalized seizure by administration of electrical impulses to the anesthetized patient. The number of treatments in a course of therapy varies. Six to twelve
treatments are usually effective. In the U.S., the usual frequency is three times weekly; in the United Kingdom, the standard practice is two treatments weekly.



Despite its effectiveness, patient and clinician acceptance is limited due to significant memory loss that has been associated with this therapy.
ECTinduced memory impairment takes three forms. The first is post-treatment confusion. Typically, it takes a few minutes to half an hour for a patient to become fully alert and oriented after treatment. In elderly patients receiving ECT
treatment with bi-temporal electrode placement, the period of post-treatment confusion may persist for several hours or even days. The second type of memory impairment with ECT is anterograde amnesia. This refers to the inability to recall
information learned after the treatments have begun. The anterograde amnesia produced by ECT is short lived and, in group data, is apparent for several days up to two weeks after ECT. Learning of new information and retention of newly acquired
information begins to return within several days post treatment. The third and most bothersome type of ECT-induced memory impairment is retrograde amnesia, forgetting things that happened before the course of treatments. With retrograde amnesia,
memories of events that occurred months to years before treatment are most likely forgotten.



Efficacy of ECT is strongly influenced by the anatomical positioning of stimulating electrodes, which determine current paths, and by electrical dosages, which determine current density within the current path. These
factors determine the magnitude and persistence of cognitive side effects.



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In addition, the effects of chronic ECT have been discussed in recent studies demonstrating that the
pathophysiology of depression involves atrophy or death of hippocampal neurons. This work has led to the hypothesis that ECT and antidepressant drugs, via regulation of neurotrophic factors, reverse the atrophy of stress-vulnerable neurons or
protect these neurons from further damage. It is possible that AMPAKINE compounds may enhance the recovery of memory post-ECT therapy. Due to the mechanism of action of the AMPAKINE compounds, the post-ECT confusion
could potentially be minimized, the recovery from anterograde amnesia could be accelerated and due to the neuroprotective effects of Brain Derived Neurotrophic Factor generated by some AMPAKINE compounds, the degree of severity of
retrograde amnesia might be reduced.



This is a testable
hypothesis given that there are non-human primate models available to test intervention with CX717 and other AMPAKINE compounds. This in-vivo model measures acute, anterograde and retrograde amnesia effects after the administration of
precise doses of ECT. If AMPAKINE drugs, like CX717 or a high impact AMPAKINE compound can protect the primate from the acute insult of ECT, this will provide a unique niche for AMPAKINE drugs in the
hospitals where ECT is currently used.



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. alone. 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. 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 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 may be beneficial. AMPAKINE compounds, which have demonstrated enhanced glutamate
transmission, may therefore serve as potential new therapeutics.



Imaging studies demonstrate that areas of the brain that are extremely rich in glutamate transmission are less active in autistic patients. Molecular studies suggest that although genes involved in the AMPA-type glutamate receptor are more
active in autistic patients, the density of AMPA-type glutamate receptors is decreased. Taken together, these facts suggest that enhancing AMPA receptor activity may be beneficial in autistic patients.



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The scientific logic for using an AMPA receptor modulator in Fragile X is more complex but equally
compelling. The Fragile X genetic defect results in the reduction or absence of an important protein, 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. AMPAKINE compounds such as CX717 may have sufficient potency and safety to restore some cognitive function to patients afflicted with the disorder. Cortex will assess whether to conduct a
study with CX717 in this population after an evaluation of efficacy is derived from early Phase I/IIa studies with the compound.



Other Indications



Cortex may conduct studies in various other indications that have not been discussed above. In addition to the AMPAKINE CX717,
Cortex plans to advance other AMPAKINE compounds that have shown promise in animal models. The Company hopes to initiate toxicology testing for additional new AMPAKINE compounds during calendar year 2005. If those tests
are successful, Cortex hopes to have a second drug candidate in clinical trials by early 2006.



Proof of Principal Compound  AMPAKINE CX516



Cortexs development of the AMPAKINE technology began with its exclusive license of the technology from the University of California
in 1993. CX516 was among a number of AMPAKINE compounds that were rapidly synthesized and evaluated by Cortexs scientists during the early discovery and preclinical development processes. Given concerns about potential
brain-related side effects caused by excess glutamate, many believed that AMPAKINE compounds (through their potentiation of glutamate) would cause serious side effects in humans. While this concern has since been alleviated, the
Company believes that it initially created a serious impediment for Cortex in raising funds for its research in the private equity markets. At the same time, Cortex was able to accumulate an impressive patent portfolio.



Three human clinical safety studies have been completed with the
AMPAKINE CX516 in healthy volunteers. In all three studies, CX516 was safe and well-tolerated on acute oral administration, and importantly, indicated statistically positive effects on memory performance.



Phase II studies in mild cognitive impairment (MCI), ADHD,
schizophrenia and Fragile X syndrome subsequently were initiated and/or completed with CX516. The current status of these trails is described more fully under the respective headings below.



Mild Cognitive Impairment



In the aging population there is a continuum of cognitive decline. This
continuum ranges from normal (for the general age group) to MCI to probable Alzheimers disease or other types of dementia.



Patients with MCI currently 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 clinical criteria for Alzheimers disease. It is estimated that there are between 3 and 4 million people in the U.S. 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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Together with its partner, Servier, Cortex conducted a cross-national study of the
AMPAKINE technology as a potential treatment for MCI. This study was designed and conducted by a joint Cortex and Servier clinical team, in consultation with the International Scientific Advisory Committee (ISAC). The
majority of the study costs were funded by Servier, with initial funding provided by the Institute for the Study of Aging, a non-profit foundation supported by the Estee Lauder Trust.



The Phase II study began enrollment in March 2002 in the U.S. and several months later in five European countries. The last
patient completed the study in mid-August 2003. Given the size of the data base and the expense incurred for the trial by Servier, Servier required that the ISAC review the data before the results were disclosed publicly. The ISAC met with Cortex
and Servier to review the analysis in February 2004.



CX516
failed to meet the studys primary endpoint, improvements in the 15-item word list delayed recall. However, a subset review of the patients with the worst baseline memory impairment (the worst 25% of the patient population), showed a modest
improvement with CX516 versus placebo on the 15- item word list delayed recall test. A review of the safety data showed a significant difference in patient withdrawals in the active treatment group, primarily due to gastrointestinal side effects,
when compared to the placebo group. While there were a substantial number of adverse events in the active treatment group, only the gastrointestinal side effects were significantly different from those side effects attributed to the placebo group.
There were no treatment-related serious adverse events in either the placebo or CX516 groups.



CX516 has a half-life of less than one hour and very low potency, which may require the administration of several grams of drug per dosing period, making improvement in the primary endpoint for this study a difficult
objective to achieve. Based on information now available, both the frequency of dosing and the amount of drug administered would have to be increased substantially in order to obtain any type of efficacy result for CX516. Neither Cortex nor Servier
views the results from this MCI study as an indication that the AMPAKINE technology is flawed. Both companies have a large number of compounds with much greater potency and longer pharmacokinetic half-lives, which will be more
appropriate for clinical development than the proof of concept compound, CX516. Both companies are proceeding diligently with the clinical development of other AMPAKINE compounds, CX717 from Cortex, S-18986 and related
compounds from Servier and a large number of compounds resulting from the collaborative efforts of the two companies.



Based on the Companys animal and clinical studies, Cortex believes that CX516 is a short acting drug that requires multiple administrations of
extremely high doses per day to achieve and maintain the desired therapeutic effect. Therefore, Cortex does not intend to commercialize this compound. However, there are currently other studies underway with CX516 in Fragile X syndrome and
schizophrenia (as a combination with anti-psychotics). Cortex advised the investigators from these studies of the results from the MCI trial with CX516. The investigators elected to continue their clinical trials with the compound, although a study
in Alzheimers disease was terminated after Cortex expressed that it will not commercialize the CX516 compound. Because the other studies are funded by sources external to Cortex, Cortex agreed to allow the investigators to continue these
trials, but does not intend to perform further research or development with CX516.



Schizophrenia



The worldwide incidence
of schizophrenia is approximately one percent of the population, regardless of ethnic, cultural or socioeconomic status. On any given day, approximately 100,000 of the estimated 2 million U.S. patients with schizophrenia are in public mental
hospitals.



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).



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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. However, some of these drugs are characterized by troublesome and occasionally life-threatening side effects. One of the most
common side effects of conventional anti-psychotics is EPS or extrapyramidal signs, which include restlessness and tremors. EPS side effects have a strong negative impact on quality of life and tend to lead to poor patient compliance
with medication.



Since then, a new type of anti-psychotic
agent, referred to as atypical due to the virtual lack of EPS side effects, has been developed. Clozapine was the first such drug. It was initially studied in the 1970s, but clinical trials were halted due to the risk of a fatal blood
disorder known as agranulocytosis and a dose-dependent risk of seizures. Clozapine was reintroduced in the 1980s, with approval by the FDA for use in patients who cannot be adequately treated with conventional anti-psychotics, either because of lack
of efficacy or side effects. Risperidone and olanzapine are other recent atypical anti-psychotics without agranulocytosis side effects.



The newer atypical agents achieve good control of positive symptoms, partial control of negative symptoms and better patient compliance with medication
due to lower levels of EPS side effects. However, 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. Cortex 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, Cortex
entered into an exclusive worldwide license agreement with Organon. The agreement will enable Organon to develop and commercialize Cortexs proprietary AMPAKINE technology for the treatment of schizophrenia. 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.



Shortly after signing the agreement with Organon, in April
1999 Cortex reported preliminary results from a study with CX516 in patients with schizophrenia being treated with clozapine. This Phase I/IIa clinical trial, conducted at Massachusetts General Hospital, was designed primarily as a safety study.
Extensive testing also was included in an attempt to obtain a preliminary indication that CX516 may effect the psychological parameters that likely contribute to symptoms of the disease, particularly the cognitive symptoms that have thus far been
resistant to treatment. The results indicate that CX516 is reasonably safe in combination with clozapine and improves performance on a number of tests of verbal learning, memory, problem solving and distractability.



Further clinical testing of the AMPAKINE compound, ORG24448, a
successor compound to CX516, in patients with schizophrenia is being conducted by Organon. In May 2000, Cortex achieved its 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 Cortex. In September 2001, Organon informed Cortex 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.



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In September 2001, Cortex received notice of a Phase II Small Business Innovative Research
(SBIR) award for approximately $770,000 from the National Institutes of Health to investigate the therapeutic potential of the AMPAKINE technology in schizophrenia. The goals of the related research plan include
determining whether the AMPAKINE CX516 will improve negative symptoms, attention and memory. The research plan also hopes to assess the effects of an AMPAKINE compound on positive systems, anxiety and depressive
symptoms. As of December 31, 2004, Cortex had received approximately $675,000 from this four-year grant award, as extended. Enrollment in the study was completed in January 2005, with data analysis expected in the summer of the same year.



Attention Deficit Hyperactivity Disorder



In April 1999, the Company reported preliminary results from a study with
the AMPAKINE CX516 in patients with schizophrenia being treated with clozapine. The results noted in CX516-treated patients included improved performance on several tests of memory, problem solving and distractability, as well as a
clinical improvement in attention  symptoms that are also common to patients with ADHD. Based upon these results, the Company believes that AMPAKINE compounds may represent a novel, non-scheduled approach (not regulated by the
Drug Enforcement Agency) for treating ADHD patients.



In April
2000, the Company entered an option agreement with Shire Pharmaceuticals Group, plc (Shire), under which Shire initiated a Phase II double-blind, placebo-controlled study of Cortexs AMPAKINE CX516 for the treatment
of ADHD. Enrollment in the study began in the summer of 2001, with Shire responsible for all of the costs of the trial. In exchange for the option, Cortex received $130,000. Shire also purchased 254,353 shares of Cortex common stock for $870,000.



Shire had the right to convert its option into an exclusive
worldwide license for the AMPAKINE technology for ADHD. Upon exercise, Cortex would have received a license fee, milestone payments based on successful clinical and commercial development, research support for additional
AMPAKINE compounds and royalties on sales.



In
May 2002, Shire made a business decision to abruptly terminate the Phase II study of CX516 in adult patients with ADHD. At the time of the decision to immediately stop all treatments, 72 patients out of a planned 110 patient study target had been
enrolled. Only 45 patients had completed the 28-day course of treatment required by the study design. While the data from these 45 patients suggest that treatment differences might exist, because the study design was broken by the sudden cessation
of all treatments and only 40% of the patients completed the full treatment plan, the data from the study could not be properly analyzed. In June 2002, Shire elected not to exercise its option for use of the AMPAKINE technology in
ADHD. Cortex still believes that the potential for the use of AMPAKINE compounds as a treatment for ADHD exists and is seeking other partners to pursue this possibility.



Fragile X and Autism



In April 2002, Cortex announced that it is collaborating with several research organizations to conduct a Phase II clinical study to evaluate the
AMPAKINE CX516 as a potential treatment for Fragile X syndrome and autism. The study design is a randomized double-blind, placebo controlled trial with four weeks of treatment. Outcome measures will include testing in attention and
executive function, spatial and verbal/auditory memory, language and behavior. Enrollment for this study has been completed and data verification and analysis is currently underway.



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Stroke



A stroke occurs when a blood clot blocks a blood vessel or artery, or when a
blood vessel breaks and interrupts blood flow to the brain. When a stroke occurs, brain cells within the immediate area of damage usually die within minutes to a few hours. When brain cells die, control of functions such as speech, movement and
memory may be lost.



A stroke can happen to anyone, although
the risk increases significantly with age. According to the National Stroke Association, two-thirds of all strokes happen to people over the age of 65, with the risk doubling each decade past age 55.



Treatment of stroke victims represents a critical unmet need. The National
Stroke Association estimates that there are nearly 4 million people in the U.S. who have survived a stroke and are living with the after-effects.



Preclinical experiments conducted by Kevin Lee, Ph.D. at the University of Virginia and by two pharmaceutical companies have demonstrated that the
AMPAKINE CX516 can be safely administered to animals under mimicked stroke-like conditions. Additionally, research at Cortex suggests that AMPAKINE compounds may be neuroprotective  AMPAKINE
treatment may provide protection to at-risk neurons adjacent to the area of damage following a stroke.



AMPAKINE compounds also may improve post-stroke recovery. Nerve cells depend upon active stimulation or communication to maintain function.
After a stroke, many neurons lose connections with other cells. Patients must try to recover function by engaging new pathways of nerve cell communication. AMPAKINE compounds, which enhance communication between nerve cells, may be
ideal for the stroke recovery process.



In May 1999, Cortex
received notice of a Phase I SBIR award of $100,000 from the National Institutes of Health to investigate the AMPAKINE technology as a potential new stroke therapy. Subsequently, in October 2000 Cortex received notice of a Phase II
SBIR award of up to $1,074,000 to continue its research.



The
goals of the research plan include determining if an AMPAKINE compound administered in advance can reduce damage to neurons in an animal model of stroke; and to determine if the compound reduces damage to the memory of the animals. An
AMPAKINE compound will also be administered after the stroke to determine if there is an improved recovery of memory function. As of December 31, 2004, Cortex had received approximately $755,000 from this grant award, with the term of
the project extended through August 2005. Research of the AMPAKINE technology as a treatment for stroke, beyond that funded by the SBIR grant, will depend upon the Companys financial resources.



Manufacturing



Cortex has no experience or capability to either manufacture bulk quantities of the new compounds that it develops, or to
produce finished dosage forms of the compounds, such as tablets or capsules. Cortex relies, and presently intends to rely, on the manufacturing and quality control expertise of contract manufacturing organizations or current and prospective
corporate partners. There is no assurance that the Company will be able to enter into manufacturing arrangements to produce bulk quantities of its compounds on favorable financial terms. There is however, substantial availability of dosage form
manufacturing capability in the U.S. pharmaceutical industry that the Company believes that it 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 22 for a discussion of certain risks related to the development and commercialization of the Companys products.



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Marketing



The Company has no experience in the marketing of pharmaceutical products
and does not anticipate having the resources to distribute and broadly market any products that it may develop for indications such as Alzheimers disease and schizophrenia. The Company will therefore continue to seek commercial development
arrangements with other pharmaceutical companies for its proposed products for those indications that require significant sales forces to effectively market. In entering into such arrangements, the Company may seek to retain the right to promote or
co-promote products for certain of the Orphan Drug indications in North America. The Companys worldwide licensing agreement with Organon (see Note 5 of Notes to Financial Statements) does not provide Cortex with co-promotional rights. With
respect to Orphan Drugs, the Company 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 22 for a discussion of certain risks related to the development and commercialization of the Companys products.



Technology Rights



In 1993, Cortex entered into an agreement with the Regents of the University of California (the University), under which Cortex 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. The Company paid an initial license fee and is obligated to make additional payments, including license maintenance fees and patent expense reimbursements creditable against future royalties, over the course of initiating and
conducting human clinical testing and obtaining regulatory approvals. When and if sales of licensed products commence, the Company will pay royalties on net sales. During the fiscal year ended June 30, 2003, Cortex amended the agreement with the
University to exclude the treatment of disease areas outside of the central nervous system that the Company would not have the resources nor the capability to develop in a timely manner. 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 22 for a discussion of certain risks related to the
Companys licenses with the University.



Patents and Proprietary Rights



The Company is aggressively pursuing patent protection of
its technologies. Cortex owns or has exclusive rights (within its areas of product development) to more than 50 issued or allowed U.S. and foreign patents and has a number of additional U.S. patent applications and their international counterparts
pending. Over 40 of these are composition of matter patents that cover hundreds of the Companys compounds. These patents form the foundation of the Companys business and the pharmaceutical industry in general. Additionally, Cortex is
consistently filing new disclosures and patents for new structures and new uses.



Two method of use patents underlie much of the Companys current development work. These patents have been issued to the University and rights to the patents are licensed exclusively to Cortex for all uses, other
than endocrine modulation.



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One of these patents covers the method of use for the Companys 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. The Company believes
that the coverage from this patent 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 Cortex in Mexico, Australia and New Zealand.



In November 2003, a similar patent was issued to the University by the European Patent Office. Under the rules of the European Patent Office, this patent
entered into a nine-month period during which oppositions to the issuance could be filed. Upon issuance of the patent, an opposition was filed by Eli Lilly and Company. In August 2004, GlaxoSmithKline also filed an opposition. Cortex, in cooperation
with the University, plans to respond to these oppositions promptly. There is no timeframe available for a decision from the European Patent Office and such decision may be appealed by either Cortex 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 anywhere from six months to several years to resolve.



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.



Cortexs rights under the University patents are contingent upon it making certain minimum annual payments to the University, meeting certain milestones and diligently seeking to commercialize the underlying
technology.



Since issuance of a patent does not guarantee the
right to practice the claimed invention, others may obtain patents that the Company would then need to license or design around in order to practice its patented technologies. Cortex 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 the Companys technology, processes or products may infringe on patents or proprietary rights of
others, and the Company may be unable to obtain licenses or other rights to these other technologies that may be required for commercialization of the Companys proposed products or processes.



Cortex relies to a certain extent upon unpatented proprietary technology and
may determine in some cases that its interests would be better served by reliance on trade secrets or confidentiality agreements rather than patents. 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 24 for a discussion of certain risks related to the protection of the Companys intellectual property rights.



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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. Cortex has initiated Phase I and early Phase II testing in the U.S. and Europe, primarily with the
assistance of clinical collaborators and its corporate partners, Organon and Servier. 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
the Companys clinical collaborators. Cortex filed an IND for the AMPAKINE CX516 in the name of the Company in the fall of 2000. Cortex filed an IND for the AMPAKINE CX717 in December 2004. It is Cortexs
intent that Organon, Servier or another pharmaceutical company partner or partners that the Company is seeking, will pursue other required regulatory approvals to conduct further clinical testing with AMPAKINE compounds that result
from the respective collaborative research programs with Cortex. However, Cortex intends to file other INDs for additional AMPAKINE compounds to facilitate the development of its Orphan Drug strategy.



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



Therapeutic products that may be developed and sold by the Company outside the 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 25 for a
discussion of certain risks related to the regulatory approval of the Companys products.



Cortex plans to seek additional financing to support its development of selected AMPAKINE compounds for Orphan Drug indications. Without such financing, Cortex may be severely restricted in its overall
development. The Company would be dependent upon its sub-licensees and might be unable to maintain its current core technical and management capabilities. Under such circumstances, the Company 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 its licensing agreements with Organon and Servier, Cortex intends to enter into license or other arrangements with other
pharmaceutical companies under which those companies would conduct the required clinical trials and seek FDA approval for most or all of its proposed products. 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 24 for a discussion of certain risks related to the
proposed strategic alliances sought by the Company.



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Competition



The pharmaceutical industry is characterized by rapidly evolving technology
and intense competition. Many companies of all sizes, including both major pharmaceutical companies and specialized biotechnology companies, are engaged in activities similar to those of Cortex. A large number of drugs intended for the treatment of
Alzheimers disease, 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. Some of the Companys competitors have substantially greater financial and other resources and larger research
and development staffs. Larger pharmaceutical company competitors also have significant experience in preclinical testing, human clinical trials and regulatory approval procedures.



In addition, colleges, universities, governmental agencies and other public and private research organizations will continue
to conduct research. 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 that of the Company.



The Company expects technological developments in the neuropharmacology field to continue to occur at a rapid rate and expects that competition will remain intense as those advances continue. Based on the technical qualifications, expertise
and reputations of its Scientific Directors, consultants and other key scientists, the Company believes that its 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.



Product Liability Insurance



The clinical testing, manufacturing and marketing of the Companys products may expose the Company to product liability claims, against which the Company maintains liability insurance. 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 25 for a discussion of certain risks related
to product liability claims against the Company.



Employees



Cortex currently has 23 full-time employees and one part-time employee.
Of the 23 full-time employees, six are engaged in management and administrative support and the remainder are engaged in research and development, including nine Ph.D.-level or equivalent employees and one M.D.



Cortex anticipates that it may make modest increases in its employee levels
based upon the further development of the AMPAKINE CX717. However, the Company will continue to outsource a substantial amount of its research and development to qualified vendors. The Company sponsors a substantial amount of research
in academic laboratories, primarily at the University of California, Irvine and at Wake Forest University in North Carolina.



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Risk Factors



In addition to the other matters set forth in this Transition 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, 2004, we have generated only modest operating revenues and we have incurred net losses
approximating $52,097,000. For the six months ended December 31, 2004 and 2003 and fiscal years ended June 30, 2004, 2003 and 2002, our net losses amounted to approximately $4,046,000, $3,806,000, $5,994,000, $1,175,000 and $983,000, respectively.
As of December 31, 2004, we had an accumulated deficit of approximately $54,129,000. 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.



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. Based on our current operating plan, including planned clinical trials and other product research and development costs, we
estimate that our existing cash resources, including committed sources of funding from Servier, will be sufficient to meet our requirements through calendar year 2006. 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, 2004, warrants to purchase up to approximately 10.4 million shares of our common stock were outstanding.
If these warrants are fully exercised, of which there can be no assurance, such exercise would provide approximately $31,000,000 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;
| | - |  | -----------------------------------



| |  |  | the time and costs involved in obtaining regulatory approvals;
| | - |  | --------------------------------------------------------------



| |  |  | the ability to obtain funding under contractual and licensing agreements;
| | - |  | -------------------------------------------------------------------------



| |  |  | the costs involved in obtaining and enforcing patents or any litigation by third parties regarding intellectual property; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | our success in entering into collaborative relationships with other parties.
| | - |  | ----------------------------------------------------------------------------



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



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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 if we
lose access to these technologies, 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.



Our rights to the
AMPAKINE compounds are secured by patents or patent applications owned wholly by the University or by the University as a co-owner with us. Our existing agreements with the University require the University 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 our agreements, we are required to make minimum annual
royalty payments approximating $70,000. Separately, we are required to spend a minimum of $750,000 per year to advance the AMPAKINE compounds during the three years ending in May 2006. At the end of May 2006, our spending requirements
will decrease to $250,000 per year, and will continue at that level until we begin marketing an AMPAKINE compound.



The commercialization efforts in the agreements require us to initiate human clinical testing of an AMPAKINE compound, other than CX516, by
July 2005, and to file for regulatory approval of an AMPAKINE compound during October 2007. Clinical trials for the AMPAKINE compound CX717 were initiated in May 2004, which assure us of meeting the requirement to
initiate testing of a compound other than CX516 during the required timeframe. Although we currently are in compliance with our obligations under the agreements, including minimum annual payments and diligence milestones, our failure to meet any of
these requirements could allow the University to terminate that particular agreement. Management believes that it maintains a strong relationship with the 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 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 AMPAKINE compound, CX516, has undergone considerable clinical trials, some of which are continuing. This
compound has a short half-life and is weaker than our newer AMPAKINE compounds. We therefore have concluded that we will not further develop CX516, although we may be required to complete and report on some of the ongoing clinical
trials on that compound. Such trials are being funded by third parties and do not involve financial commitments from Cortex.



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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.



A significant percentage of our revenues come from our agreements with Organon and Servier, and if either or both agreements were terminated, such revenues could be
impaired.



Under the agreement with Organon that we
entered in January 1999, the collaborative research phase ended in January 2001. Organon has primary responsibility for developing and commercializing AMPAKINE compounds for use in the treatment of schizophrenia and depression.
Through December 31, 2004 we have received $8,000,000 in up-front and milestone payments and approximately $6,000,000 in research support payments. The agreement includes additional milestone payments, plus royalty payments on products sold, if any,
on a worldwide basis. We do not anticipate that we will receive any milestone payments from Organon during the fiscal year ending December 31, 2005. Under the terms of the agreement, Organon has the right to terminate the agreement upon
four-months prior notice. Such termination may have negative effects on our stock price and could impact our ability to achieve other licensing arrangements on acceptable terms, or at all.



Under the agreement with Servier that we entered into in October 2000, as
amended to date, we share the research efforts. Servier has primary responsibility for developing and commercializing AMPAKINE compounds for use in the treatment of memory impairment associated with aging, and of neurodegenerative
diseases such as Alzheimers disease. Through December 31, 2004, we have received an up-front payment of $5,000,000 and research support payments of approximately $12,495,000. Under the October 2000 agreement, as amended to date, we currently
receive approximately $2,220,000 per year (subject to us providing agreed-upon levels of research) and Servier is obligated to continue this level of support until early December 2005. The agreement includes milestone payments, plus royalty payments
on product sales, if any, in licensed territories. We do not anticipate that we will receive any milestone payments from Servier during the fiscal year ending December 31, 2005. Under the terms of the agreement, Servier has the right to terminate
the agreement in the case of a merger or acquisition involving us and a third party. Both we and Servier have the right to terminate the agreement on an annual basis upon six-months prior notice. In addition, either party has the right to
terminate the related research and development in the event that the other party materially breaches the agreement.



As described above, each of our agreements with Organon and Servier provides us with the opportunity to receive future milestone payments upon the
achievement of certain milestones. In the event that all of the milestones set forth in such agreements are met, we estimate that we could collectively receive up to an additional aggregate of $30,000,000 in future milestone payments. However, we
cannot assure you that we will be able to meet all or any of the specified milestones, in which case we would not receive the corresponding future milestone payments.



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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.



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.



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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 estimates 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.



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., and our
Senior Vice President, Pharmaceutical Research, Gary A. Rogers, Ph.D., both 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. We cannot assure you
that we will be able to retain our existing personnel or attract additional qualified employees when we need them.



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



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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 six-month period ended December 31, 2004 and fiscal years ended June 30, 2004 and June 30, 2003, as quoted on The American Stock Exchange, was $1.40 to $3.10, $1.62 to $4.99 and $0.51 to $2.49, 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.
| | - |  | ------------------------------------------------------------------------



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



If all outstanding warrants and options are exercised prior to their
expiration, approximately 16.8 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.



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.



|Item 2. | Properties
|------- | ----------



The Company leases approximately 32,000 square feet of office, research laboratory and expansion space in Irvine, California, under an operating
lease that expires May 31, 2009. Current monthly rent on these facilities is approximately $35,000. The Company believes that its current facilities will be adequate and suitable for its research and development activities for at least the remainder
of the lease term.



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|Item 3. | Legal Proceedings
|------- | -----------------



The Company is not a party to any material legal proceedings, nor has any material proceeding been terminated during the six-month period ended
December 31, 2004.



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



On December 16, 2004, the Company held its Annual Meeting of Stockholders, with stockholders holding 25,204,384 shares of common stock
(representing 88.58% of the total number of shares outstanding and entitled to vote) present in person or by proxy at the meeting. Proxies for the meeting were solicited pursuant to Regulation 14A of the Securities Exchange Act of 1934. Robert F.
Allnutt, Charles J. Casamento, Carl W. Cotman, Ph.D., Peter F. Drake, Ph.D., M. Ross Johnson, Ph.D., Roger G. Stoll, Ph.D. and Gary D. Tollefson, M.D., Ph.D. were listed as managements nominees in the proxy statement and were elected as
directors at the meeting. The votes for each nominee were as follows:



|                               |  |                             |  |                         
|------------------------------ |  | --------------------------- |  | ------------------------
|Name                           |  | Number of Affirmative Votes |  | Number of Votes Withheld
|Robert F. Allnutt              |  | 24,805,183                  |  | 399,201                 
|Charles J. Casamento           |  | 24,891,709                  |  | 312,675                 
|Carl W. Cotman, Ph.D.          |  | 24,549,945                  |  | 654,439                 
|Peter F. Drake, Ph.D.          |  | 24,973,166                  |  | 231,218                 
|M. Ross Johnson, Ph.D.         |  | 24,747,083                  |  | 457,301                 
|Roger G. Stoll, Ph.D.          |  | 24,700,427                  |  | 503,957                 
|Gary D. Tollefson, M.D., Ph.D. |  | 24,798,368                  |  | 406,016                 



At the meeting, the
Company also sought the ratification of Haskell & White LLP as independent auditors of the Company for the transitional six-month period ended December 31, 2004. This proposal was approved by 25,128,211 affirmative votes. There were 46,058
negative votes and 30,115 abstentions.



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PART II



|Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchased Equity Securities
|------- | ---------------------------------------------------------------------------------------------------------



The Companys 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 six-month period ended December 31, 2004 and fiscal years ended June 30, 2004 and 2003, as furnished by The
American Stock Exchange.



|                                         |  |      |      |     |   |     
|---------------------------------------- |  | ---- | ---- | --- | - | ----
|                                         |  | High |      | Low
|Six-Month Period ended December 31, 2004 |  |      |      |     |   |     
|Second Quarter                           |  | $    | 3.10 |     | $ | 2.26
|First Quarter                            |  |      | 2.95 |     |   | 1.40
|                                         |  |     
|Fiscal Year ended June 30, 2004          |  |      |      |     |   |     
|Fourth Quarter                           |  | $    | 2.92 |     | $ | 2.15
|Third Quarter                            |  |      | 4.17 |     |   | 2.48
|Second Quarter                           |  |      | 4.34 |     |   | 2.50
|First Quarter                            |  |      | 4.99 |     |   | 1.62
|                                         |  |     
|Fiscal Year ended June 30, 2003          |  |      |      |     |   |     
|Fourth Quarter                           |  | $    | 2.49 |     | $ | 0.70
|Third Quarter                            |  |      | 1.04 |     |   | 0.60
|Second Quarter                           |  |      | 0.95 |     |   | 0.56
|First Quarter                            |  |      | 1.50 |     |   | 0.51



As of March 15, 2005,
there were 516 stockholders of record of the Companys common stock, and approximately 9,500 beneficial owners. The high and low sales prices for the Companys common stock on March 15, 2005, as reported by The American Stock Exchange,
were $2.50 and $2.38, respectively.



The Company has never paid
cash dividends on its common stock and does 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 the
Companys financial condition and requirements, future prospects, restrictions in financing agreements, business conditions and other factors deemed relevant by the Board of Directors.



During the six-month period ended December 31, 2004, in addition to issuances
previously disclosed in the Companys Forms 10-Q and Current Reports on Form 8-K, in connection with the earlier engagement of a consultant for investor relations purposes, the Company issued warrants to purchase an aggregate of 12,000 shares
of the Companys common stock to one investor. The warrants have a weighted-average exercise price of $2.58 per share and a five-year term.



The issuances of the foregoing were made in reliance upon the exemption from the registration provisions of the Securities Act of 1933, as amended, set
forth in Section 4(2) thereof as transactions by an issuer not involving any public offering. The warrants contain representations to support the Companys reasonable belief that the purchaser is familiar with or has access to information
concerning the operations and financial condition of the Company, and the purchaser is acquiring the securities for investment and not with a view to the distribution thereof. At the time of their issuance, the warrants were



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deemed to be restricted securities for purposes of the Securities Act of 1933, as amended, and the warrants (and the shares issued upon exercise will) bear
legends to that effect.



During the six-month period ended
December 31, 2004, the Company did not repurchase any of its securities.



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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 Transition 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.



|                                                                |  |                                       |        |   |                      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |   |  |   |        |  
|--------------------------------------------------------------- |  | ------------------------------------- | ------ | - | -------------------- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                                                |  | SixMonths endedDecember 31, 2004      |        |   | Years ended June 30, |  
|                                                                |  | 2004                                  |        |   | 2003                 |   |        | 2002 |  |   | 2001   |   |  | 2000 |       
|                                                                |  | (In thousands, except per share data) |       
|INCOME STATEMENT DATA                                           |  |                                       |        |   |                      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |   |  |   |        |  
|Revenues:                                                       |  |                                       |        |   |                      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |   |  |   |        |  
|Research and license revenue                                    |  | $                                     | 1,788  |   |                      | $ | 6,792  |      |  | $ | 4,765  |   |  | $    | 5,777  |   |  | $ | 4,264  |   |  | $ | 5,369  |  
|Grant revenue                                                   |  |                                       | 108    |   |                      |   | 181    |      |  |   | 467    |   |  |      | 655    |   |  |   | 179    |   |  |   | 139    |  
|                                                                |  |                                       |        |   |                      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |   |  |   |        |  
|Total revenues                                                  |  |                                       | 1,896  |   |                      |   | 6,973  |      |  |   | 5,232  |   |  |      | 6,432  |   |  |   | 4,443  |   |  |   | 5,508  |  
|Operating expenses:                                             |  |                                       |        |   |                      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |   |  |   |        |  
|Research and development                                        |  |                                       | 4,926  |   |                      |   | 6,116  |      |  |   | 3,724  |   |  |      | 4,918  |   |  |   | 4,254  |   |  |   | 3,896  |  
|General and administrative                                      |  |                                       | 1,530  |   |                      |   | 2,291  |      |  |   | 2,480  |   |  |      | 2,389  |   |  |   | 2,183  |   |  |   | 1,782  |  
|Non-cash stock compensation charges                             |  |                                       | 152    |   |                      |   | 1,106  |      |  |   | 217    |   |  |      | 180    |   |  |   | 404    |   |  |   | 33     |  
|                                                                |  |                                       |        |   |                      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |   |  |   |        |  
|Total costs and expenses                                        |  |                                       | 6,608  |   |                      |   | 9,513  |      |  |   | 6,421  |   |  |      | 7,487  |   |  |   | 6,841  |   |  |   | 5,711  |  
|Loss from operations                                            |  |                                       | (4,712 | ) |                      |   | (2,540 | )    |  |   | (1,189 | ) |  |      | (1,055 | ) |  |   | (2,398 | ) |  |   | (203   | )
|Change in fair value of common stock warrants                   |  |                                       | 498    |   |                      |   | (3,603 | )    |  |   |       |   |  |      |       |   |  |   |       |   |  |   |       |  
|Loss before cumulative effect of change in accounting principle |  |                                       | (4,046 | ) |                      |   | (5,994 | )    |  |   | (1,175 | ) |  |      | (983   | ) |  |   | (2,143 | ) |  |   | (197   | )
|Cumulative effect of change in accounting principle(1)          |  |                                       |       |   |                      |   |       |      |  |   |       |   |  |      |       |   |  |   | (530   | ) |  |   |       |  
|Net loss before preferred stock dividends                       |  |                                       | (4,046 | ) |                      |   | (5,994 | )    |  |   | (1,175 | ) |  |      | (983   | ) |  |   | (2,673 | ) |  |   | (197   | )
|Net loss applicable to common stock                             |  |                                       | (4,046 | ) |                      |   | (5,994 | )    |  |   | (1,175 | ) |  |      | (983   | ) |  |   | (2,663 | ) |  |   | (200   | )
|Basic and diluted net loss per share                            |  |                                       | (0.14  | ) |                      |   | (0.26  | )    |  |   | (0.07  | ) |  |      | (0.06  | ) |  |   | (0.16  | ) |  |   | (0.01  | )
|Shares used in basic and diluted calculation                    |  |                                       | 28,355 |   |                      |   | 23,182 |      |  |   | 16,868 |   |  |      | 16,712 |   |  |   | 16,603 |   |  |   | 15,796 |  
|                                                                |  |                                       |        |   |                      |  
|BALANCE SHEET DATA                                              |  |                                       |        |   |                      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |   |  |   |        |  
|Cash and equivalents                                            |  | $                                     | 9,157  |   |                      | $ | 9,977  |      |  | $ | 1,125  |   |  | $    | 1,849  |   |  | $ | 4,558  |   |  | $ | 2,705  |  
|Marketable securities                                           |  |                                       | 18,839 |   |                      |   | 12,211 |      |  |   |       |   |  |      |       |   |  |   |       |   |  |   |       |  
|Working capital                                                 |  |                                       | 26,070 |   |                      |   | 20,567 |      |  |   | (1,505 | ) |  |      | (349   | ) |  |   | 1,984  |   |  |   | 1,921  |  
|Total assets                                                    |  |                                       | 29,912 |   |                      |   | 22,891 |      |  |   | 2,179  |   |  |      | 2,981  |   |  |   | 5,540  |   |  |   | 3,488  |  
|Unearned revenue, net of current portion, and other long-term   |  |                                       | 23     |   |                      |   | 381    |      |  |   | 247    |   |  |      | 727    |   |  |   | 2,394  |   |  |   |       |  
|Common stock warrants                                           |  |                                       | 3,958  |   |                      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |   |  |   |       |  
|Total stockholders equity (deficit)                            |  |                                       | 23,647 |   |                      |   | 20,489 |      |  |   | (1,420 | ) |  |      | (592   | ) |  |   | 120    |   |  |   | 2,353  |  



|(1) | During the fourth quarter of the fiscal year ended June 30, 2001, we adopted, as required, the SECs Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements, effective July 1, 2000 (see Note 1 in the notes to the financial statements).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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 Securities and Exchange Commission defines
critical accounting policies as those that are, in managements view, most important to the portrayal of the companys 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 United States. 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



Our revenue recognition policies are in accordance with the Securities and
Exchange Commissions Staff Accounting Bulletin No. 101, Revenue Recognition (SAB 101). SAB 101 provides guidance in applying accounting principles generally accepted in the United States to revenue recognition issues,
and specifically addresses revenue recognition for up-front, nonrefundable fees received in connection with research collaboration arrangements.



In accordance with SAB 101, revenues from up-front fees from our collaborators are deferred and recorded over the term that we provide ongoing services.
Similarly, research support payments are recorded as revenue as we perform the research under the related agreements. 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 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 will apply the principles of Issue 00-21 to multiple element agreements that we may enter into
after July 1, 2003.



Employee Stock Options and Stock-Based Compensation



As permitted under Statement of Financial Accounting
Standards No. 123 (SFAS 123), we have elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), in accounting for our employee stock options, given that the
alternative fair



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value accounting provided for under SFAS 123 requires use of option valuation models that were not developed for use in valuing employee stock options.
According to APB 25, no compensation expense is recognized since the exercise price of our stock options generally equals the market price of the underlying stock on the date of grant. Adoption of SFAS 123 for options issued to employees would
require recognition of employee compensation expense based on the computed fair value of the options on the date of grant. 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.



In December 2004, the Financial Accounting Standards Board issued Statement
No. 123(R), Share Based Payment, which is a revision of SFAS 123 and supersedes APB 25. Statement 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.



As required, we will
adopt Statement No. 123(R) during our quarter ending September 30, 2005. Under Statement No. 123(R), we may either recognize compensation cost for share-based payments to employees based on the grant-date fair value from the beginning of the period
in which the provisions are first applied, without restating periods prior to adoption, or we may elect to restate prior periods by recognizing compensation costs in the amounts previously reported in our pro-forma footnote disclosures under the
provisions of SFAS 123. We are evaluating the impact of the two adoption methods and as yet have not determined which method we will utilize.



We cannot estimate the impact of adopting Statement No. 123(R), but based solely upon the pro-forma disclosures for prior periods, we believe that the
impact may be material to our results of operations. We do not anticipate that adoption of Statement No. 123(R) will materially impact our financial condition.



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 United States, 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 Transition Report on Form 10-K, which contain accounting policies and other disclosures
required by accounting principles generally accepted in the United States.



As reported on the Companys Current Report on Form 8-K dated November 10, 2004, the Company changed its fiscal year from June 30 to December 31, implementing such change for the six months ended December 31,
2004.



Results of Operations



General



In October 2000, the Company entered into a research collaboration and an exclusive license agreement with Les Laboratoires
Servier (Servier). The agreement will allow Servier to develop and commercialize the Companys AMPAKINE®technology for the treatment of declines in cognitive performance associated with aging and neurodegenerative diseases. The
indications covered include, but are not limited to, Alzheimers disease, mild cognitive impairment, sexual dysfunction, and the dementia associated with multiple sclerosis and Amyotrophic Lateral Sclerosis.



The agreement with Servier, as amended in December 2003, includes a
nonrefundable up-front fee of $5,000,000 and research support payments of $2,025,000 per year through early December 2005



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(subject to Cortex providing agreed-upon levels of research personnel). The amount of research support is subject to annual adjustment based upon the
increase in the U.S. Department of Labors Consumer Price Index. Currently, Cortex receives research support of approximately $2,220,000 per year. The agreement also includes potential milestone payments, plus 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 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, beginning in October 2002.



In January 1999, the Company entered into a research collaboration and exclusive worldwide license agreement with NV Organon (Organon), a pharmaceutical business unit of Akzo Nobel. The agreement will
allow Organon to develop and commercialize the Companys proprietary AMPAKINE technology for the treatment of schizophrenia and depression. In connection with the agreement, the Company 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. Cortex achieved its first milestone under the agreement in May 2000, when Organon
selected a candidate compound to pursue in Phase I clinical testing as a treatment for schizophrenia. Achieving this milestone triggered a $2,000,000 payment from Organon, which Cortex recorded as revenue upon achievement.



Cortex achieved its second milestone under the agreement in September 2001,
when Organon elected to continue development of the selected compound in Phase II clinical testing. Achieving the second milestone triggered another $2,000,000 payment from Organon, with the related revenue recorded upon achievement of the
milestone.



In December 2003, Organon paid Cortex an additional
$2,000,000 in order to retain its rights to the AMPAKINE technology in the field of depression. Cortex recorded the revenue related to this milestone upon its achievement.



From inception (February 10, 1987) through December 31, 2004, the Company sustained losses aggregating $52,097,000. Due to
projected fluctuations in funding, continuing losses are likely over the next several years, as the Companys ongoing operating expenses will only be offset, if at all, by research support payments and possible milestone payments from its
research collaborations with Servier and Organon, or under planned strategic alliances that the Company is seeking with other pharmaceutical companies for the clinical development, manufacturing and marketing of its products. The nature and timing
of payments to Cortex under the Servier and Organon agreements or other planned strategic alliances, if and when entered into, are likely to significantly affect the Companys operations and financing activities and to produce substantial
period-to-period fluctuations in reported financial results. Over the longer term, the Company will require successful commercial development of its products by Servier, Organon, or its other prospective partners to attain sustained profitable
operations from royalties or other product-based revenues.



The
Company believes that inflation and changing prices have not had a material impact on its ongoing operations to date.



Six Months ended December 31, 2004 and 2003 (unaudited)



For the six months ended December 31, 2004, the Companys net loss of approximately $4,046,000 compared to a net loss of approximately $3,806,000 for
the corresponding prior year period.



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Revenues for the six months ended December 31, 2004 decreased to approximately $1,896,000 from
approximately $4,593,000, or by 59% compared to the corresponding prior year period, mostly due to the $2,000,000 milestone received from Organon in the prior year period. Organon paid Cortex the milestone in order to retain its rights to the
Companys AMPAKINE technology in the field of depression. Research revenue from Servier decreased relative to the six months ended December 31, 2003 due to the end of scheduled research support payments under the October 2002
amendment to the agreement. The final quarterly payment of $500,000 was received during the quarter ended September 30, 2004.



Research and development expenses for the six months ended December 31, 2004 increased to approximately $4,926,000 from approximately $2,869,000, or by
72% compared to the corresponding prior year period, mostly reflecting expenses incurred for the Phase I clinical testing of the AMPAKINE CX717 that commenced in May 2004. Expenses for the six months ended December 31, 2004 also
included amounts related to the addition of the Companys Chief Medical Officer in late August 2004.



General and administrative expenses for the six months ended December 31, 2004 increased to approximately $1,530,000 from approximately $1,155,000, or by
32% compared to the corresponding prior year period. Decreased expenses for the prior year period mostly resulted from cost reductions in an effort to conserve cash prior to the private placement of common stock in August 2003.



Specifically, these cost reductions included the acceptance of stock options
in lieu of a portion of base salary by three executive officers during the months of July and August 2003, as initially implemented in February 2003. Additionally, in September 2003, the Chief Executive Officer accepted stock options in lieu of his
entire base salary, as previously reduced, for the months of May through August 2003. Resultant salary expenses during the six months ended December 31, 2003 reflected the non-payment of his salary for the months of July and August and the reversal
of his earlier accrued salary expenses for the months of May and June 2003. Options to purchase an aggregate of 22,729 shares of common stock were issued to the executive officers in connection with the waived amounts during July and August, and the
waived salary for the Chief Executive Officer from May through August 2003.



The Board of Directors also waived all cash payments of director compensation for Board meetings held during calendar year 2003, which contributed to the decreased administrative expenses for the prior year period. In
lieu of those payments, options to purchase an aggregate of 120,000 shares of the Companys common stock were issued to non-employee directors as of the date of the 2002 Annual Meeting of Stockholders.



Non-cash stock compensation charges for the six months ended December 31,
2003 mostly represented the estimated fair value for the vesting of warrants issued earlier with a professional services agreement.



Net interest income for the six months ended December 31, 2004 increased to approximately $167,000 from approximately $13,000 for the corresponding prior
year period due to an increase in cash available for investing from the Companys private placement in January 2004.



Other income for the six months ended December 31, 2004 represents the change in estimated value of warrants issued in connection with the private equity
financing in December 2004, as explained more fully in Note 3 to the Financial Statements.



Fiscal Years ended June 30, 2004 and 2003



For the year ended June 30, 2004, the Companys net loss of approximately $5,994,000 compared to a net loss of approximately $1,175,000 for the prior year, with the increase primarily attributable to non-cash
charges of approximately $3,603,000 recorded for warrants issued in the Companys private placements of its common stock, as discussed more fully below.



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Revenues for the year ended June 30, 2004 increased from approximately $5,232,000 to approximately
$6,973,000, or by 33% compared to the prior year, primarily due to a $2,000,000 milestone payment received from Organon. As detailed above, the related agreement required this payment in order for Organon to retain its rights to the Companys
AMPAKINE technology in the field of depression.



Research and development expenses for the year ended June 30, 2004 increased from approximately $3,724,000 to approximately $6,116,000, or by 64% compared to the prior fiscal year. The increase mostly resulted from charges incurred to
develop the second generation AMPAKINE compound, CX717, which entered Phase I human clinical trials in May 2004. The increase for the current year also reflected increased personnel-related expenses, including recruiting fees to
expand the Companys clinical staff. Additionally, increased research and development expenses included technology access payments related to the Organon milestone. Cortex licenses the AMPAKINE technology from the University of
California. Under the related agreement, Cortex is required to remit a portion of certain remuneration received in connection with sublicensing agreements. In late December 2003, when Cortex achieved its milestone under its agreement with Organon, a
technology access payment to the University of California became due and was paid by the Company shortly thereafter.



General and administrative expenses for the year ended June 30, 2004 decreased from approximately $2,480,000 to approximately $2,291,000, or by 8%
compared to the corresponding prior year period. The decrease resulted from reduced salary-related expenses due to severance costs in the prior year period to the Companys former President and Chief Executive Officer.



Increased non-cash stock compensation charges primarily included the
estimated fair value for the vesting of warrants issued earlier with a professional services agreement.



Net interest income for the year ended June 30, 2004 increased from approximately $15,000 to approximately $149,000, or by 893% compared to the prior
year, due to the cash available for investing from the Companys two private placements during the year.



Other expenses for the year ended June 30, 2004 represent non-cash charges for the change in the estimated value of warrants issued in connection with the
private equity financing in August 2003, as explained more fully in Note 3 to the Financial Statements.



Fiscal Years ended June 30, 2003 and 2002



For the year ended June 30, 2003, the Companys net loss of approximately $1,175,000 compared to a net loss of approximately $983,000 for the prior year, with the increased net loss primarily attributable to the
timing of revenues from the Companys collaborative agreements.



Revenues for the year ended June 30, 2003 decreased from approximately $6,433,000 to approximately $5,232,000, or by 19% compared to the prior year, with a net increase in research and licensing revenue from the agreement with Servier of
approximately $1,036,000, but a decrease in revenues from the agreement with Organon of $2,000,000. For the year ended June 30, 2003, revenues included $1,500,000 related to the amendment to the Servier agreement signed in October 2002. That
amendment granted Servier rights to the Companys AMPAKINE technology in the field of anxiety disorders, in Serviers licensed territories. In exchange for those rights, Cortex will receive $4,000,000 of research funding
from Servier, paid as $500,000 per quarter over a two-year period.



With the amendment to the agreement, Cortex extended the period that it amortizes revenues from Serviers earlier up-front fee. Under the original October 2000 agreement, Cortex received a $5,000,000 licensing fee from Servier, which
Cortex was recording as revenue over that agreements



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three-year collaborative research phase. After amending the agreement in October 2002, Cortex began amortizing the remaining unearned licensing revenues over
the two-year period of the extended research support. Compared to the prior year, licensing revenues for the year ended June 30, 2003 decreased by approximately $500,000 as a result of this change.



Revenues for fiscal year 2002 included a $2,000,000 milestone payment from
the agreement with Organon, the Companys other collaborative partner. Organon triggered this milestone in September 2001 when it elected to continue its development of an AMPAKINE compound by entering Phase II studies for
schizophrenia. Cortex recorded the revenue from this milestone upon achievement as the Company has no ongoing obligations under the related agreement.



Research and development expenses for the year ended June 30, 2003 decreased to approximately $3,724,000, or by 24% compared to the prior fiscal year. The
decrease resulted from charges incurred in the prior year for the Phase II clinical study in MCI being conducted with Servier. In connection with the MCI study, in January 2002 the Company sponsored a meeting of the clinical investigators
participating in the trial. Nearly all other costs for this study were borne by Servier. The decrease for the current year also reflected decreased personnel-related expenses of approximately $407,000 from comparatively lower staffing levels and a
resultant decrease of approximately $100,000 in spending for animals and laboratory supplies. In addition, prior year research and development expenses included technology access payments related to the Organon milestone. In September 2001, when
Cortex achieved its milestone under its agreement with Organon, a technology access payment to the University of California became due.



General and administrative expenses for the year ended June 30, 2003 of approximately $2,480,000 were materially consistent with the prior year.



Net interest income for the year ended June 30, 2003 decreased
to approximately $15,000, or by 80% compared to the prior year, due to a decrease in cash available for investing.



Liquidity and Capital Resources



Under the agreement signed with Servier in October 2000, as amended as of December 31, 2004 Cortex has received research and licensing payments
approximating $17,495,000. Of this amount, Cortex received approximately $1,582,000 during the six-month period ended December 31, 2004. The October 2000 agreement, as amended, provides research support of approximately $2,220,000 per year through
early December 2005. Beginning in October 2002, Servier agreed to provide an additional $4,000,000 of research support to Cortex, to be paid in quarterly installments of $500,000 over a two-year period, with the last payment received during the
quarter ended September 30, 2004. The agreement also includes milestone payments based upon successful clinical development and royalties on sales in licensed territories.



Research and licensing payments received in connection with the agreement with Organon totaled $13,880,000 through December
31, 2004, including up-front and milestone payments totaling $8,000,000. Under the terms of the agreement, Cortex may receive additional milestone payments based on clinical development of the licensed technology and ultimately, royalties on
worldwide sales.



In August 2003, the Company completed a
private placement of an aggregate of 3,333,334 shares of its 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. The Company received
approximately $4,496,000 in net proceeds from the private placement. The warrants are subject to a call right in favor of the Company to the extent that the closing price of the Companys common stock exceeds $6.00 per share for any thirteen
consecutive trading day period following December 8, 2005. In January 2004, the Company received proceeds of approximately $870,000 from the exercise of warrants issued in



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connection with this private placement. If the remaining warrants are fully exercised, of which there can be no assurance, these warrants would provide
approximately $7,630,000 of additional capital.



In January
2004, the Company completed a private placement of an aggregate of 6,909,091 shares of its 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.
The Company received approximately $17,500,000 in net proceeds from the private placement. The warrants are subject to a call right in favor of the Company to the extent that the closing price of the Companys common stock exceeds $7.50 per
share for any 13 consecutive trading day period. If the warrants are fully exercised, of which there can be no assurance, these warrants would provide approximately $14,600,000 of additional capital.



In December 2004, the Company completed a private placement of an aggregate
of 4,233,333 shares of its 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. The Company received approximately $10,385,000 in net proceeds
from the private placement. The warrants are subject to a call right in favor of the Company to the extent that the closing price of the Companys common stock exceeds $7.50 per share for any 13 consecutive trading day period following January
26, 2006. If the warrants are fully exercised, of which there can be no assurance, these warrants would provide approximately $6,350,000 of additional capital.



Cash Proceeds



As of December 31, 2004 the Company had cash, cash equivalents and marketable securities totaling $27,996,000 and working capital of approximately
$26,070,000. As of June 30, 2004, the Company had cash, cash equivalents and marketable securities of approximately $22,188,000 and working capital of approximately $20,567,000. The increases in cash and working capital reflect approximately
$10,385,000 of net proceeds from the private placement of the Companys common stock and warrants in December 2004, partially offset by amounts required to fund operations.



Net cash used in operating activities was approximately $4,283,000 during the six months ended December 31, 2004, and
included the Companys net loss for the period of approximately $4,046,000, adjusted for non-cash stock compensation credits (including the change in fair value of common stock warrants) of $356,000, depreciation and amortization charges
aggregating approximately $65,000, and changes in operating assets and liabilities. For the six months ended December 31, 2003, net cash used in operating activities approximated $558,000, reflecting the Companys net loss of approximately
$3,806,000 for the period, adjusted for non-cash expenses for stock compensation (including the change in fair value of common stock warrants) of approximately $4,356,000, depreciation and amortization charges aggregating approximately $92,000, and
changes in operating assets and liabilities.



Net cash used in
investing activities approximated $6,922,000 during the six months ended December 31, 2004, and primarily resulted from the purchase of short-term investments of approximately $14,342,000 and fixed assets of $179,000, offset by the maturity of
marketable securities of approximately $7,600,000. For the six months ended December 31, 2003, net cash used in investing activities approximated $410,000, and mostly included $600,000 for the purchase of short-term investments, offset by the
maturity of short-term investments of $200,000.



Net cash
provided by financing activities of approximately $10,385,000 reflected the net proceeds from the Companys December 2004 private placement of common stock and warrants to purchase common stock. For the six months ended December 31, 2003, net
cash provided by financing activities approximated $4,690,000, representing net proceeds of approximately $4,496,000 from the private placement of the Companys common stock in August 2003, along with proceeds of approximately $194,000 from the
exercise of options and warrants to purchase common stock.



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Commitments



The Company leases 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, 2005, 2006, 2007, 2008 and 2009 are approximately $443,000, $462,000, $482,000, $501,000 and $212,000, respectively. From inception (February 10, 1987) through December 31,
2004, expenditures for furniture, equipment and leasehold improvements aggregated approximately $2,877,000.



The Company is committed to approximately $1,147,000 for sponsored research to academic institutions, of which $865,000 is payable over the next 12
months. Commitments for preclinical and clinical development expenses approximate $3,063,000, all of which is payable within the next 12 months.



In June 2000, the Company received $247,300 from the Institute for the Study of Aging (the Institute), which will partially offset the
Companys costs for the testing in patients with MCI. Given that Cortex committed to use the funding from the Institute solely for clinical trials, the Company recorded the amounts received as restricted cash in its balance sheet. Provided that
Cortex complies with the conditions of the funding agreement, repayment of the advance shall not be required unless Cortex enters 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 Cortex 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 the Companys contractual obligations as of December 31, 2004:



|                                                                                |       |                        |                  |  |           |           |           |   |                  |  |   |         |  |   |        
|------------------------------------------------------------------------------- | ----- | ---------------------- | ---------------- |  | --------- | --------- | --------- | - | ---------------- |  | - | ------- |  | - | -------
|Contractual Obligations                                                         |       | Payments Due by Period
|                                                                                | Total |                        | Less than 1 Year |  | 1-3 Years |           | 3-5 Years |   | More than5 Years
|Operating Lease Obligations                                                     |       | $                      | 2,100,000        |  | $         | 443,000   |           | $ | 944,000          |  | $ | 713,000 |  | $ |       
|Other Long-Term Liabilities Reflected on the Companys Balance Sheet under GAAP |       |                        | 23,000           |  |           | 23,000    |           |   |                 |  |   |        |  |   |       
|Other Contractual Obligations                                                   |       |                        | 5,139,000        |  |           | 3,998,000 |           |   | 421,000          |  |   | 140,000 |  |   | 580,000
|                                                                                |       |                        |                  |  |           |           |           |   |                  |  |   |         |  |   |        
|Total                                                                           |       | $                      | 7,262,000        |  | $         | 4,464,000 |           | $ | 1,365,000        |  | $ | 853,000 |  | $ | 580,000
|                                                                                |       |                        |                  |  |           |           |           |   |                  |  |   |         |  |   |        



Staffing



As of December 31, 2004, Cortex had 24 employees. Cortex anticipates a
modest increase in the number of its full-time employees within the coming year.



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Plant and Equipment



The Company expects that it will require modest investments in plant and equipment within the coming year.



Outlook



Cortex anticipates that its cash and cash equivalents, marketable securities and scheduled research support payments from
its agreements with Servier will be sufficient to satisfy the Companys capital requirements through calendar year 2006. Additional funds will be required to continue operations beyond that time. Cortex may receive additional milestone payments
from the Organon and Servier agreements, but there is no assurance that the Company will receive such milestone payments within the desired timeframe, or at all. Cortex may also receive funds from the exercise of warrants to purchase shares of our
common stock. As of December 31, 2004, warrants to purchase up to approximately 10.4 million shares of our common stock were outstanding. If these warrants are fully exercised, of which there can be no assurance, such exercise would provide
approximately $31,000,000 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 its longer-term spending requirements, the Company is presently seeking collaborative or other arrangements with larger
pharmaceutical companies. Under these agreements, it is intended that such companies would provide additional capital to the Company in exchange for exclusive or non-exclusive license or other rights to certain of the technologies and products the
Company is developing. Competition for such arrangements is intense, with a large number of biopharmaceutical companies attempting to secure alliances with more established pharmaceutical companies. Although the Company has been engaged in
discussions with candidate companies, there is no assurance that an agreement or agreements will arise from these discussions in a timely manner, or at all, or that revenues that may be generated thereby will offset operating expenses sufficiently
to reduce the Companys short and longer-term funding requirements.



Because there is no assurance that the Company will secure additional corporate partnerships, the Company may raise additional capital through the sale of debt or equity securities. There is no assurance that funds
will be available on favorable terms, or at all. If equity securities are issued to raise additional funds, dilution to existing stockholders may result.



The Companys proposed products are in the preclinical or early clinical stage of development and will require significant further research,
development, clinical testing and regulatory clearances. They are subject to the risks of failure inherent in the development of products based on innovative technologies. These risks include the possibilities that any or all of the proposed
products will be found to be ineffective or 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 the Company from marketing them; or that third parties will market superior or equivalent products. Accordingly, the Company is unable to predict whether its research and development activities will result in any
commercially viable products or applications. Further, due to the extended testing and regulatory review process required before marketing clearance can be obtained, the Company does not expect to be able to commercialize any therapeutic drug for at
least five years, either directly or through its prospective corporate partners or licensees. There can be no assurance that the Companys proposed products will prove to be safe or effective or receive regulatory approvals that are required
for commercial sale.



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Off-Balance Sheet Arrangements



The Company does 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
|-------- | ----------------------------------------------------------



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



The
Companys exposure to interest rate risk arises from financial instruments entered into in the normal course of business. Certain of the Companys 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. The Company manages interest rate risk on its investment portfolio by matching scheduled investment maturities with its
cash requirements. As of December 31, 2004, the Companys investment portfolio had a carrying amount of approximately $18,839,000. If market interest rates were to increase immediately and uniformly by 10% from levels as of December 31, 2004,
the resulting decline in the fair value of fixed rate bonds held within the portfolio would not be material to the Companys financial position, results of operations and cash flows.



The Companys borrowing consists solely of its advance from the Institute, which is subject to potential repayment in
the event that Cortex enters 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, 2004, the principal and accrued
interest of the advance amounted to approximately $278,000.



|Item 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------



The financial statements of the Company 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
|------- | ------------------------------------------------------------------------------------



As reported on the Companys Current Report on Form 8-K dated November 10, 2004, as amended on December 1, 2004, the
Company dismissed Ernst & Young LLP (Ernst & Young) as its independent registered public accounting firm and appointed Haskell & White LLP (Haskell & White) as the Companys new independent registered
public accounting firm effective November 15, 2004. The decision to dismiss Ernst & Young and engage Haskell & White was approved by the Audit Committee of the Companys Board of Directors.



In connection with its audits of the Companys financial statements for
the years ended June 30, 2003 and 2004 and through the subsequent interim period preceding the dismissal of Ernst & Young, there were no disagreements with Ernst & Young on any matter of accounting principles or practices, financial
statement disclosure or auditor scope or procedure, which disagreements, if not resolved to the



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satisfaction of Ernst & Young, would have caused it to make reference thereto in its reports. There were no reportable events as that term is
defined in Item 304(a)(1)(v) of Regulation S-K.



During the
Companys two most recent fiscal years and through the subsequent interim period prior to engaging Haskell & White, neither the Company nor anyone acting on its behalf consulted with Haskell & White with respect to the application of
accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Companys financial statements, or any other matters or events set forth in Item 304(a)(2)(i) and (ii) of
S-K.



|Item 9A. | Controls and Procedures
|-------- | -----------------------



The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as
amended, (the Exchange Act)) that are designed to ensure that information required to be disclosed in the Companys 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 the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.



The Company carried out an
evaluation, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Companys 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, the Companys Chief Executive Officer and Chief Financial Officer have concluded that
the Companys 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 the Companys periodic
SEC filings.



There has been no change in the Companys
internal control over financial reporting (as defined in Rules 13(a)-15(f) and 15(d)-15(f) under the Exchange Act) during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.



|Item 9B. | Other Information
|-------- | -----------------



On December 16, 2004, to further align the interests of the Companys directors and executive officers with its stockholders, the Companys
Board of Directors adopted a Directors and Executive Officers Stock Ownership Policy. Pursuant to the terms of such Policy, effective upon the later to occur of December 16, 2007 or three years from commencement of service as a director or executive
officer (subject to a limited hardship exception), each director and executive officer of the Company is required to maintain ownership of at least 30,000 shares of common stock of the Company. If any director or executive officer does not attain
the required share ownership within the prescribed time period, the Policy provides for a withholding of fees (in the case of directors) and salary increases and bonus payments (in the case of executive officers) until the ownership level has been
achieved. The foregoing description of the Policy does not purport to be complete and is qualified in its entirety by reference to the Directors and Executive Officers Stock Ownership Policy filed as Exhibit 10.89 to this Transition Report and is
incorporated herein by reference.



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PART III



|Item 10. | Directors and Executive Officers of the Registrant
|-------- | --------------------------------------------------



Directors



The following table and biographical summaries set forth, with respect to each director, his age, position or positions in the Company, the year in which
he first became a director of the Company, and his principal occupations or employment during at least the past five years. The directors of the Company are elected annually to serve until the next annual meeting of the stockholders or until their
respective successors are elected and qualified.



|                               |  |     |  |                                                             
|------------------------------ |  | --- |  | ------------------------------------------------------------
|Name                           |  | Age |  | Position                                                    
|Robert F. Allnutt (2)          |  | 69  |  | Director                                                    
|Charles J. Casamento (1)       |  | 59  |  | Director                                                    
|Carl W. Cotman, Ph.D. (2)      |  | 64  |  | Director                                                    
|Peter F. Drake, Ph.D. (1)      |  | 51  |  | Director                                                    
|M. Ross Johnson, Ph.D. (1) (2) |  | 60  |  | Director                                                    
|Roger G. Stoll, Ph.D.          |  | 62  |  | Chairman of the Board, President and Chief Executive Officer
|Gary D. Tollefson, M.D., Ph.D. |  | 54  |  | Director                                                    



|(1) | Member of Audit Committee.
|--- | --------------------------



|(2) | Member of Compensation Committee.
|--- | ---------------------------------



Robert F. Allnutt has been a director since December 1995 and served as Chairman of the Board from February 1999 until the appointment of Roger G.
Stoll, Ph.D. on August 13, 2002. Since February 1995, Mr. Allnutt has been a senior counselor for APCO Worldwide, Inc., a public affairs and strategic communications company. Mr. Allnutt was Executive Vice President of the Pharmaceutical
Manufacturers Association from 1985 until 1995 and was Vice President for Governmental Relations of the Communications Satellite Corporation from 1984 until 1985. Prior to 1984, Mr. Allnutt held numerous positions in the Federal Government for 25
years, including 15 years at NASA, where his positions included Associate Deputy Administrator, the third ranking position in the agency. Mr. Allnutt serves as a member of the Boards of Directors of the National Medals of Science and Technology
Foundation, the American Hospice Foundation and the F. Dohmen Company, a privately held drug wholesaler and distributor. Mr. Allnutt holds a B.S. in Industrial Engineering from the Virginia Polytechnic Institute and J.D. (with distinction) and LL.M.
degrees from George Washington University.



Charles J.
Casamento was elected to the Board of Directors of the Company in July 1997. Since October 2004, Mr. Casamento has been President and Chief Executive Officer of Osteologix, Inc., a pharmaceutical company headquartered in San Francisco,
California that develops products for potential use in treating osteoporosis and other bone diseases. From June 1993 to August 2004, Mr. Casamento served as Chairman, President and Chief Executive Officer of Questcor Pharmaceuticals, Inc., a
biopharmaceutical company based in Union City, California. Prior to that, he was President and Chief Executive Officer of Interneuron Pharmaceuticals, a neuropharmaceutical company, from its founding in March 1989 until May 1993. From January 1986
to March 1989, he was Senior Vice President and General Manager, Pharmaceuticals & Biochemicals at Genzyme Corp., a biotechnology company. From 1970 through 1985, Mr. Casamento held senior management positions in marketing, finance and business
development at Sandoz, F. Hoffmann-LaRoche, Johnson & Johnson and American Hospital Supply Corp., where he was Vice President, Business Development and Strategic Planning for the Critical Care Division. Mr. Casamento also currently holds board
positions with Supergen, Inc., a publicly held pharmaceutical company, as well as the Catholic Medical Mission Board, a non-profit organization located in New York City. He holds a B.S. in Pharmacy and an M.B.A. from Fordham University and is a
licensed pharmacist.



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Carl W. Cotman, Ph.D. is a co-founder of the Company. He has been a Scientific Director of and
consultant to the Company since October 1987, served as a director of the Company from March 1989 to October 1990, and was reelected as a director in November 1991. Dr. Cotman has been a Professor of Psychobiology, Neurology, and Psychiatry at the
University of California, Irvine since 1985. He was a Professor of Psychobiology and Neurology at that University from 1983 to 1985, and has held various other teaching and research positions at that University since 1968. He chaired the Scientific
Advisory Council of the American Paralysis Association and is a member of numerous professional associations and committees, including the Council of the American Society for Neurochemistry, the National Institute of Aging Task Force, the American
Association for the Advancement of Science and the International Society for Neurochemistry. Dr. Cotman has served on the editorial boards of numerous scientific journals and has authored or co-authored seven books and over 400 articles in the
fields of neurobiology, memory and cognition, and the recovery of function after brain injury. Dr. Cotman holds a B.A. in Chemistry from Wooster College, an M.A. in Analytical Chemistry from Wesleyan University, and a Ph.D. in Biochemistry from
Indiana University.



Peter F. Drake, Ph.D. was appointed
to the Board of Directors of the Company in October 2003. Dr. Drake is currently the Managing General Partner of Mayflower Partners, a healthcare investment fund. From 1999 to 2002, he served as a Managing Director in the Equity Research Department
of Prudential Securities, Inc., after Prudential acquired Vector Securities International, an investment banking firm co-founded by Dr. Drake in 1988. Vector specialized in raising capital for emerging healthcare companies and acted as an advisor in
merger and alliance transactions in the healthcare area. Dr. Drake joined the investment banking firm of Kidder, Peabody & Co. as a Biotechnology Analyst in 1983, becoming a partner in 1986. He currently serves on the Boards of Directors of
Trustmark Insurance Co., a healthcare insurance provider, The Alliance For Aging Research, a non-profit organization dedicated to supporting and accelerating medical discoveries to improve the experience of aging and health and TL Contact, a private
medical informatics Company. Dr. Drake received a B.A. degree in Biology from Bowdoin College and attended the Wharton School of Business at the University of Pennsylvania. After receiving his Ph.D. in Biochemistry and Neurobiology from Bryn Mawr
College, he spent three years as a Senior Research Associate in the Department of Developmental Biology and Anatomy at Case Western Reserve University.



M. Ross Johnson, Ph.D. has served as a director of the Company since April 2002. Dr. Johnson is currently Chief Executive Officer and President of
Parion Sciences, Inc., a privately held pharmaceutical company that he co-founded in 1999. From 1995 to 1999, Dr. Johnson served as President, CEO and CSO of Trimeris Inc., a pharmaceutical company that he took public in 1997. From 1987 to 1994, he
served as Vice President of Chemistry at Glaxo Inc., where he was part of the original scientific founding team for Glaxos research entry into the United States. From 1971 to 1987, Dr. Johnson served in key scientific and research management
positions with Pfizer Central Research. Dr. Johnson currently holds board positions with Parion Sciences, Inc., Nuada, a privately-held pharmaceutical company, the University of California at Berkeley Chemistry Board, the University of North
Carolina Education Advancement Board and is Chairman of AdventRx. He received his B.S. from the University of California, Berkeley, and a Ph.D. in Organic Chemistry from the University of California at Santa Barbara.



Roger G. Stoll, Ph.D. has served as a director of the Company since
April 2002 and became Chairman, President and Chief Executive Officer of the Company in August 2002. From 2001 to 2002, Dr. Stoll served as a consultant to the venture capital industry. From 1998 to January 2001, Dr. Stoll served as Executive Vice
President at Fresenius Medical Care-North America, with responsibility for the Dialysis Products Division. From 1991 to 1998, he served as President and CEO of Ohmeda Inc., a pharmaceutical and medical products company with worldwide sales of
approximately $1 billion. From 1986 to 1991, Dr. Stoll served as a senior executive at Bayer AG, where he rose to the position of Executive Vice President and General Manager of the worldwide diagnostic business group. From 1976 to 1986, Dr. Stoll
held positions of increasing responsibility at the American Critical Care division of American Hospital Supply Corporation (now Baxter International), including President of American Critical Care from 1981 to 1986. He started his industrial career
in 1972 at The Upjohn Company, where he conducted Phase I  IV clinical pharmacology studies in humans. He obtained his B.S. in pharmacy from Ferris State University and a



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Ph.D. in biopharmaceutics from the University of Connecticut. He also carried out post-doctoral studies in pharmacokinetics at the University of Michigan and
has published over 30 scientific papers and contributed chapters in textbooks in the field of drug kinetics. Dr. Stoll serves on the board of directors of Agensys, Inc., a privately held biotechnology company specialized in cancer therapy and
Questcor Pharmaceuticals, Inc., a publicly held company focused on specialty pharmaceuticals.



Gary D. Tollefson, M.D., Ph.D. has served as a director and consultant of the Company since April 2004. Dr. Tollefson currently is a Clinical Professor of Psychiatry at the Indiana University School of
Medicine, a position that he has held since April 2004, and a consultant in pharmaceutical product development for Consilium, Inc. Prior to March 2004, Dr. Tollefson was employed as a senior executive at Eli Lilly & Company for nearly 14 years,
until he elected to take an early retirement. As an employee of Eli Lilly & Company, Dr. Tollefson played a key strategic role in the development of the psychopharmacologic drugs Prozac®, Zyprexa®, Straterra®, Symbyax and Cymbalta®. Dr. Tollefsons other career highlights include having served as Distinguished Lilly Research Scholar and Vice President Medical-Neuroscience; President, Neuroscience Products and Vice President, Lilly Research
Laboratories. Prior to joining Lilly, he was Chairman of the Department of Psychiatry, St. Ramsey Medical Center, a University of Minnesota Teaching Affiliate Hospital. Dr. Tollefson received his B.S. (Psychology), M.D. and Ph.D.
(Psychopharmacology) from the University of Minnesota. Dr. Tollefson conducted his internship at St. Paul-Ramsey Medical Hospital and residency in Psychiatry at the University of Minnesota Hospitals in Minneapolis. Dr. Tollefson is certified by the
American Board of Neurology and Psychiatry and the National Board of Medical Examiners. He serves on the board of directors of Cypress Bioscience, Inc., a publicly held company focused on products for the treatment of pain and central nervous
disorders. He is a member of several medical societies including a Fellow in the American College of Neuropharmacology, the American Society of Clinical Psychopharmacology, American Psychiatric Association, Society for Biological Psychiatry,
American Academy of Clinical Psychiatrists and the International Psychogeriatric Association. Dr. Tollefson serves as a journal reviewer for several medical and psychiatric journals. Dr. Tollefson has authored or co-authored over 200 peer-reviewed
scientific publications, is an international speaker in medical education and been awarded 22 method of treatment patents.



Executive Officers



The following table and biographical summaries set forth, with respect to each of the Companys four executive officers his or her age, position or
positions with the Company, the period during which he or she has served as such and his or her principal occupations or employment during at least the past five years. The executive officers are appointed by, and serve at the pleasure of, the Board
of Directors.



|                        |  |     |  |                                                               
|----------------------- |  | --- |  | --------------------------------------------------------------
|Name                    |  | Age |  | Position                                                      
|Roger G. Stoll, Ph.D.   |  | 62  |  | Chairman, President and Chief Executive Officer               
|Maria S. Messinger      |  | 37  |  | Vice President and Chief Financial Officer                    
|James H. Coleman        |  | 63  |  | Senior Vice President, Business Development                   
|Gary A. Rogers, Ph.D.   |  | 60  |  | Senior Vice President, Pharmaceutical Research                
|Harry H. Mansbach, M.D. |  | 40  |  | Chief Medical Officer and Vice President, Clinical Development



Dr. Stoll was
appointed as the President and Chief Executive Officer of the Company on August 13, 2002. The biographical summary for Dr. Stoll has been presented earlier under the heading Directors. The other Executive Officers of the Company included
Maria S. Messinger, James H. Coleman, Gary A. Rogers, Ph.D. and Harry H. Mansbach, M.D.



Maria S. Messingerwas appointed Vice President, Chief Financial Officer and Corporate Secretary of the Company in December 1999. She has served as Controller of the Company since September 1994.



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From August 1989 to September 1994, Ms. Messinger served in a progression of positions at Ernst & Young LLP, including her most recent position as an
Audit Manager. She holds a B.A. from the School of Business Administration and Economics at California State University, Fullerton and is a Certified Public Accountant in the state of California.



James H. Colemanbecame Senior Vice President of Business Development
in May 2000. Prior to joining Cortex, Mr. Coleman was President and Senior Partner of Diversified Healthcare Management, Inc. (DHM), a biopharmaceutical and biotechnology consulting firm that he founded in 1997. From March 1999 to May 2000, Cortex
was a client of DHM. During 1996, Mr. Coleman served as Vice President of Commercial Development at CoCensys, Inc., a biotechnology company, where he directed strategic planning and external business development. Mr. Coleman was also employed as an
executive at Pharmacia & Upjohn, Inc. for over 25 years, where he acquired extensive management expertise in new product development, global strategic marketing, sales, CNS research and clinical research trial methodologies. Mr. Coleman holds a
B.S. in Applied Biology from the University of Rhode Island.



Gary A. Rogers, Ph.D.was appointed Senior Vice President, Pharmaceutical Research in July 2000 and has served as Vice President, Pharmaceutical Discovery since June 1995. In February 1994, he founded Ligand Design, a private
contract design and synthesis firm located in Santa Barbara, California. From 1987 to 1994, Dr. Rogers served as an Associate Research Biochemist at the University of California, Santa Barbara. Prior to that, he held a succession of research and
faculty positions at universities in the United States and abroad, including three years as an Adjunct Professor of bio-organic chemistry under Dr. Paul Boyer at the University of California, Los Angeles and four years as an Assistant Professor at
the University of Texas. Dr. Rogers is a co-inventor of the AMPAKINE®family of AMPA receptor modulating compounds. He holds a B.S. degree in organic chemistry from the University of California, Los Angeles and a Ph.D. in Bio-organic Chemistry from the University of
California, Santa Barbara.



Harry H. Mansbach,
M.D. was appointed Chief Medical Officer and Vice President, Clinical Development in August 2004. Prior to joining Cortex, from June 1998 to August 2004, Dr. Mansbach served as a Senior Clinical Research Physician at Glaxo Wellcome
(GW) / GlaxoSmithKline (GSK). At GW, Dr. Mansbach gained valuable insight into the medical and commercial aspects of the drug life-cycle by working on marketed compounds such as Imitrex® and Lamictal®. In GSK, the successor company to GW, his team was responsible for clinical development input and implementation for a
wide variety of compounds ranging from pre-clinical testing through phase III and covering a broad range of neuroscience disease areas. From July 1996 to June 1998, Dr. Mansbach was a member of the Department of Neurology senior staff in the Henry
Ford Health System in Detroit, Michigan. Dr. Mansbach received a B.A. degree in Philosophy from Yale University and an M.D. from Duke University School of Medicine. Dr. Mansbach accomplished his neurology residency at the University of Michigan
Health System and completed subspecialty fellowship training in cerebrovascular diseases at the Henry Ford Hospital in Detroit, Michigan. He is board certified in neurology.



Other Key Employees



Steven A. Johnson, Ph.D., 52, was named Vice President of Preclinical Development in January 2004 and has served as Director, Clinical Research
from 2000 to 2003 and Director, Biological Research of the Company from 1995 to 2000. From 1989 to 1994, Dr. Johnson was a Research Assistant Professor in the School of Gerontology at the University of Southern California. Prior to that, he
conducted research in the field of the molecular biology of development at the California Institute of Technology in Pasadena, and in the field of molecular biology of Alzheimers disease at the University of Southern California. A recipient of
numerous post-doctoral grants, Dr. Johnson has published more than 50 scientific papers. He received his B.S. in Food Science from Oregon State University and his Ph.D. in Molecular Biology from Purdue University.



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Scientific Consultants



In addition to Drs. Cotman and Tollefson, whose biographical summaries have been presented earlier, the other scientific consultant to the Company is
Gary S. Lynch, Ph.D. Arvid M. Carlsson, M.D., Ph.D. serves as a consultant to the Board of Directors.



Gary S. Lynch, Ph.D., 61, is a co-founder of the Company. He has been a Scientific Director of and consultant to the Company since October 1987 and
served as a director of the Company from March 1988 to March 1989 and again from December 1994 to December 1995. Dr. Lynch has been a Professor in the Department of Psychology at the University of California, Irvine since 1981, and has held various
other teaching and research positions at that University since 1969. He is a Professor at the Universitys Center for the Neurobiology of Learning and Memory. Dr. Lynch is a member of the Neuroscience Society and the International Brain
Research Organization. He also serves on the Advisory board of the Cognitive Neurosciences Institute. Dr. Lynch has authored or co-authored over 500 articles and a number of books in the areas of neurobiology, cognition and memory. Dr. Lynch holds a
B.A. in Psychology from the University of Delaware and a Ph.D. in Psychology from Princeton University. He is a co-founder of Synaptic, Inc., Tensor Biosciences and Thuris Corporation, all privately-held companies.



Arvid Carlsson, M.D., Ph.D., 81,has been a consultant to the Company
since April 2002. A co-recipient of the 2000 Nobel Prize for Medicine, Dr. Carlsson is currently Chief Executive Officer of Carlsson Research, a development stage neuroscience company that grew out of his research in the Department of Pharmacology
at the University of Göteborg, Sweden. Dr. Carlsson is Professor Emeritus at the University of Göteborg, and is a member of the Swedish Academy of Sciences and a foreign affiliate of the U.S. National Academy of Sciences. Dr. Carlsson has
authored several hundred articles, which have helped to form the basis of modern neuropsychopharmacology. In 1975, he was elected as a Foreign Corresponding Fellow of The American College of Neuropsychopharmacology. In addition to the Nobel Prize,
he has been the recipient of The Japan Prize in Psychology and Psychiatry, The Research Prize of the Lundbeck Foundation (Denmark) and the Lieber Prize (USA) for research in schizophrenia. Dr. Carlssons memberships include Member of the
Academia Europaea, Member of the Royal Swedish Academy of Sciences, Honorary Fellow of the World Federation of Societies of Biological Psychiatry, Honorary Foreign Associate of the Institute of Medicine, National Academy of Sciences, U.S.A. and
Honorary Member of the German Society of Biological Psychiatry. Dr. Carlsson received his M.D. and Ph.D. in Pharmacology from the University of Lund, Sweden.



Audit Committee



The Company has a standing Audit Committee. During the six-month period ended December 31, 2004, the Audit Committee consisted of Dr. Drake as Chairman of
the Committee, Mr. Casamento and Dr. Johnson. None of Dr. Drake, Mr. Casamento, or Dr. Johnson is or has been an officer or employee of the Company and in all other respects meets the qualifications of an independent director under
Section 121A of The American Stock Exchange Company Guide and as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as amended. The Companys Board of Directors has determined that Dr. Drake
qualifies as an audit committee financial expert under rules promulgated by the Securities and Exchange Commission.



Section 16(a) Beneficial Ownership Reporting Compliance



Section 16(a) of the Securities Exchange Act of 1934 requires the Companys directors and executive officers and persons who own more than ten
percent of a registered class of the Companys equity securities to file with the Securities and Exchange Commission (the SEC) initial reports of ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and ten-percent stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. To the Companys knowledge, based solely on the review of
copies of such reports furnished to the Company and written representations that no other reports were required,



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during the transitional fiscal year ended December 31, 2004, all of the Companys officers, directors and ten-percent stockholders complied with all
applicable Section 16(a) filing requirements.



Code of Ethics



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



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|Item 11. | Executive Compensation
|-------- | ----------------------



The following table sets forth summary information concerning compensation paid or accrued by the Company for services rendered during the six months
ended December 31, 2004 and the three fiscal years ended June 30, 2004, to the Companys Chief Executive Officer, Chief Financial Officer, Senior Vice President of Business Development, Senior Vice President of Pharmaceutical Research and Chief
Medical Officer (collectively, the Named Executive Officers).



Summary Compensation Table



|                                                                                            |  |                  |   |           |                              |                              |                              |                             |                    |                                     |         |  |                           
|------------------------------------------------------------------------------------------- |  | ---------------- | - | --------- | ---------------------------- | ---------------------------- | ---------------------------- | --------------------------- | ------------------ | ----------------------------------- | ------- |  | --------------------------
|Name and Principal Position                                                                 |  | Year             |   |           | Annual Compensation          |                              | Long Term CompensationAwards
|                                                                                            |  | Salary ($)       |   | Bonus ($) |                              | Other AnnualCompensation ($) |                              | RestrictedStockAward(s) ($) |                    | SecuritiesUnderlyingOptions/SARs(#)
|Roger G. Stoll, Ph.D. (1) President, Chief Executive Officer                                |  | 200420042003     | * |           | 138,000240,000212,769        |                              | 63,000                     |                             | 52,00072,00063,000 |                                     |      |  | 300,000600,000600,000     
|                                                                                            |  |                  |   |           |                              |                             
|Maria S. Messinger, CPA (2) Vice President, Chief Financial Officer and Corporate Secretary |  | 2004200420032002 | * |           | 88,375162,540150,000136,815  |                              | 28,700                    |                             |                |                                     |     |  | 100,00075,00050,000      
|                                                                                            |  |                  |   |           |                              |                             
|James H. Coleman (3) Senior Vice President of Business Development                          |  | 2004200420032002 | * |           | 114,279200,000190,000187,391 |                              | 29,40028,50040,000          |                             |                |                                     |     |  | 100,00075,000100,00050,000
|                                                                                            |  |                  |   |           |                              |                             
|Gary A. Rogers, Ph.D. (4) Senior Vice President of Pharmaceutical Research                  |  | 2004200420032002 | * |           | 105,000200,000190,000185,833 |                              | 31,50035,000               |                             |                 |                                     |     |  | 100,00075,00050,00040,000 
|                                                                                            |  |                  |   |           |                              |                             
|Harry H. Mansbach, M.D. (5) Chief Medical Officer and Vice President, Clinical Development  |  | 2004             | * |           | 93,872                       |                              | 15,055                       |                             | 60,854             |                                     | 213,000 |  | 400,000                   



|* | Represents information for the transitional six-month period ended December 31, 2004.
|- | -------------------------------------------------------------------------------------

---

|(1) | Dr. Stoll was appointed as President and Chief Executive Officer of the Company in August 2002. From February through August 2003, Dr. Stoll agreed to accept stock
options in lieu of a portion of his base salary. For those options granted from February through June 2003, the value of the options on the date of grant, or $20,000, has been reported with his salary in the table above for the fiscal year ended
June 30, 2003. Similarly, for those options granted in July and August 2003, the value of these options on the date of grant, or $8,000, has been reported with his salary in the table above for the fiscal year ended June 30, 2004. Beginning in May
2003, Dr. Stoll voluntarily deferred his entire base salary, as previously reduced. The amount accrued for Dr. Stolls deferral in May and June 2003, or $32,000, is reported with his salary for fiscal year 2003 in the table above. Subsequent to
the fiscal year ended June 30, 2003, Dr. Stoll agreed to accept stock options in lieu of this deferred salary. Options to purchase 14,545 shares of the Companys common stock were issued to Dr. Stoll, representing $64,000 of salary deferred
(including $32,000 deferred as of June 30, 2003 and another
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| | $32,000 deferred from August to September 2003), divided by the closing sale price of the Companys common stock on the date that Dr. Stolls
salary was re-instated in September 2003. The value of the options granted in lieu of his salary for the months of July and August 2003, or $32,000, has been included with his salary in the table above for the fiscal year ended June 30, 2004.
Amounts reported for Other Annual Compensation represent accrued or paid relocation reimbursements and costs of living allowances associated with assuming a residence in the southern California area, as included in his employment agreement.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Ms. Messinger agreed to accept stock options in lieu of a portion of her base salary from February 2003 through August 2003. For those options granted from February through June
2003, the value of the options on the date of grant, or $12,500, has been reported with her salary in the table above for the fiscal year ended June 30, 2003. Similarly, for those options granted in July and August 2003, the value of these options
on the date of grant, or $5,000, has been reported with her salary in the table above for the fiscal year ended June 30, 2004.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Mr. Coleman agreed to accept stock options in lieu of a portion of his base salary from February 2003 through August 2003. For those options granted from February through June 2003,
the value of these options on the date of grant, or $15,833, has been reported with Mr. Colemans salary in the table above for the fiscal year ended June 30, 2003. During 2003, Mr. Coleman also agreed to accept stock options in lieu of the
cash bonus provided in his employment agreement. The value of these options on the date of grant, or $40,000, has been reported as Mr. Colemans bonus in the table above for the fiscal year ended June 30, 2003. For the options issued in July
and August 2003 in lieu of a portion of his base salary, the value of the options on the date of grant, or $6,333, has been reported with Mr. Colemans salary in the table above for the fiscal year ended June 30, 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Dr. Rogers agreed to accept stock options in lieu of a portion of his base salary from February 2003 through August 2003. For those options granted from February through June 2003,
the value of these options on the date of grant, or $15,833, has been reported with Dr. Rogers salary in the table above for the fiscal year ended June 30, 2003. Similarly, for those options granted in July and August 2003, the value of these
options on the date of grant, or $6,333, has been reported with his salary in the table above for the fiscal year ended June 30, 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Dr. Mansbach was appointed as Chief Medical Officer and Vice President, Clinical Development in August 2004. Amounts reported for Other Annual Compensation represent paid or accrued
amounts for Dr. Mansbachs relocation reimbursements. In connection with his employment Dr. Mansbach was awarded 100,000 shares of the Companys restricted stock, which shares had a fair market value on the date of issuance of $213,000.
The restricted shares vest in equal installments over a four-year period from the award date and do not accrue dividends.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Option Matters



Option Grants. The following table sets forth certain information concerning grants of stock options to the Companys Named Executive Officers
in the Summary Compensation Table during the transitional six-month period ended December 31, 2004.



Option Grants in Transitional Six Months Ended December 31, 2004



|                        |  |                                                |  |                                                         |   |  |                      |  |                                                                                            |  |         |  |          
|----------------------- |  | ---------------------------------------------- |  | ------------------------------------------------------- | - |  | -------------------- |  | ------------------------------------------------------------------------------------------ |  | ------- |  | ---------
|                        |  | Individual Grants                              |  |                                                         |   |  |                      |  | Potential RealizableValue at AssumedAnnual Rates of StockPrice Appreciation ForOption Term
|Name                    |  | Number ofSecuritiesUnderlyingOptionsGranted(#) |  | % of TotalOptions Granted to Employeesin FiscalYear (1) |   |  | Exercise Price($/Sh) |  | ExpirationDate                                                                             |  | 5%($)   |  | 10%($)   
|Roger G. Stoll, Ph.D.   |  | 300,000                                        |  | 21                                                      | % |  | 2.68                 |  | 12/16/14                                                                                   |  | 505,716 |  | 1,281,576
|Maria S. Messinger, CPA |  | 100,000                                        |  | 7                                                       | % |  | 2.68                 |  | 12/16/14                                                                                   |  | 168,572 |  | 427,192  
|James H. Coleman        |  | 100,000                                        |  | 7                                                       | % |  | 2.68                 |  | 12/16/14                                                                                   |  | 168,572 |  | 427,192  
|Gary A. Rogers, Ph.D.   |  | 100,000                                        |  | 7                                                       | % |  | 2.68                 |  | 12/16/14                                                                                   |  | 168,572 |  | 427,192  
|Harry H. Mansbach, M.D. |  | 400,000                                        |  | 28                                                      | % |  | 2.13                 |  | 08/30/14                                                                                   |  | 535,908 |  | 1,358,088

---

|* | Less than one percent
|- | ---------------------



|(1) | Options to purchase an aggregate of 1,454,275 shares of Common Stock were granted to employees, including the Named Executive Officers, during the transitional six-month period
ended December 31, 2004.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Option Exercises. The following table sets forth certain information concerning the exercise of
options by the Companys Named Executive Officers during the transitional six-month period ended December 31, 2004, including the aggregate value of gains on the date of exercise. In addition, the table includes the number of shares covered by
both exercisable and unexercisable stock options as of December 31, 2004. Also reported are the values for in the money options which represent the positive spread between the exercise prices of any such existing stock options and $2.71,
the closing price of Common Stock on December 31, 2004, as reported by The American Stock Exchange.



Aggregated Option Exercises in Transitional Period

and Transitional Fiscal
Year-End Option Values



|                        |  |                                |             |                                                                  |   |                                                                  |           |                                                        |  |               |  |   |         |  |   |        
|----------------------- |  | ------------------------------ | ----------- | ---------------------------------------------------------------- | - | ---------------------------------------------------------------- | --------- | ------------------------------------------------------ |  | ------------- |  | - | ------- |  | - | -------
|Name                    |  | Shares Acquired on Exercise(#) |             | Value Realized($) (market price at exercise less exercise price) |   | Number of Securities Underlying Unexercised Options at FY-End(#) |           | Value of Unexercised In-the-Money Options at FY-End($)
|                        |  |                                | Exercisable |                                                                  |   | Unexercisable                                                    |           | Exercisable                                            |  | Unexercisable
|Roger G. Stoll, Ph.D.   |  | 0                              |             | $                                                                | 0 |                                                                  | 1,123,861 |                                                        |  | 443,334       |  | $ | 935,771 |  | $ | 266,635
|Maria S. Messinger, CPA |  | 0                              |             |                                                                  | 0 |                                                                  | 177,488   |                                                        |  | 166,666       |  |   | 241,472 |  |   | 35,665 
|James H. Coleman        |  | 0                              |             |                                                                  | 0 |                                                                  | 384,597   | (1)                                                    |  | 183,333       |  |   | 283,482 |  |   | 68,333 
|Gary A. Rogers, Ph.D.   |  | 0                              |             |                                                                  | 0 |                                                                  | 315,597   |                                                        |  | 166,666       |  |   | 308,342 |  |   | 35,665 
|Harry H. Mansbach, M.D. |  | 0                              |             |                                                                  | 0 |                                                                  | 0         |                                                        |  | 400,000       |  |   | 0       |  |   | 232,000

---

|(1) | Includes options to purchase 50,000 shares of Cortex Common Stock granted to Diversified Healthcare Management, the firm Mr. Coleman worked for as a consultant to Cortex prior to
his employment at the Company in May 2000.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Employment and Consulting Agreements



Roger G. Stoll, Ph.D. has served as a director of the Company since April 2002 and became Chairman, President and Chief
Executive Officer of the Company in August 2002. His employment agreement, as amended to date, includes a three-year term and calls for a base salary of not less than $240,000 per year, subject to increase based on an annual review by the
Compensation Committee of the Board of Directors. To compensate for the cost of maintaining a residence in the southern California area and for specified relocation expenses, Dr. Stoll was paid an expense allowance of up to $6,000 per month for the
initial two-year period of his employment. In September 2004, the Board of Directors approved combining these two amounts into one annual salary of $312,000, effectively maintaining the same overall annual base compensation to Dr. Stoll. This action
was taken by the Board of Directors upon the recommendation of the Compensation Committee, which recommendation was based upon the agreement by Dr. Stoll to permanently relocate to southern California. In connection with his employment, Dr. Stoll
was granted options to purchase 600,000 shares of Common Stock at an exercise price of $0.78 per share, representing 100% of the fair market value as of the date of grant. Of the 600,000 options granted, 200,000 options vested immediately. Another
200,000 options vested upon securing the amendment to the Companys agreement with its collaborative partner, Servier, in October 2002. The remaining 200,000 options shall vest in monthly equal increments over a four-year period commencing
August 13, 2003, subject to accelerated vesting based upon the achievement of pre-determined milestones. Under the terms of his employment agreement, in the event of termination of his employment, under certain circumstances Dr. Stoll is entitled to
compensation equal to twelve-months of his then current salary. In addition, in the event of his termination of employment, in certain circumstances, any unvested options granted to Dr. Stoll in connection with his employment, as detailed above, may
be subject to accelerated vesting and remain exercisable for the remainder of the original option term.



Maria S. Messinger joined the Company as Controller in September 1994 and was named as Vice President, Chief Financial Officer and Corporate Secretary in
December 1999. Under the terms of her severance agreement, in the event of termination of her employment, under certain circumstances Ms. Messinger is entitled to receive compensation of twelve months of her then current annual base salary, which is
currently $195,000.



James H. Coleman joined the Company as
Senior Vice President, Business Development in May 2000. His employment agreement provides a base salary of $220,500 per year with an annual bonus between 0 and 50% of his annual base salary, at the discretion of the Chief Executive Officer and
subject to approval by the Compensation Committee of the Board of Directors of the Company. In connection with his employment, Mr. Coleman was granted options to purchase 125,000 shares of Common Stock at an exercise price of $3.02 per share,
representing 100% of the fair market value as of the date of grant. The options vest in equal annual installments over a three-year period and have a ten-year term. In the event of termination of his employment, Mr. Coleman is entitled, under
certain circumstances, to receive compensation of twelve months of his then current salary.



Gary A. Rogers, Ph.D. joined the Company as Vice President, Pharmaceutical Discovery in June 1995 and was named Senior Vice President in July 2000. Under the terms of his employment agreement, as amended to date, Dr.
Rogers receives an annual salary of $210,000 and is eligible to receive a bonus of between 0 and 50% of his annual base salary at the discretion of the Chief Executive Officer and subject to the approval of the Compensation Committee of the Board of
Directors. Additionally, in the event that the Company commercializes a compound developed by or under the supervision of Dr. Rogers, he may be eligible to receive royalties based on net sales, as defined and subject to adjustment, of products
containing that compound. In the event that Dr. Rogers employment is terminated, under certain circumstances he is entitled to compensation equal to eighteen months of his then current salary.



Harry H. Mansbach, M.D., joined the Company as Vice President, Clinical
Development and Chief Medical Officer in August 2004. His employment letter is terminable at will by the Company or



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##### Table of Contents

Dr. Mansbach and calls for a base salary of $275,000 per year with an annual bonus, at the discretion of the Board of Directors of the Company, of up to 30%
of his base salary. In connection with his employment, Dr. Mansbach was granted (i) options to purchase 400,000 shares of Common Stock at an exercise price of $2.13 per share, and (ii) 100,000 restricted shares of Common Stock valued at $2.13 per
share, each of (i) and (ii) representing 100% of the fair market value as of the date of grant. The options vest in equal annual installments over a three-year period and have a ten-year term. The shares of restricted stock vest in equal
installments over a four-year period. In addition to the foregoing, Dr. Mansbach received a one-time $10,000 bonus to cover relocation expenses and reimbursement of real estate closing fees, sales commissions and moving costs. Pursuant to the terms
of the employment letter, Dr. Mansbach also receives a mortgage interest subsidy over five years in the form of a monthly payment, whereby the Company will pay 5% of the principal amount of a mortgage (not to exceed $1,000,000) on his primary
residence during the first year, which amount declines by 1% each year thereafter, and which amount is grossed up by a factor of 1.6 to cover Dr. Mansbachs additional income tax liabilities. In the event of termination of Dr. Mansbachs
employment in connection with or following a change in control of the Company (as defined in the Companys 1996 Stock Incentive Plan), under certain circumstances he is entitled to receive compensation of twelve months of his then current
salary plus continued employee benefits for a period of twelve months thereafter. In addition, in the event of his termination of employment, in certain circumstances, any unvested options or restricted shares granted to Dr. Mansbach in connection
with his employment, as detailed above, may be subject to accelerated vesting.



Drs. Carl W. Cotman and Gary S. Lynch (both of whom are co-founders and Scientific Directors of the Company) have each entered into a consulting agreement with the Company. Dr. Lynch receives a consulting fee of
$65,000 per year and Dr. Cotman receives a consulting fee of $23,000 per year. The term of each consulting agreement commenced in November 1987 and will continue until terminated by the respective parties thereto. The consulting agreements obligate
the respective consultants to make themselves available to the Company for consulting and advisory services for an average of three days per month.



Dr. Gary D. Tollefson has entered into a consulting agreement with the Company. Pursuant to the terms of the consulting agreement, Dr. Tollefson receives
a retainer of $9,000 per month. The consulting agreement obligates Dr. Tollefson to be available for up to three eight-hour work days per month at such times and places reasonably agreed to between the parties. The term of his consulting agreement
commenced in April 2004 and will continue for a period of twenty-four months thereafter, unless earlier terminated by either the Company or Dr. Tollefson upon 30 days prior notice. In connection with his engagement as a consultant, Dr.
Tollefson was granted options to purchase 150,000 shares of Common Stock at an exercise price of $2.20 per share, representing 100% of the fair market value as of the date of grant. The options vest in equal annual installments over a three-year
period and have a ten-year term.



Director Compensation



Each non-employee director is entitled to receive $3,000 at each Board of
Directors meeting attended. Additionally, the Chairman of the Audit Committee and Compensation Committee receive $1,000 for each committee meeting attended and other members of the respective committees receive $500 for each committee meeting
attended.



Under the Companys 1996 Stock Incentive Plan,
each non-employee director is automatically granted options to purchase 30,000 shares of Common Stock upon commencement of service as a director and additional options to purchase 25,000 shares of Common Stock on the date of each Annual Meeting of
Stockholders. These nonqualified options have an exercise price equal to 100% of the fair market value of the Common Stock on the date of grant, have a ten-year term and vest in equal increments of 33% on each anniversary date of the dates of grant,
and are otherwise subject to the terms and provisions of the 1996 Stock Incentive Plan.



The above cash compensation and nonqualified option grant provisions do not apply to non-employee directors who serve on the Board of Directors to oversee an investment in the Company.



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##### Table of Contents

Compensation for such non-employee directors, if appropriate, is determined separately. As of December 31, 2004, none of the Companys directors served
on the Board of Directors in such capacity.



Compensation Committee
Interlocks and Insider Participation



For the transitional
six-month period ended December 31, 2004, members of the Companys Compensation Committee consisted of Drs. M. Ross Johnson, Carl W. Cotman and Mr. Robert F. Allnutt, none of whom has served as an executive officer or employee of the Company or
any of its subsidiaries for the five years ended December 31, 2004. The Company is not aware of any compensation committee interlocks that existed during the transitional six-month period ended December 31, 2004.



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



Beneficial Ownership of Common Stock



The following table sets forth, to the knowledge of the Company, certain information regarding the beneficial ownership of the Companys Common Stock
as of March 15, 2005, by (i) each person known by the Company to be the beneficial owner of more than 5% of the outstanding Common Stock, (ii) each of the Companys directors, (iii) each of the Named Executive Officers and (iv) all of the
Companys executive officers and directors as a group. Except as indicated in the footnotes to this table, the Company believes that the persons named in this table have sole voting and investment power with respect to the shares of Common
Stock indicated.



|                                                   |  |                             |      |  |                                             
|-------------------------------------------------- |  | --------------------------- | ---- |  | --------------------------------------------
|Directors,Officers and 5%Stockholders (1)          |  | SharesBeneficiallyOwned (2) |      |  | Percent ofCommon StockBeneficially Owned (2)
|Robert F. Allnutt                                  |  | 161,501                     | (3)  |  | *                                           
|Charles J. Casamento                               |  | 123,363                     | (4)  |  | *                                           
|James H. Coleman                                   |  | 472,644                     | (5)  |  | 1.4                                         
|Carl W. Cotman, Ph.D.                              |  | 295,001                     | (6)  |  | *                                           
|Peter F. Drake, Ph.D.                              |  | 18,334                      | (7)  |  | *                                           
|M. Ross Johnson, Ph.D.                             |  | 100,001                     | (8)  |  | *                                           
|Harry H. Mansbach, M.D.                            |  | 107,000                     |      |  | *                                           
|Maria S. Messinger, CPA                            |  | 177,488                     | (9)  |  | *                                           
|Gary A. Rogers, Ph.D.                              |  | 405,531                     | (10) |  | 1.2                                         
|Roger G. Stoll, Ph.D.                              |  | 1,184,695                   | (11) |  | 3.5                                         
|Gary D. Tollefson, M.D., Ph.D.                     |  | 60,000                      | (12) |  | *                                           
|All officers and directors as a group (11 persons) |  | 3,105,558                   | (13) |  | 8.8                                         



|* | Less than one percent
|- | ---------------------



|(1) | Except as otherwise indicated, the address of such beneficial owner is at the Companys principal executive offices, 15231 Barranca Parkway, Irvine, California 92618.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Applicable percentage of ownership at March 15, 2005 is based upon 32,753,122 shares of Common Stock outstanding. Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission and includes voting and investment power with respect to shares shown as beneficially owned. Shares of Common Stock subject to options or warrants currently exercisable or exercisable within 60 days of March
15, 2005 are deemed outstanding for computing the shares and percentage ownership of the person holding such options or warrants, but are not deemed outstanding for computing the percentage ownership of any other person or entity.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Includes 131,501 shares that may be purchased upon exercise of options within 60 days of March 15, 2005.
|--- | --------------------------------------------------------------------------------------------------------



|(4) | Includes 105,710 shares that may be purchased upon exercise of options within 60 days of March 15, 2005.
|--- | --------------------------------------------------------------------------------------------------------



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##### Table of Contents

|(5) | Includes 384,597 shares that may be purchased upon exercise of options within 60 days of March 15, 2005. Beneficial ownership of these shares is shared and held by the James Henry
and Nancy Irene Coleman III Revocable Trust.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Includes 202,001 shares that may be purchased upon exercise of options within 60 days of March 15, 2005.
|--- | --------------------------------------------------------------------------------------------------------



|(7) | Includes 18,334 shares that may be purchased upon exercise of options within 60 days of March 15, 2005.
|--- | -------------------------------------------------------------------------------------------------------



|(8) | Includes 100,001 shares that may be purchased upon exercise of options within 60 days of March 15, 2005.
|--- | --------------------------------------------------------------------------------------------------------



|(9) | Includes 177,488 shares that may be purchased upon exercise of options within 60 days of March 15, 2005.
|--- | --------------------------------------------------------------------------------------------------------



|(10) | Includes 266,264 shares that may be purchased upon exercise of options within 60 days of March 15, 2005. Also includes 1,500 shares and 10,067 shares that may be purchased upon
exercise of options within 60 days of March 15, 2005, both held by Dr. Rogers spouse.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(11) | Includes 1,154,695 shares that may be purchased upon exercise of options within 60 days of March 15, 2005.
|---- | ----------------------------------------------------------------------------------------------------------



|(12) | Includes 60,000 shares that may be purchased upon exercise of options within 60 days of March 15, 2005.
|---- | -------------------------------------------------------------------------------------------------------



|(13) | Includes 2,610,658 shares that may be purchased upon exercise of options within 60 days of March 15, 2005.
|---- | ----------------------------------------------------------------------------------------------------------



The Company is not aware of any arrangements that may at a subsequent date
result in a change of control of the Company.



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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 the Companys existing equity compensation plans as of December 31, 2004. The Companys only stockholder approved equity compensation plan consists of the 1996 Stock Incentive Plan. The Company does not have any
non-stockholder approved equity compensation plans.



|                                                           |  |                                                                                              |  |                                                                              |      |                                                                                                                                         |        
|---------------------------------------------------------- |  | -------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------- | ---- | --------------------------------------------------------------------------------------------------------------------------------------- | -------
|Plan Category                                              |  | (a) Number of securitiesto be 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)) (1)
|Equity compensation plans approved by security holders     |  | 6,436,543                                                                                    |  | $                                                                            | 1.97 |                                                                                                                                         | 399,489
|Equity compensation plans not approved by security holders |  |                                                                                             |  |                                                                              |     |                                                                                                                                         |       
|                                                           |  |                                                                                              |  |                                                                              |      |                                                                                                                                         |        
|Total                                                      |  | 6,436,543                                                                                    |  | $                                                                            | 1.97 |                                                                                                                                         | 399,489
|                                                           |  |                                                                                              |  |                                                                              |      |                                                                                                                                         |        



|(1) | The Companys only equity compensation plan, the 1996 Stock Incentive Plan, provides that on the last day of each fiscal year of the Company, a number of shares equal to twenty
percent (20%) of the increase in the number of shares of Common Stock outstanding since the last day of the previous fiscal year (except in the case of fiscal year ending June 30, 1997, in which case the added shares of Common Stock shall equal
twenty percent (20%) of the increase in the number of shares of Common Stock outstanding since October 25, 1996) shall be added to the aggregate number of shares authorized for issuance under the 1996 Stock Incentive Plan. The foregoing table takes
into account all adjustments through June 30, 2004. Subsequent to June 30, 2004, in order to ensure that the Company had sufficient authorized shares of Common Stock to complete its December 14, 2004 private placement of Common Stock and warrants to
purchase shares of Common Stock, the Companys Board of Directors approved the reclassification of 1,280,834 shares of Common Stock reserved for issuance under the Companys 1996 Stock Incentive Plan to general and unissued shares of
Common Stock, until the Company amends its Certificate of Incorporation to increase the total number of authorized shares of Common Stock, which amendment would be subject to approval by the Companys stockholders. Additionally, the shares
reserved under the 1996 Stock Incentive Plan were not increased as of the last day of the transitional fiscal year ended December 31, 2004 (under the earlier described formula of twenty percent (20%) of the increased number of shares of Common Stock
outstanding relative to June 30, 2004, the last day of the previous fiscal year), given that there were no authorized Common Shares available for such increase. If an increase in authorized shares of Common Stock is subsequently approved, a portion
of such approved increase would be used to replenish the reserved shares under the 1996 Stock Incentive Plan for both the reclassification of 1,280,834 shares to general and unissued shares of Common Stock and for twenty percent (20%) of the
increase in the number of shares of Common Stock outstanding from June 30, 2004 to December 31, 2004, which amount would reserve an additional 866,728 shares.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|Item 13. | Certain Relationships and Related Transactions
|-------- | ----------------------------------------------



Certain Transactions



The Companys Restated Certificate of Incorporation provides that, pursuant to Delaware Law, directors of the Company shall not be liable for
monetary damages for breach of the directors fiduciary duty of care to the Company and its stockholders. This provision does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctions or other forms
of non-monetary relief remain available under Delaware Law. In addition, each director will continue to be subject to liability for breach of the directors duty of loyalty to the Company, for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to improper personal benefit to the director and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware Law. The provision
also does not affect a directors responsibility under any other law, such as the federal securities laws. The Company has entered into Indemnification Agreements with each of its officers and directors that obligate the Company to indemnify
them as permitted by applicable law.



See Item 11.
EXECUTIVE COMPENSATION  Employment and Consulting Agreements for a description of certain arrangements and transactions with executive officers and directors.



|Item 14. | Principal Accountant Fees and Services
|-------- | --------------------------------------



Audit Fees



As reported on the Companys Current Report on Form 8-K dated November 10, 2004, as amended on December 1, 2004, the Company dismissed Ernst &
Young LLP (Ernst & Young) as its independent registered public accounting firm and appointed Haskell & White LLP (Haskell & White) as the Companys new independent registered public accounting firm effective
November 15, 2004. The decision to dismiss Ernst & Young and engage Haskell & White was approved by the Audit Committee of the Companys Board of Directors.



The aggregate fees of Haskell & White for audit services approximated $13,100 for the transitional six-month period
ended December 31, 2004, including progress billings for the audit procedures of the same period and fees related to its review of the Companys registration statement filed in connection with its December 2004 private placement of common
stock.



Ernst & Youngs fees for audit services for
the transitional six-month period ended December 31, 2004 totaled approximately $10,300 and included fees related to its review of the Companys quarterly report on Form 10-Q for the period ended September 30, 2004 and charges for its review of
the Forms 8-K filed in connection with the reported change in auditors.



The aggregate fees of Ernst & Young for audit services totaled approximately $88,700 for the fiscal year ended June 30, 2004 and approximately $87,200 for the fiscal year ended June 30, 2003, including fees associated with the annual
audit and reviews of the Companys quarterly reports on Form 10-Q. For the fiscal year ended June 30, 2004, aggregate fees included amounts for services related to the Companys registration statements filed in connection with its private
placements of common stock. For the fiscal year ended June 30, 2003, aggregate fees included amounts for statutory audits required in connection with the Companys Small Business Innovative Research grants from the National Institutes of
Health.



Audit-Related Fees



Neither Haskell & White nor Ernst & Young provided audit-related
services during the transitional six-month period ended December 31, 2004 or the fiscal years ended June 30, 2004 or June 30, 2003, and neither of them were billed or were paid any fees for audit-related services during such respective periods.



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##### Table of Contents

Tax Fees



Fees for tax services by Ernst & Young, including tax compliance, tax advice, tax planning and the preparation of federal and state tax returns during
the transitional six months ended December 31, 2004, and the fiscal years ended June 30, 2004 and June 30, 2003 totaled approximately $14,500, $14,100 and $14,300, respectively. There were no fees for tax services provided by Haskell & White for
the transitional six months ended December 31, 2004, or the fiscal years ended June 30, 2004 or June 30, 2003.



All Other Fees



There were no other fees for services provided by Haskell & White or Ernst & Young for the transitional six months ended December 31, 2004, the
fiscal year ended June 30, 2004 or the fiscal year ended June 30, 2003.



Policy on Audit Committee Pre-Approval of Audit Services and Permissible Non-Audit Services of Independent Auditors



The Audit Committees policy is to pre-approve all audit and permissible non-audit services performed by the independent auditors. These services may
include audit services, audit-related services, tax services and other services. For audit services, the independent auditor provides the Audit Committee with an audit plan including proposed fees in advance of the annual audit. The Audit Committee
approves the plan and fees for the audit.



For non-audit
services, the Companys senior management will submit from time to time to the Audit Committee for approval non-audit services that it recommends the Audit Committee engage the independent auditor to provide during the fiscal year. The
Companys senior management and the independent auditor will each confirm to the Audit Committee that each non-audit service is permissible under all applicable legal requirements. A budget, estimating non-audit service spending for the fiscal
year, will be provided to the Audit Committee along with the request. The Audit Committee must approve both permissible non-audit services and the budget for such services.



All of the services described under headings Audit-Related Fees, Tax Fees and All Other
Fees above were pre-approved by the Audit Committee.



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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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##### Table of Contents

|(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, and by Certificate of Designation filed June 4, 1997, by Certificate of Amendment of Restated
Certificate of Incorporation filed December 21, 1998, by Certificate of Designation filed February 11, 2002, incorporated by reference to Exhibit 3.1 of the 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 Exhibit 3.2 to the Companys Annual Report on Form 10-KSB filed October 15,
1996.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|              | 
|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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|              | 
|10.2          |  | Consulting Agreement, dated October 30, 1987, between the Company and Carl W. Cotman, Ph.D. *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|              | 
|10.3          |  | Consulting Agreement, dated as October 30, 1987, between the Company and Gary S. Lynch, Ph.D. *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|              | 
|10.19         |  | License Agreement dated March 27, 1991 between the Company and the Regents of the University of California, incorporated by reference to Exhibit 10.19 of the Companys Amendment on Form
8 filed November 27, 1991 to the Companys Annual Report on Form 10-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 Exhibit 10.44 of the Companys Quarterly Report on Form
10-QSB filed May 16, 1994.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|              | 
|10.49         |  | Settlement Agreement between the Company and Alkermes, Inc., dated October 5, 1995, incorporated by reference to the same numbered Exhibit to the Companys Annual Report on Form 10-KSB
filed October 13, 1995. (Portions of this Exhibit are omitted and were filed separately with the Secretary of the Commission pursuant to the Companys Application requesting confidential treatment under Rule 406 of the Securities Act of
1933).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|              | 
|10.60         |  | 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 Exhibit 10.64 of the Companys Quarterly
Report on Form 10-QSB as filed on February 16, 1999. (Portions of this Exhibit were omitted and filed separately with the Secretary of the Commission pursuant to the Companys application requesting confidential treatment under Rule 24b-2 of
the Securities Exchange Act of 1934.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|              | 
|10.65         |  | Amendment No. 1 to the Lease Agreement for the Companys facilities in Irvine, California, dated February 1, 1999, incorporated by reference to the same number Exhibit to the
Companys Annual Report on Form 10-KSB filed September 28, 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



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##### Table of Contents

|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|              | 
|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.                                                                                                                                                                                                                                                                             
|              | 
|10.71         |  | Employment agreement dated June 5, 1995, between the Company and Gary A. Rogers, Ph.D., incorporated by reference to the same numbered exhibit to the Companys Annual Report on Form 10-K
filed October 15, 2002.                                                                                                                                                                                                                                                                                   
|              | 
|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         |  | 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.                                                                                                                                                                                                                                             
|              | 
|10.83         |  | Amendment dated January 1, 2004 to the employment agreement dated June 5, 1995 between the Company and Gary A. Rogers, Ph.D., 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.                                                                                                                                                                                                                                                                  



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|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                                                               
|              | 
|10.85         |  | Employment letter of agreement dated July 26, 2004 between the Company and Harry H. Mansbach, M.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         |  | 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.                                                                                                                                                                                                                                                                   
|              | 
|10.89         |  | Stock Ownership Policy for the Companys Directors and Executive Officers as adopted by the Board of Directors on December 16, 2004.                                                                                                                                                                                                                                                                      
|              | 
|21            |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                                                           
|              | 
|23.1          |  | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                                                              
|              | 
|23.2          |  | 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.                                                                                                                                                                                                                                                                                   



|* | Incorporated by reference to the same numbered exhibit of the Companys Registration Statement on Form S-1, No. 33-28284, effective on July 18, 1989.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------



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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 21, 2005 |  |  |  | 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 Transition 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. STOLLRoger G. Stoll, Ph.D. (Principal Executive Officer)                 |  | Chairman of the Board, Presidentand Chief Executive Officer |  | March 21, 2005
|                                                                                         |  |                                                            
|/s/    MARIA S.
MESSINGERMaria S.
Messinger (Principal Financial and Accounting Officer) |  | Vice President, Chief FinancialOfficer and Secretary        |  | March 21, 2005
|                                                                                         |  |                                                            
|/s/    ROBERT F.
ALLNUTTRobert F.
Allnutt                                                |  | Director                                                    |  | March 21, 2005
|                                                                                         |  |                                                            
|/s/    CHARLES J.
CASAMENTOCharles J.
Casamento                                          |  | Director                                                    |  | March 21, 2005
|                                                                                         |  |                                                            
|/s/    CARL W. COTMAN,
PH.D.Carl W. Cotman,
Ph.D.                                        |  | Director                                                    |  | March 21, 2005
|                                                                                         |  |                                                            
|/s/    PETER F. DRAKE,
PH.D.Peter F. Drake,
Ph.D.                                        |  | Director                                                    |  | March 21, 2005
|                                                                                         |  |                                                            
|/s/    M. ROSS JOHNSON,
PH.D.M. Ross Johnson,
Ph.D.                                      |  | Director                                                    |  | March 21, 2005
|                                                                                         |  |                                                            
|/s/    GARY D. TOLLEFSON, M.D.,
PH.D.Gary D. Tollefson, M.D.,
Ph.D.                      |  | Director                                                    |  | March 21, 2005



S-1



---

##### Table of Contents

I
ndex to Financial Statements



|                                                                                                                                            |  |     
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                            |  | Page
|Reports of Independent Registered Public Accounting Firms                                                                                   |  | F-2 
|                                                                                                                                            | 
|Balance Sheets  As of December 31, 2004, June 30, 2004 and June 30, 2003                                                                   |  | F-4 
|                                                                                                                                            | 
|Statements of Operations  For the six months ended December 31, 2004 and 2003 (unaudited) and the years ended June 30, 2004, 2003 and 2002 |  | F-5 
|                                                                                                                                            | 
|Statements of Stockholders Equity (Deficit)  For the period from June 30, 2001 through December 31, 2004                                  |  | F-6 
|                                                                                                                                            | 
|Statements of Cash Flows  For the six months ended December 31, 2004 and 2003 (unaudited) and the years ended June 30, 2004, 2003 and 2002 |  | F-8 
|                                                                                                                                            | 
|Notes to Financial Statements                                                                                                               |  | F-9 



F-1



---

##### 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 sheet of Cortex Pharmaceuticals, Inc. (the
Company) as of December 31, 2004 and the related statements of operations, stockholders equity (deficit) and cash flows for the six months ended December 31, 2004. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.



We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cortex Pharmaceuticals, Inc. as of December 31, 2004, and the results of its operations and its cash flows for the six months then ended in conformity with accounting principles generally accepted in
the United States of America.



/s/ Haskell
& White LLP



Irvine, California

February 23, 2005



F-2



---

##### Table of Contents

Report of Independent Registered Public Accounting Firm



The Stockholders and Board of Directors

Cortex Pharmaceuticals, Inc.



We have audited the accompanying balance sheets of Cortex Pharmaceuticals, Inc. (the Company) as of June 30, 2004 and 2003, and the related statements of
operations, stockholders equity (deficit) and cash flows for the years ended June 30, 2004, 2003 and 2002. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits.



We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly we express no such opinion. An audit also includes 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. We believe
that our audits provide a reasonable basis for our opinion.



In our opinion,
the financial statements referred to above present fairly, in all material respects, the financial position of Cortex Pharmaceuticals, Inc. at June 30, 2004 and 2003, and the results of its operations and its cash flows for the three years then
ended, in conformity with U.S. generally accepted accounting principles.



/s/ Ernst & Young LLP



San Diego,
California

July 27, 2004



F-3



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##### Table of Contents

Cortex Pharmaceuticals, Inc.

BALANCE SHEETS



|                                                                                                                                                                                                                     |  |                   |             |   |               |   |             |               |  |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | - | ------------- | - | ----------- | ------------- |  | - | ----------- | -
|                                                                                                                                                                                                                     |  | December 31, 2004 |             |   | June 30, 2004 |   |             | June 30, 2003 | 
|Assets                                                                                                                                                                                                               |  |                   |             |   |               |   |             |               |  |   |             |  
|Current assets:                                                                                                                                                                                                      |  |                   |             |   |               |   |             |               |  |   |             |  
|Cash and cash equivalents                                                                                                                                                                                            |  | $                 | 9,157,315   |   |               | $ | 9,976,957   |               |  | $ | 1,125,054   |  
|Marketable securities                                                                                                                                                                                                |  |                   | 18,838,601  |   |               |   | 12,210,554  |               |  |   |            |  
|Restricted cash                                                                                                                                                                                                      |  |                   |            |   |               |   |            |               |  |   | 83,411      |  
|Accounts receivable                                                                                                                                                                                                  |  |                   | 41,738      |   |               |   | 132,527     |               |  |   | 428,451     |  
|Other current assets                                                                                                                                                                                                 |  |                   | 317,850     |   |               |   | 268,265     |               |  |   | 210,539     |  
|                                                                                                                                                                                                                     |  |                   |             |   |               |   |             |               |  |   |             |  
|Total current assets                                                                                                                                                                                                 |  |                   | 28,355,504  |   |               |   | 22,588,303  |               |  |   | 1,847,455   |  
|Furniture, equipment and leasehold improvements, net                                                                                                                                                                 |  |                   | 387,818     |   |               |   | 269,192     |               |  |   | 298,268     |  
|Capitalized financing costs                                                                                                                                                                                          |  |                   | 1,135,724   |   |               |   |            |               |  |   |            |  
|Other                                                                                                                                                                                                                |  |                   | 33,407      |   |               |   | 33,407      |               |  |   | 33,407      |  
|                                                                                                                                                                                                                     |  |                   |             |   |               |   |             |               |  |   |             |  
|                                                                                                                                                                                                                     |  | $                 | 29,912,453  |   |               | $ | 22,890,902  |               |  | $ | 2,179,130   |  
|                                                                                                                                                                                                                     |  |                   |             |   |               |   |             |               |  |   |             |  
|Liabilities and Stockholders Equity (Deficit)                                                                                                                                                                       |  |                   |             |   |               |   |             |               |  |   |             |  
|Current liabilities:                                                                                                                                                                                                 |  |                   |             |   |               |   |             |               |  |   |             |  
|Accounts payable                                                                                                                                                                                                     |  | $                 | 1,365,604   |   |               | $ | 1,306,292   |               |  | $ | 852,016     |  
|Accrued wages, salaries and related expenses                                                                                                                                                                         |  |                   | 263,959     |   |               |   | 233,859     |               |  |   | 213,037     |  
|Unearned licensing revenue                                                                                                                                                                                           |  |                   | 377,524     |   |               |   | 205,922     |               |  |   | 988,426     |  
|Unearned research revenue                                                                                                                                                                                            |  |                   |            |   |               |   |            |               |  |   | 1,028,752   |  
|Advance for MCI project                                                                                                                                                                                              |  |                   | 277,978     |   |               |   | 275,112     |               |  |   | 270,140     |  
|                                                                                                                                                                                                                     |  |                   |             |   |               |   |             |               |  |   |             |  
|Total current liabilities                                                                                                                                                                                            |  |                   | 2,285,065   |   |               |   | 2,021,185   |               |  |   | 3,352,371   |  
|Unearned licensing revenue, net of current, and other long-term liabilities                                                                                                                                          |  |                   | 22,576      |   |               |   | 380,749     |               |  |   | 247,107     |  
|Common stock warrants                                                                                                                                                                                                |  |                   | 3,958,165   |   |               |   |            |               |  |   |            |  
|                                                                                                                                                                                                                     |  |                   |             |   |               |   |             |               |  |   |             |  
|Total liabilities                                                                                                                                                                                                    |  |                   | 6,265,806   |   |               |   | 2,401,934   |               |  |   | 3,599,478   |  
|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      |               |  |   | 21,703      |  
|Common stock, $0.001 par value; shares authorized: 50,000,000; shares issued and outstanding: 32,688,636 (December 31, 2004), 28,354,995 (June
30, 2004) and 17,153,659 (June 30, 2003)                              |  |                   | 32,688      |   |               |   | 28,354      |               |  |   | 17,153      |  
|Additional paid-in capital                                                                                                                                                                                           |  |                   | 77,964,857  |   |               |   | 70,557,574  |               |  |   | 42,629,899  |  
|Deferred compensation                                                                                                                                                                                                |  |                   | (195,250    | ) |               |   |            |               |  |   |            |  
|Unrealized loss, available for sale marketable securities                                                                                                                                                            |  |                   | (48,116     | ) |               |   | (35,670     | )             |  |   |            |  
|Accumulated deficit                                                                                                                                                                                                  |  |                   | (54,129,235 | ) |               |   | (50,082,993 | )             |  |   | (44,089,103 | )
|                                                                                                                                                                                                                     |  |                   |             |   |               |   |             |               |  |   |             |  
|Total stockholders equity (deficit)                                                                                                                                                                                 |  |                   | 23,646,647  |   |               |   | 20,488,968  |               |  |   | (1,420,348  | )
|                                                                                                                                                                                                                     |  |                   |             |   |               |   |             |               |  |   |             |  
|                                                                                                                                                                                                                     |  | $                 | 29,912,453  |   |               | $ | 22,890,902  |               |  | $ | 2,179,130   |  
|                                                                                                                                                                                                                     |  |                   |             |   |               |   |             |               |  |   |             |  



See accompanying
notes.



F-4



---

##### Table of Contents

Cortex Pharmaceuticals, Inc.

STATEMENTS OF OPERATIONS



|                                                                                |  |                                  |            |      |                                             |   |            |                      |  |      |            |   |  |   |            |   |  |   |            |  
|------------------------------------------------------------------------------- |  | -------------------------------- | ---------- | ---- | ------------------------------------------- | - | ---------- | -------------------- |  | ---- | ---------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                                                                |  | SixMonths EndedDecember 31, 2004 |            |      | SixMonths EndedDecember 31,2003 (Unaudited) |   |            | Years ended June 30, | 
|                                                                                |  |                                  |            | 2004 |                                             |   | 2003       |                      |  | 2002 |           
|Revenues:                                                                       |  |                                  |            |      |                                             |   |            |                      |  |      |            |   |  |   |            |   |  |   |            |  
|Research and license revenue                                                    |  | $                                | 1,787,747  |      |                                             | $ | 4,503,667  |                      |  | $    | 6,791,412  |   |  | $ | 4,765,048  |   |  | $ | 5,777,217  |  
|Grant revenue                                                                   |  |                                  | 107,940    |      |                                             |   | 89,708     |                      |  |      | 181,469    |   |  |   | 466,902    |   |  |   | 655,286    |  
|                                                                                |  |                                  |            |      |                                             |   |            |                      |  |      |            |   |  |   |            |   |  |   |            |  
|Total revenues                                                                  |  |                                  | 1,895,687  |      |                                             |   | 4,593,375  |                      |  |      | 6,972,881  |   |  |   | 5,231,950  |   |  |   | 6,432,503  |  
|                                                                                |  |                                  |            |      |                                             |   |            |                      |  |      |            |   |  |   |            |   |  |   |            |  
|Operating expenses:                                                             |  |                                  |            |      |                                             |   |            |                      |  |      |            |   |  |   |            |   |  |   |            |  
|Research and development                                                        |  |                                  | 4,925,607  |      |                                             |   | 2,869,073  |                      |  |      | 6,116,275  |   |  |   | 3,724,459  |   |  |   | 4,917,608  |  
|General and administrative                                                      |  |                                  | 1,529,946  |      |                                             |   | 1,155,224  |                      |  |      | 2,290,985  |   |  |   | 2,479,528  |   |  |   | 2,388,906  |  
|Non-cash stock compensation charges (A)                                         |  |                                  | 152,178    |      |                                             |   | 889,369    |                      |  |      | 1,105,643  |   |  |   | 217,347    |   |  |   | 180,768    |  
|                                                                                |  |                                  |            |      |                                             |   |            |                      |  |      |            |   |  |   |            |   |  |   |            |  
|Total operating expenses                                                        |  |                                  | 6,607,731  |      |                                             |   | 4,913,666  |                      |  |      | 9,512,903  |   |  |   | 6,421,334  |   |  |   | 7,487,282  |  
|Loss from operations                                                            |  |                                  | (4,712,044 | )    |                                             |   | (320,291   | )                    |  |      | (2,540,022 | ) |  |   | (1,189,384 | ) |  |   | (1,054,779 | )
|Interest income, net                                                            |  |                                  | 167,346    |      |                                             |   | 13,006     |                      |  |      | 148,971    |   |  |   | 14,511     |   |  |   | 72,143     |  
|Change in fair value of common stock warrants                                   |  |                                  | 498,456    |      |                                             |   | (3,498,909 | )                    |  |      | (3,602,839 | ) |  |   |           |   |  |   |           |  
|                                                                                |  |                                  |            |      |                                             |   |            |                      |  |      |            |   |  |   |            |   |  |   |            |  
|Net loss before preferred stock dividends                                       |  |                                  | (4,046,242 | )    |                                             |   | (3,806,194 | )                    |  |      | (5,993,890 | ) |  |   | (1,174,873 | ) |  |   | (982,636   | )
|Dividends on 9% cumulative convertible preferred stock                          |  |                                  |           |      |                                             |   |           |                      |  |      |           |   |  |   |           |   |  |   | 675        |  
|                                                                                |  |                                  |            |      |                                             |   |            |                      |  |      |            |   |  |   |            |   |  |   |            |  
|Net loss applicable to common stock                                             |  | $                                | (4,046,242 | )    |                                             | $ | (3,806,194 | )                    |  | $    | (5,993,890 | ) |  | $ | (1,174,873 | ) |  | $ | (983,311   | )
|                                                                                |  |                                  |            |      |                                             |   |            |                      |  |      |            |   |  |   |            |   |  |   |            |  
|Net loss per share, basic and diluted                                           |  | $                                | (0.14      | )    |                                             | $ | (0.20      | )                    |  | $    | (0.26      | ) |  | $ | (0.07      | ) |  | $ | (0.06      | )
|                                                                                |  |                                  |            |      |                                             |   |            |                      |  |      |            |   |  |   |            |   |  |   |            |  
|Shares used in basic and diluted calculation                                    |  |                                  | 28,355,202 |      |                                             |   | 19,480,020 |                      |  |      | 23,182,179 |   |  |   | 16,868,310 |   |  |   | 16,712,115 |  
|                                                                                |  |                                  |            |      |                                             |   |            |                      |  |      |            |   |  |   |            |   |  |   |            |  
|(A) Non-cash stock compensation charges include the following related expenses: |  |                                  |            |      |                                             |   |            |                      |  |      |            |   |  |   |            |   |  |   |            |  
|Research and development                                                        |  | $                                | 84,533     |      |                                             | $ | 60,164     |                      |  | $    | 188,958    |   |  | $ | 76,842     |   |  | $ | 125,241    |  
|General and administrative                                                      |  |                                  | 67,645     |      |                                             |   | 829,205    |                      |  |      | 916,685    |   |  |   | 140,505    |   |  |   | 55,527     |  
|                                                                                |  |                                  |            |      |                                             |   |            |                      |  |      |            |   |  |   |            |   |  |   |            |  
|                                                                                |  | $                                | 152,178    |      |                                             | $ | 889,369    |                      |  | $    | 1,105,643  |   |  | $ | 217,347    |   |  | $ | 180,768    |  
|                                                                                |  |                                  |            |      |                                             |   |            |                      |  |      |            |   |  |   |            |   |  |   |            |  



See accompanying
notes.



F - 5



---

##### Table of Contents

Cortex Pharmaceuticals, Inc.

STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)



|                                                                                                                               |  |                                       |         |   |                                   |   |             |  |                           |        |  |                      |            |                                   |  |   |                    |  |   |         |   |  |   |             |   |  |   |            |  
|------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------- | ------- | - | --------------------------------- | - | ----------- |  | ------------------------- | ------ |  | -------------------- | ---------- | --------------------------------- |  | - | ------------------ |  | - | ------- | - |  | - | ----------- | - |  | - | ---------- | -
|                                                                                                                               |  | 9%cumulativeconvertiblepreferredstock |         |   | Series Bconvertiblepreferredstock |   | Commonstock |  | Additionalpaid-in capital |        |  | Deferredcompensation |            | AccumulatedOtherComprehensiveLoss |  |   | Accumulateddeficit |  |   | Total   |  
|Balance, June 30, 2001                                                                                                         |  | $                                     | 15,000  |   |                                   | $ | 21,703      |  | $                         | 16,629 |  | $                    | 41,998,545 |                                   |  | $ |                   |  | $ |        |   |  | $ | (41,931,594 | ) |  | $ | 120,283    |  
|                                                                                                                               |  |                                       |         |   |                                   |   |             | 
|Issuance of 217,500 shares of common stock upon exercise of stock options                                                      |  |                                       |        |   |                                   |   |            |  |                           | 217    |  |                      | 90,449     |                                   |  |   |                   |  |   |        |   |  |   |            |   |  |   | 90,666     |  
|Conversion of 15,000 shares of 9% preferred stock into 1,999 shares of common stock                                            |  |                                       | (15,000 | ) |                                   |   |            |  |                           | 2      |  |                      | 14,998     |                                   |  |   |                   |  |   |        |   |  |   |            |   |  |   |           |  
|Issuance and vesting of stock options for consultants                                                                          |  |                                       |        |   |                                   |   |            |  |                           |       |  |                      | 139,542    |                                   |  |   |                   |  |   |        |   |  |   |            |   |  |   | 139,542    |  
|Non-cash compensation charges for stock options re-priced in 1998                                                              |  |                                       |        |   |                                   |   |            |  |                           |       |  |                      | 41,226     |                                   |  |   |                   |  |   |        |   |  |   |            |   |  |   | 41,226     |  
|9% preferred stock dividends                                                                                                   |  |                                       |        |   |                                   |   |            |  |                           |       |  |                      | (675       | )                                 |  |   |                    |  |   |        |   |  |   |            |   |  |   | (675       | )
|Net loss and comprehensive loss                                                                                                |  |                                       |        |   |                                   |   |            |  |                           |       |  |                      |           |                                   |  |   |                   |  |   |        |   |  |   | (982,636    | ) |  |   | (982,636   | )
|                                                                                                                               |  |                                       |         |   |                                   |   |             |  |                           |        |  |                      |            |                                   |  |   |                    |  |   |         |   |  |   |             |   |  |   |            |  
|Balance, June 30, 2002                                                                                                         |  |                                       |        |   |                                   |   | 21,703      |  |                           | 16,848 |  |                      | 42,284,085 |                                   |  |   |                   |  |   |        |   |  |   | (42,914,230 | ) |  |   | (591,594   | )
|                                                                                                                               |  |                                       |         |   |                                   |   |             | 
|Issuance of 304,276 shares of common stock upon exercise of stock options                                                      |  |                                       |        |   |                                   |   |            |  |                           | 305    |  |                      | 128,467    |                                   |  |   |                   |  |   |        |   |  |   |            |   |  |   | 128,772    |  
|Issuance and vesting of stock options and warrants for consultants                                                             |  |                                       |        |   |                                   |   |            |  |                           |       |  |                      | 165,447    |                                   |  |   |                   |  |   |        |   |  |   |            |   |  |   | 165,447    |  
|Compensation expense relating to extension of stock options previously granted to former President and Chief Executive Officer |  |                                       |        |   |                                   |   |            |  |                           |       |  |                      | 51,900     |                                   |  |   |                   |  |   |        |   |  |   |            |   |  |   | 51,900     |  
|Net loss and comprehensive loss                                                                                                |  |                                       |        |   |                                   |   |            |  |                           |       |  |                      |           |                                   |  |   |                   |  |   |        |   |  |   | (1,174,873  | ) |  |   | (1,174,873 | )
|                                                                                                                               |  |                                       |         |   |                                   |   |             |  |                           |        |  |                      |            |                                   |  |   |                    |  |   |         |   |  |   |             |   |  |   |            |  
|Balance, June 30, 2003                                                                                                         |  |                                       |        |   |                                   |   | 21,703      |  |                           | 17,153 |  |                      | 42,629,899 |                                   |  |   |                   |  |   |        |   |  |   | (44,089,103 | ) |  |   | (1,420,348 | )
|                                                                                                                               |  |                                       |         |   |                                   |   |             | 
|Sale of 3,333,334 shares of common stock, $1.50 per share, net of expenses                                                     |  |                                       |        |   |                                   |   |            |  |                           | 3,333  |  |                      | 4,453,977  |                                   |  |   |                   |  |   |        |   |  |   |            |   |  |   | 4,457,310  |  
|Sale of 6,909,091 shares of common stock, $2.75 per share, net of expenses                                                     |  |                                       |        |   |                                   |   |            |  |                           | 6,909  |  |                      | 17,455,098 |                                   |  |   |                   |  |   |        |   |  |   |            |   |  |   | 17,462,007 |  
|Issuance of 280,678 shares of common stock upon exercise of stock options                                                      |  |                                       |        |   |                                   |   |            |  |                           | 281    |  |                      | 251,422    |                                   |  |   |                   |  |   |        |   |  |   |            |   |  |   | 251,703    |  
|Issuance of 678,229 shares of common stock upon exercise of warrants                                                           |  |                                       |        |   |                                   |   |            |  |                           | 678    |  |                      | 1,058,696  |                                   |  |   |                   |  |   |        |   |  |   |            |   |  |   | 1,059,374  |  
|Issuance and vesting of stock options and warrants for consultants                                                             |  |                                       |        |   |                                   |   |            |  |                           |       |  |                      | 1,061,644  |                                   |  |   |                   |  |   |        |   |  |   |            |   |  |   | 1,061,644  |  
|Non-cash compensation charges for stock options re-priced in 1998                                                              |  |                                       |        |   |                                   |   |            |  |                           |       |  |                      | 43,999     |                                   |  |   |                   |  |   |        |   |  |   |            |   |  |   | 43,999     |  
|Change in value of warrants issued with sales of common stock                                                                  |  |                                       |        |   |                                   |   |            |  |                           |       |  |                      | 3,466,668  |                                   |  |   |                   |  |   |        |   |  |   |            |   |  |   | 3,466,668  |  
|Amortization of capitalized financing costs                                                                                    |  |                                       |        |   |                                   |   |            |  |                           |       |  |                      | 136,171    |                                   |  |   |                   |  |   |        |   |  |   |            |   |  |   | 136,171    |  
|Comprehensive loss                                                                                                             |  |                                       |         |   |                                   |   |             |  |                           |        |  |                      |            |                                   |  |   |                    |  |   |         |   |  |   |             |   |  |   |            |  
|Net loss                                                                                                                       |  |                                       |        |   |                                   |   |            |  |                           |       |  |                      |           |                                   |  |   |                   |  |   |        |   |  |   | (5,993,890  | ) |  |   | (5,993,890 | )
|Unrealized loss on available for sale U.S. Government and other marketable securities                                          |  |                                       |        |   |                                   |   |            |  |                           |       |  |                      |           |                                   |  |   |                   |  |   | (35,670 | ) |  |   |            |   |  |   | (35,670    | )
|                                                                                                                               |  |                                       |         |   |                                   |   |             |  |                           |        |  |                      |            |                                   |  |   |                    |  |   |         |   |  |   |             |   |  |   |            |  
|Comprehensive loss                                                                                                             |  |                                       |        |   |                                   |   |            |  |                           |       |  |                      |           |                                   |  |   |                   |  |   | (35,670 | ) |  |   | (5,993,890  | ) |  |   | (6,029,560 | )
|                                                                                                                               |  |                                       |         |   |                                   |   |             |  |                           |        |  |                      |            |                                   |  |   |                    |  |   |         |   |  |   |             |   |  |   |            |  
|Balance, June 30, 2004                                                                                                         |  | $                                     |        |   |                                   | $ | 21,703      |  | $                         | 28,354 |  | $                    | 70,557,574 |                                   |  | $ |                   |  | $ | (35,670 | ) |  | $ | (50,082,993 | ) |  | $ | 20,488,968 |  
|                                                                                                                               |  |                                       |         |   |                                   |   |             |  |                           |        |  |                      |            |                                   |  |   |                    |  |   |         |   |  |   |             |   |  |   |            |  



Continued



F-6



---

##### Table of Contents

Cortex Pharmaceuticals, Inc.



STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)



(Continued)



|                                                                                                                  |  |                                       |   |                                   |   |             |  |                           |        |                      |   |            |                                   |   |          |                    |  |   |         |   |  |   |             |   |  |   |            |  
|----------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | - | --------------------------------- | - | ----------- |  | ------------------------- | ------ | -------------------- | - | ---------- | --------------------------------- | - | -------- | ------------------ |  | - | ------- | - |  | - | ----------- | - |  | - | ---------- | -
|                                                                                                                  |  | 9%cumulativeconvertiblepreferredstock |   | Series Bconvertiblepreferredstock |   | Commonstock |  | Additionalpaid-in capital |        | Deferredcompensation |   |            | AccumulatedOtherComprehensiveLoss |   |          | Accumulateddeficit |  |   | Total   |  
|Balance, June 30, 2004                                                                                            |  | $                                     |  |                                   | $ | 21,703      |  | $                         | 28,354 |                      | $ | 70,557,574 |                                   | $ |         |                    |  | $ | (35,670 | ) |  | $ | (50,082,993 | ) |  | $ | 20,488,968 |  
|Sale of 4,233,333 shares of common stock, $2.66 per share, net of estimated value of warrants issued to investors |  |                                       |  |                                   |   |            |  |                           | 4,233  |                      |   | 6,790,265  |                                   |   |         |                    |  |   |        |   |  |   |            |   |  |   | 6,794,498  |  
|Issuance of 313 shares of common stock upon exercise of stock options                                             |  |                                       |  |                                   |   |            |  |                           | 1      |                      |   | 256        |                                   |   |         |                    |  |   |        |   |  |   |            |   |  |   | 257        |  
|Issuance of 100,000 shares of restricted stock in connection with an employment agreement                         |  |                                       |  |                                   |   |            |  |                           | 100    |                      |   | 212,900    |                                   |   | (213,000 | )                  |  |   |        |   |  |   |            |   |  |   |           |  
|Issuance and vesting of stock options and warrants for consultants and other service providers                    |  |                                       |  |                                   |   |            |  |                           |       |                      |   | 384,188    |                                   |   |         |                    |  |   |        |   |  |   |            |   |  |   | 384,188    |  
|Amortization of deferred compensation for issued restricted stock                                                 |  |                                       |  |                                   |   |            |  |                           |       |                      |   |           |                                   |   | 17,750   |                    |  |   |        |   |  |   |            |   |  |   | 17,750     |  
|Non-cash compensation charges for stock options re-priced in 1998                                                 |  |                                       |  |                                   |   |            |  |                           |       |                      |   | 19,674     |                                   |   |         |                    |  |   |        |   |  |   |            |   |  |   | 19,674     |  
|Comprehensive loss                                                                                                |  |                                       |   |                                   |   |             |  |                           |        |                      |   |            |                                   |   |          |                    |  |   |         |   |  |   |             |   |  |   |            |  
|Net loss                                                                                                          |  |                                       |  |                                   |   |            |  |                           |       |                      |   |           |                                   |   |         |                    |  |   |        |   |  |   | (4,046,242  | ) |  |   | (4,046,242 | )
|Unrealized loss on available for sale U.S. Government and other marketable securities                             |  |                                       |  |                                   |   |            |  |                           |       |                      |   |           |                                   |   |         |                    |  |   | (12,446 | ) |  |   |            |   |  |   | (12,446    | )
|                                                                                                                  |  |                                       |   |                                   |   |             |  |                           |        |                      |   |            |                                   |   |          |                    |  |   |         |   |  |   |             |   |  |   |            |  
|Comprehensive loss                                                                                                |  |                                       |  |                                   |   |            |  |                           |       |                      |   |           |                                   |   |         |                    |  |   | (12,446 | ) |  |   | (4,046,242  | ) |  |   | (4,058,688 | )
|                                                                                                                  |  |                                       |   |                                   |   |             |  |                           |        |                      |   |            |                                   |   |          |                    |  |   |         |   |  |   |             |   |  |   |            |  
|Balance, December 31, 2004                                                                                        |  | $                                     |  |                                   | $ | 21,703      |  | $                         | 32,688 |                      | $ | 77,964,857 |                                   | $ | (195,250 | )                  |  | $ | (48,116 | ) |  | $ | (54,129,235 | ) |  | $ | 23,646,647 |  
|                                                                                                                  |  |                                       |   |                                   |   |             |  |                           |        |                      |   |            |                                   |   |          |                    |  |   |         |   |  |   |             |   |  |   |            |  



See accompanying
notes.



F-7



---

##### Table of Contents

Cortex Pharmaceuticals, Inc.



STATEMENTS OF CASH FLOWS



|                                                                               |  |                                  |             |      |                                             |   |            |                      |  |      |             |   |  |   |            |   |  |   |            |  
|------------------------------------------------------------------------------ |  | -------------------------------- | ----------- | ---- | ------------------------------------------- | - | ---------- | -------------------- |  | ---- | ----------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                                                               |  | Six Months EndedDecember 31,2004 |             |      | Six Months EndedDecember 31,2003(Unaudited) |   |            | Years ended June 30, | 
|                                                                               |  |                                  |             | 2004 |                                             |   | 2003       |                      |  | 2002 |            
|Cash flows from operating activities:                                          |  |                                  |             |      |                                             |   |            |                      |  |      |             |   |  |   |            |   |  |   |            |  
|Net loss before preferred stock dividends                                      |  | $                                | (4,046,242  | )    |                                             | $ | (3,806,194 | )                    |  | $    | (5,993,890  | ) |  | $ | (1,174,873 | ) |  | $ | (982,636   | )
|Adjustments to reconcile net loss to net cash used in operating activities:    |  |                                  |             |      |                                             |   |            |                      |  |      |             |   |  |   |            |   |  |   |            |  
|Depreciation and amortization                                                  |  |                                  | 55,768      |      |                                             |   | 59,424     |                      |  |      | 119,748     |   |  |   | 155,846    |   |  |   | 153,176    |  
|Stock option compensation expense                                              |  |                                  | 152,178     |      |                                             |   | 889,369    |                      |  |      | 1,105,643   |   |  |   | 217,347    |   |  |   | 180,768    |  
|Amortization of capitalized financing costs                                    |  |                                  | 9,544       |      |                                             |   | 32,241     |                      |  |      | 136,171     |   |  |   |           |   |  |   |           |  
|Change in fair value of common stock warrants                                  |  |                                  | (508,000    | )    |                                             |   | 3,466,668  |                      |  |      | 3,466,668   |   |  |   |           |   |  |   |           |  
|Changes in operating assets/liabilities:                                       |  |                                  |             |      |                                             |   |            |                      |  |      |             |   |  |   |            |   |  |   |            |  
|Restricted cash                                                                |  |                                  |            |      |                                             |   | 80,698     |                      |  |      | 83,411      |   |  |   | 97,475     |   |  |   | 11,414     |  
|Accrued interest on marketable securities                                      |  |                                  | 101,946     |      |                                             |   |           |                      |  |      | 21,511      |   |  |   |           |   |  |   |           |  
|Accounts receivable                                                            |  |                                  | 90,789      |      |                                             |   | (249,389   | )                    |  |      | 295,924     |   |  |   | (312,979   | ) |  |   | (115,472   | )
|Other current assets                                                           |  |                                  | (49,585     | )    |                                             |   | (107,952   | )                    |  |      | (57,726     | ) |  |   | 140,333    |   |  |   | (90,193    | )
|Accounts payable and accrued expenses                                          |  |                                  | 89,412      |      |                                             |   | 549,083    |                      |  |      | 475,098     |   |  |   | 671,149    |   |  |   | (144,556   | )
|Unearned revenue                                                               |  |                                  | (186,571    | )    |                                             |   | (1,474,918 | )                    |  |      | (1,677,614  | ) |  |   | (649,659   | ) |  |   | (1,709,691 | )
|Changes in other assets and other liabilities                                  |  |                                  | 7,732       |      |                                             |   | 3,053      |                      |  |      | 4,972       |   |  |   | 5,468      |   |  |   | 6,562      |  
|                                                                               |  |                                  |             |      |                                             |   |            |                      |  |      |             |   |  |   |            |   |  |   |            |  
|Net cash used in operating activities                                          |  |                                  | (4,283,029  | )    |                                             |   | (557,917   | )                    |  |      | (2,020,084  | ) |  |   | (849,893   | ) |  |   | (2,690,628 | )
|                                                                               |  |                                  |             |      |                                             |   |            |                      |  |      |             |   |  |   |            |   |  |   |            |  
|                                                                               |  |                                  |             |      |                                            
|Cash flows from investing activities:                                          |  |                                  |             |      |                                             |   |            |                      |  |      |             |   |  |   |            |   |  |   |            |  
|Purchase of marketable securities                                              |  |                                  | (14,342,439 | )    |                                             |   | (600,000   | )                    |  |      | (15,467,735 | ) |  |   |           |   |  |   | (1,000,000 | )
|Proceeds from maturities of marketable securities                              |  |                                  | 7,600,000   |      |                                             |   | 200,000    |                      |  |      | 3,200,000   |   |  |   |           |   |  |   | 1,000,000  |  
|Purchase of fixed assets                                                       |  |                                  | (179,260    | )    |                                             |   | (9,888     | )                    |  |      | (90,672     | ) |  |   | (2,834     | ) |  |   | (107,870   | )
|                                                                               |  |                                  |             |      |                                             |   |            |                      |  |      |             |   |  |   |            |   |  |   |            |  
|Net cash used in investing activities                                          |  |                                  | (6,921,699  | )    |                                             |   | (409,888   | )                    |  |      | (12,358,407 | ) |  |   | (2,834     | ) |  |   | (107,870   | )
|                                                                               |  |                                  |             |      |                                             |   |            |                      |  |      |             |   |  |   |            |   |  |   |            |  
|                                                                               |  |                                  |             |      |                                            
|Cash flows from financing activities:                                          |  |                                  |             |      |                                             |   |            |                      |  |      |             |   |  |   |            |   |  |   |            |  
|Proceeds from issuance of common stock in December 2004 private placement, net |  |                                  | 10,384,829  |      |                                             |   |           |                      |  |      |            |   |  |   |           |   |  |   |           |  
|Proceeds from issuance of common stock in January 2004 private placement, net  |  |                                  |            |      |                                             |   |           |                      |  |      | 17,462,007  |   |  |   |           |   |  |   |           |  
|Proceeds from issuance of common stock in August 2003 private placement, net   |  |                                  |            |      |                                             |   | 4,495,729  |                      |  |      | 4,457,310   |   |  |   |           |   |  |   |           |  
|Proceeds from issuance of common stock upon exercise of warrants               |  |                                  |            |      |                                             |   | 75,180     |                      |  |      | 1,059,374   |   |  |   |           |   |  |   |           |  
|Proceeds from issuance of common stock upon exercise of stock options          |  |                                  | 257         |      |                                             |   | 119,117    |                      |  |      | 251,703     |   |  |   | 128,772    |   |  |   | 90,666     |  
|Payment of 9% preferred stock dividends                                        |  |                                  |            |      |                                             |   |           |                      |  |      |            |   |  |   |           |   |  |   | (675       | )
|                                                                               |  |                                  |             |      |                                             |   |            |                      |  |      |             |   |  |   |            |   |  |   |            |  
|Net cash provided by financing activities                                      |  |                                  | 10,385,086  |      |                                             |   | 4,690,026  |                      |  |      | 23,230,394  |   |  |   | 128,772    |   |  |   | 89,991     |  
|                                                                               |  |                                  |             |      |                                             |   |            |                      |  |      |             |   |  |   |            |   |  |   |            |  
|Increase (decrease) in cash and cash equivalents                               |  |                                  | (819,642    | )    |                                             |   | 3,722,221  |                      |  |      | 8,851,903   |   |  |   | (723,955   | ) |  |   | (2,708,507 | )
|Cash and cash equivalents, beginning of period                                 |  |                                  | 9,976,957   |      |                                             |   | 1,125,054  |                      |  |      | 1,125,054   |   |  |   | 1,849,009  |   |  |   | 4,557,516  |  
|                                                                               |  |                                  |             |      |                                             |   |            |                      |  |      |             |   |  |   |            |   |  |   |            |  
|Cash and cash equivalents, end of period                                       |  | $                                | 9,157,315   |      |                                             | $ | 4,847,275  |                      |  | $    | 9,976,957   |   |  | $ | 1,125,054  |   |  | $ | 1,849,009  |  
|                                                                               |  |                                  |             |      |                                             |   |            |                      |  |      |             |   |  |   |            |   |  |   |            |  
|Supplemental schedule of non-cash investing and financing activities:          |  |                                  |             |      |                                             |   |            |                      |  |      |             |   |  |   |            |   |  |   |            |  
|Conversion of preferred stock to common stock                                  |  | $                                |            |      |                                             | $ |           |                      |  | $    |            |   |  | $ |           |   |  | $ | 15,000     |  



See accompanying
notes.



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Cortex Pharmaceuticals, Inc.

NOTES TO FINANCIAL STATEMENTS

(Information for the Six Months ended December 31, 2003 is unaudited)



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), a subsidiary of Akzo Nobel (Note 5). The agreement will enable Organon to develop and commercialize the Companys AMPAKINE®technology for the treatment of schizophrenia and depression. In
October 2000, the Company entered into a research collaboration and exclusive license agreement with Les Laboratoires Servier (Servier). The agreement, as amended in October 2002, will enable Servier to develop and commercialize the
Companys AMPAKINE technology for the treatment of anxiety disorders and memory impairment associated with aging and neurodegenerative diseases, such as Alzheimers disease (Note 4).



From inception through December 31, 2004, 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. These agreements contributed 94%, 98%, 97%, 91% and 89% of total revenues for the six months ended December
31, 2004 and 2003 and the years ended June 30, 2004, 2003 and 2002, respectively.



Under the agreement with Servier, during the six months ended December 31, 2004 and 2003 and years ended June 30, 2004, 2003 and 2002 the Company recorded research and licensing revenues of approximately $1,788,000, $2,504,000, $4,791,000,
$4,756,000 and $3,720,000, respectively. During the same periods, the Company incurred direct and indirect expenses for the Servier research collaboration totaling approximately $1,082,000, $1,058,000, $2,139,000, $2,098,000 and $2,053,000,
respectively.



Under the agreement with Organon, the Company recorded research
and licensing revenues of $2,000,000 for the six months ended December 31, 2003 and the years ended June 30, 2004 and 2002. There were no research or license revenues for the six months ended December 31, 2004 or the year ended June 30, 2003. During
the same periods the Company incurred no direct or indirect expenses for the Organon research collaboration.



With the proceeds from the Companys private placement of its common stock in December 2004, Cortex anticipates that it has sufficient capital and committed funding to maintain its operations through calendar
year 2006; 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.



Basis of Presentation  As reported on the Companys Current Report on Form 8-K dated November 10, 2004, the Company changed its fiscal year end from June 30 to December 31. As a result, the Company is



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reporting a six-month transition period ended December 31, 2004 in order to change its fiscal year to match the calendar year. Unaudited results for the
six-month period ended December 31, 2003 have been included for comparative purposes.



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



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 its carrying amount. The Company has not recognized any impairment losses through December 31, 2004.



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 recognizes research revenue from its collaborations with Servier (Note 4) and
Organon (Note 5) as services are performed under the agreements. These agreements include compensation to the Company based upon an annual rate for each full-time equivalent employee that dedicates research to the project. The agreements provide
scheduled quarterly payments to the Company in advance of the period during which the services are to be performed. The Company records the resultant revenue from the agreements as it performs 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.



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.



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In November 2002, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board 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, we will apply the principles of Issue 00-21 to multiple element research and licensing agreements
that we may enter into or modify after July 1, 2003.



In accordance with the
Securities and Exchange Commissions Staff Accounting Bulletin No. 101, Revenue Recognition (SAB 101), 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 amortizes 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 ends in early December 2005.



Employee Stock Options and Stock-Based Compensation  In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure (SFAS 148), which is effective for fiscal years ending after December 15, 2002. SFAS 148 provides alternative methods of transition
to the fair value method of accounting for stock-based employee compensation under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). SFAS 148 also requires disclosure of
the effects of stock-based employee compensation on reported net income or loss and earnings or loss per share in annual and interim financial statements.



As permitted under SFAS 123, the Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
25), in accounting for its employee stock options, given that the alternative fair value accounting provided for under SFAS 123 requires use of option valuation models that were not developed for use in valuing employee stock options.
According to APB 25, no compensation expense is recognized since the exercise price of the Companys stock options generally equals the market price of the underlying stock on the date of grant. Adoption of SFAS 123 for options issued to
employees would require recognition of employee compensation expense based on the computed fair value of the options on the date of grant. 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 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 the services are provided.



Pro forma information regarding net loss and net loss per share is required by SFAS 123,
and has been determined as if the Company had accounted for its employee stock plans under the fair value method. The fair value was estimated at the date of grant using the Black-Scholes option pricing model and the following assumptions for the
six months ended December 31, 2004 and 2003 and years ended June 30, 2004, 2003 and 2002, respectively: weighted average risk-free interest rates of 3.3%, 2.1%, 2.2%, 2.8% and 3.4%; dividend yields of 0%; volatility factors of the expected market
price of the Companys common stock of 63%, 106%, 105%, 99% and 68%; and a weighted average life of 4.8 years, 3.8 years, 3.8 years, 4.0 years and 4.5 years.



The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Companys employee stock options have characteristics
significantly different from those of traded options, and because changes in the subjective assumptions can materially affect the fair value estimate, in managements opinion the existing models do not provide a reliable single measure of the
fair value of its employee stock options.



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For purposes of pro forma disclosures, the estimated fair value of the options is amortized as expense over the vesting
period of the options, resulting in the following pro forma information for the six months ended December 31, 2004 and 2003 and the years ended June 30, 2004, 2003 and 2002:



|                                                                                                         |  |                                 |            |      |                                            |   |            |                     |  |      |            |   |  |   |            |   |  |   |            |  
|-------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ---------- | ---- | ------------------------------------------ | - | ---------- | ------------------- |  | ---- | ---------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                         |  | Six MonthsEndedDecember 31,2004 |            |      | Six MonthsEndedDecember 31,2003(Unaudited) |   |            | Year ended June 30, | 
|                                                                                                         |  |                                 |            | 2004 |                                            |   | 2003       |                     |  | 2002 |           
|Net loss applicable to common stockholders, as reported                                                  |  | $                               | (4,046,242 | )    |                                            | $ | (3,806,194 | )                   |  | $    | (5,993,890 | ) |  | $ | (1,174,873 | ) |  | $ | (983,311   | )
|Stock-based employee compensation expense included in reported net loss                                  |  |                                 | 16,927     |      |                                            |   | 30,948     |                     |  |      | 37,295     |   |  |   |           |   |  |   | 8,120      |  
|Total stock-based employee compensation expense determined under fair value based method for all options |  |                                 | (665,491   | )    |                                            |   | (1,116,369 | )                   |  |      | (1,857,440 | ) |  |   | (692,366   | ) |  |   | (677,929   | )
|                                                                                                         |  |                                 |            |      |                                            |   |            |                     |  |      |            |   |  |   |            |   |  |   |            |  
|Pro forma net loss applicable to common stockholders                                                     |  | $                               | (4,694,806 | )    |                                            | $ | (4,891,615 | )                   |  | $    | (7,814,035 | ) |  | $ | (1,867,239 | ) |  | $ | (1,653,120 | )
|                                                                                                         |  |                                 |            |      |                                            |   |            |                     |  |      |            |   |  |   |            |   |  |   |            |  
|Basic and diluted net loss per share available to common stockholders, as reported                       |  | $                               | (0.14      | )    |                                            | $ | (0.20      | )                   |  | $    | (0.26      | ) |  | $ | (0.07      | ) |  | $ | (0.06      | )
|Basic and diluted net loss per share available to common stockholders, pro forma                         |  | $                               | (0.17      | )    |                                            | $ | (0.25      | )                   |  | $    | (0.34      | ) |  | $ | (0.11      | ) |  | $ | (0.10      | )



The pro forma effect on net loss shown
above is not necessarily indicative of potential pro forma effects on results for future years. The estimated weighted average fair value of options granted during the six months ended December 31, 2004 and 2003 and the years ended June 30, 2004,
2003 and 2002 was $1.38, $1.96, $1.95, $0.53 and $1.39, respectively.



In March
2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB 25 (FIN 44 or the Interpretation). As
required, the Company adopted the Interpretation on July 1, 2000. The Interpretation requires that stock options that have been modified to reduce the exercise price be accounted for as variable. Prior to release of FIN 44, in December 1998 the
Company re-priced previously issued stock options to purchase approximately 970,000 shares of common stock to a price of $0.375 per share, which represented the fair market value of the common stock on the date of the re-pricing. By adopting the
Interpretation, the Company now applies variable accounting for these options until such options are exercised or forfeited. Of the options re-priced in December 1998, as of December 31, 2004 options to purchase 245,919 remained outstanding.
Consequently, if the market price of the Companys stock increases above $2.50 per share, the fair market value of the Companys common stock on the date that it adopted FIN 44, the Company will recognize additional compensation expense
that it otherwise would not have incurred.



For the six months ended December
31, 2004, applying the Interpretation increased the net loss by $19,700, with no impact on net loss per share. For the six months ended December 31, 2003, the effect of applying FIN 44 was an increase in net loss of $35,100 with no impact on net
loss per share.



For the fiscal year ended June 30, 2004, applying the
Interpretation increased the net loss by $44,000, with no impact on the net loss per share. For the fiscal year ended June 30, 2003, applying the Interpretation had no impact on the net loss or the net loss per share. For the fiscal year ended June
30, 2002, the effect of applying the Interpretation was an increase in the net loss of $41,200, with no impact on the net loss per share.



In December 2004, the Financial Accounting Standards Board issued Statement No. 123(R), Share Based Payment, which is a revision of Statement No. 123,
Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.



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Statement 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.



As required, the Company will adopt Statement No.
123(R) during its quarter ended September 30, 2005. Under Statement No. 123(R), the Company may either recognize compensation cost for share-based payments to employees based on the grant-date fair value from the beginning of the period in which the
provisions are first applied, without restating periods prior to adoption, or the Company may elect to restate prior periods by recognizing compensation costs in the amounts previously reported in the pro-forma footnote disclosures under the
provisions of Statement No. 123, as included above. Cortex currently is evaluating the impact of the two adoption methods prior to determining which method it will utilize.



The Company cannot estimate the impact of adopting Statement 123(R), but based solely upon the pro-forma disclosures for prior periods
believes that the impact may be material to its results of operations. The Company does not anticipate that adoption of Statement No. 123(R) will materially impact its financial condition.



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 and includes dividends accrued on the Companys 9% Cumulative Convertible Preferred Stock. There were no shares of the 9% Cumulative Convertible Preferred Stock outstanding as of June 30, 2002.



The Company has reserved approximately 16.8 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.



Reclassifications Certain reclassifications have been made to the fiscal years ended June 30, 2004, 2003 and 2002 financial statements to conform with the presentation for the transitional six month period ended December
31, 2004.



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Note 2  Detail of Selected Balance Sheet Accounts



The following is a summary of marketable securities as of December 31, 2004:



|                                           |  |      |            |                        |   |                         |  |   |                     |   |  |   |           
|------------------------------------------ |  | ---- | ---------- | ---------------------- | - | ----------------------- |  | - | ------------------- | - |  | - | ----------
|                                           |  | Cost |            | Gross Unrealized Gains |   | Gross Unrealized Losses |  |   | EstimatedFair Value
|Corporate obligations                      |  | $    | 4,562,185  |                        | $ |                        |  | $ | (23,689             | ) |  | $ | 4,538,496 
|U.S. Government obligations                |  |      | 1,490,717  |                        |   | 242                     |  |   | (144                | ) |  |   | 1,490,815 
|Mortgage backed government securities      |  |      | 4,835,044  |                        |   |                        |  |   | (24,291             | ) |  |   | 4,810,753 
|Other asset and mortgage backed securities |  |      | 6,998,771  |                        |   | 312                     |  |   | (546                | ) |  |   | 6,998,537 
|Preferred securities                       |  |      | 1,000,000  |                        |   |                        |  |   |                    |   |  |   | 1,000,000 
|                                           |  |      |            |                        |   |                         |  |   |                     |   |  |   |           
|Total marketable securities                |  | $    | 18,886,717 |                        | $ | 554                     |  | $ | (48,670             | ) |  | $ | 18,838,601
|                                           |  |      |            |                        |   |                         |  |   |                     |   |  |   |           



The amortized cost and estimated fair
value of available-for-sale marketable securities as of December 31, 2004, by contractual maturity, are as follows:



|                                  |  |      |            |                       |   |                       |  |   |                     |   |  |   |           
|--------------------------------- |  | ---- | ---------- | --------------------- | - | --------------------- |  | - | ------------------- | - |  | - | ----------
|                                  |  | Cost |            | Gross UnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|Maturities                        |  |      |            |                       |   |                       |  |   |                     |   |  |   |           
|Within one year                   |  | $    | 17,140,160 |                       | $ | 389                   |  | $ | (41,741             | ) |  | $ | 17,098,808
|After one year through five years |  |      | 1,746,557  |                       |   | 165                   |  |   | (6,929              | ) |  |   | 1,739,793 
|                                  |  |      |            |                       |   |                       |  |   |                     |   |  |   |           
|Total marketable securities       |  | $    | 18,886,717 |                       | $ | 554                   |  | $ | (48,670             | ) |  | $ | 18,838,601
|                                  |  |      |            |                       |   |                       |  |   |                     |   |  |   |           



The following is a summary of
marketable securities as of June 30, 2004:



|                                      |  |      |            |                       |   |                       |  |   |                     |   |  |   |           
|------------------------------------- |  | ---- | ---------- | --------------------- | - | --------------------- |  | - | ------------------- | - |  | - | ----------
|                                      |  | Cost |            | Gross UnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|Corporate obligations                 |  | $    | 3,382,905  |                       | $ |                      |  | $ | (17,685             | ) |  | $ | 3,365,220 
|Mortgage backed government securities |  |      | 8,863,319  |                       |   |                      |  |   | (17,985             | ) |  |   | 8,845,334 
|                                      |  |      |            |                       |   |                       |  |   |                     |   |  |   |           
|Total marketable securities           |  | $    | 12,246,224 |                       | $ |                      |  | $ | (35,670             | ) |  | $ | 12,210,554
|                                      |  |      |            |                       |   |                       |  |   |                     |   |  |   |           



The amortized cost and estimated fair
value of available-for-sale marketable securities as of June 30, 2004, by contractual maturity, are as follows:



|                                  |  |      |            |                       |   |                       |  |   |                     |   |  |   |           
|--------------------------------- |  | ---- | ---------- | --------------------- | - | --------------------- |  | - | ------------------- | - |  | - | ----------
|                                  |  | Cost |            | Gross UnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|Maturities                        |  |      |            |                       |   |                       |  |   |                     |   |  |   |           
|Within one year                   |  | $    | 5,420,632  |                       | $ |                      |  | $ | (10,680             | ) |  | $ | 5,409,952 
|After one year through five years |  |      | 6,825,592  |                       |   |                      |  |   | (24,990             | ) |  |   | 6,800,602 
|                                  |  |      |            |                       |   |                       |  |   |                     |   |  |   |           
|Total marketable securities       |  | $    | 12,246,224 |                       | $ |                      |  | $ | (35,670             | ) |  | $ | 12,210,554
|                                  |  |      |            |                       |   |                       |  |   |                     |   |  |   |           



Gross realized gains and losses on
sales of marketable securities were not significant in the six months ended December 31, 2004 and 2003, or the fiscal years ended June 30, 2004, 2003 or 2002. The Company manages risk on its investment portfolio by matching schedule investment
maturities with its cash requirements.



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Accounts receivable consist of the following:



|                               |  |                   |        |          |      |         |  |   |        
|------------------------------ |  | ----------------- | ------ | -------- | ---- | ------- |  | - | -------
|                               |  | December 31, 2004 |        | June 30,
|                               |  |                   | 2004   |          | 2003
|Receivables from Servier       |  | $                 |       |          | $    | 111,715 |  | $ | 368,349
|Receivables for grant projects |  |                   | 31,952 |          |      | 20,812  |  |   | 13,775 
|Other receivables              |  |                   | 9,786  |          |      |        |  |   | 46,327 
|                               |  |                   |        |          |      |         |  |   |        
|                               |  | $                 | 41,738 |          | $    | 132,527 |  | $ | 428,451
|                               |  |                   |        |          |      |         |  |   |        



Together with Servier, Cortex
conducted a cross-national Phase II clinical study in patients with mild cognitive impairment (MCI). Servier agreed to incur the bulk of the related costs for this study. While Cortex paid many of the associated expenses directly, it
received reimbursement for these amounts from Servier.



Other current assets
consist of the following:



|                           |  |                   |         |          |      |         |  |   |        
|-------------------------- |  | ----------------- | ------- | -------- | ---- | ------- |  | - | -------
|                           |  | December 31, 2004 |         | June 30,
|                           |  |                   | 2004    |          | 2003
|Prepaid license fees       |  | $                 | 60,404  |          | $    | 93,351  |  | $ |       
|Prepaid sponsored research |  |                   | 49,565  |          |      | 8,000   |  |   | 12,458 
|Prepaid insurance fees     |  |                   | 167,164 |          |      | 118,187 |  |   | 62,457 
|Prepaid financing costs    |  |                   |        |          |      |        |  |   | 72,344 
|Prepaid consulting fees    |  |                   | 10,000  |          |      | 10,000  |  |   | 25,000 
|Other                      |  |                   | 30,717  |          |      | 38,727  |  |   | 38,280 
|                           |  |                   |         |          |      |         |  |   |        
|                           |  | $                 | 317,850 |          | $    | 268,265 |  | $ | 210,539
|                           |  |                   |         |          |      |         |  |   |        



Furniture, equipment and leasehold
improvements consist of the following:



|                         |  |                   |            |   |          |      |            |   |  |   |            |  
|------------------------ |  | ----------------- | ---------- | - | -------- | ---- | ---------- | - |  | - | ---------- | -
|                         |  | December 31, 2004 |            |   | June 30, |     
|                         |  |                   | 2004       |   |          | 2003 |           
|Laboratory equipment     |  | $                 | 1,615,573  |   |          | $    | 1,447,007  |   |  | $ | 1,400,804  |  
|Leasehold improvements   |  |                   | 719,482    |   |          |      | 718,874    |   |  |   | 716,724    |  
|Furniture and equipment  |  |                   | 178,764    |   |          |      | 179,329    |   |  |   | 175,431    |  
|Computers and software   |  |                   | 223,522    |   |          |      | 356,368    |   |  |   | 317,947    |  
|                         |  |                   |            |   |          |      |            |   |  |   |            |  
|                         |  |                   | 2,737,341  |   |          |      | 2,701,578  |   |  |   | 2,610,906  |  
|Accumulated depreciation |  |                   | (2,349,523 | ) |          |      | (2,432,386 | ) |  |   | (2,312,638 | )
|                         |  |                   |            |   |          |      |            |   |  |   |            |  
|                         |  | $                 | 387,818    |   |          | $    | 269,192    |   |  | $ | 298,268    |  
|                         |  |                   |            |   |          |      |            |   |  |   |            |  



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 Convertible Preferred Stock outstanding as of December 31, 2004, June 30, 2004 and June 30, 2003 consisted of 37,500 shares of Series B Preferred issued in a May
1991 private placement. Each share of Series B Preferred is convertible into approximately 0.09812 shares of common stock at an effective conversion price of $6.795 per share of common stock, subject to adjustment under certain circumstances. As



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of December 31, 2004, 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. In January 2004, warrants to purchase 339,997 common shares were exercised, resulting in proceeds of approximately $870,000.



In connection with the August 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 June 30, 2004 warrants to purchase 27,000
common shares were exercised, providing proceeds of approximately $40,000. All of the warrants issued in the August 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. The Company cannot exercise this call right prior to December 8, 2005.



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 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. All of the warrants issued in the January 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 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 $3.43 per share to the placement agent for the transaction. All of the warrants
issued in the December 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. The
Company cannot exercise this call right prior to January 26, 2006.



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.



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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
with the following assumptions: no dividends; risk-free interest rate of 3.4%; the contractual life of 5 years and volatility of 100%. The fair value of the warrants was estimated to be $5,000,000 on the closing date of the transaction. The fair
value of the warrants was then re-measured at the September 30, 2003 reporting date and at December 8, 2003, the date of effectiveness of the registration statement. The increase in fair value of the warrants of $3,467,000 from the closing date of
the transaction to the effective date of the registration statement has been 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 with the following assumptions: no dividends; risk-free interest rate of 3.0%; the contractual life of 5 years and volatility of 96%. The fair value
of the warrants was estimated to be $9,521,000 on the closing date of the transaction. The fair value of the warrants was re-measured at March 18, 2004, 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 with the following assumptions: no dividends,
risk-free interest rate of 3.5%; the contractual life of 5 years and volatility of 88%. The fair value of the warrants was estimated to be $4,466,000 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. The warrant liability will be reclassified to additional paid-in capital as of the date of effectiveness for the related registration statement, or January 26, 2005.



For each private placement transaction, the Company amortized related offering costs until
the respective registration statements were declared effective by the SEC. This amortization has been recorded as other expense in the accompanying 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,



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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 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 shall vest in equal installments over a four-year period from the date of issuance and are subject to forfeiture in
the event that employment of the executive officer terminates before the applicable vesting dates. The fair market value of the Restricted Shares as of the issuance date, or $213,000, has been recorded as deferred compensation in the accompanying
Balance Sheet and related expense is being amortized over the vesting period.



In connection with the restructuring of a note payable, from July 1999 to February 2000 the Company issued to the note holder five-year warrants to purchase 200,000 shares of common stock at a weighted-average exercise price of $1.48 per
share. The exercise prices for these warrants were derived from the fair market value of the Companys common stock on the date of issuance. The Company fully repaid the principal and accrued interest on the restructured note during the fiscal
year ended June 30, 2000. During the year ended June 30, 2004, 94,232 shares of the Companys common stock were issued as a result of the net exercise of 150,000 of the related warrants. The remaining warrants to purchase 50,000 shares of
common stock expired unexercised in February 2005.



In connection with the
engagement of a consultant for capital raising purposes, in December 2002 the Company issued a five-year warrant to purchase 200,000 shares of common stock at an exercise price of $0.67 per share. This warrant became exercisable during the fiscal
year ended June 30, 2004 and the Company recorded non-cash expense of approximately $660,000. Warrants to purchase a total of 162,000 shares of the Companys common stock were exercised during the fiscal year ended June 30, 2004, resulting in
proceeds of approximately $109,000.



In connection with the engagement of a
consultant for investor relations purposes, from February 2003 through June 2003 the Company issued five-year warrants to purchase up to an aggregate of 116,000 shares of common stock at a weighted-average exercise price of $0.88 per share. In
connection with the same agreement, from July 2003 through June 2004 the Company issued warrants to purchase up to 48,000 shares of common stock at a weighted-average exercise price of $2.95. From July 2004 through December 2004, the Company issued
warrants to purchase another 24,000 shares of common stock at a weighted-average exercise price of $2.33. The above warrants are fully exercisable and resulted in expense of approximately $34,000, $107,000 and $62,000 for the six months ended
December 31, 2004 and the fiscal years ended June 30, 2004 and 2003, respectively. The exercise prices for the above warrants were derived from the fair market value of the Companys common stock on the date of issuance. During the year ended
June 30, 2004, related warrants to purchase a total of 55,000 shares of the Companys common stock were exercised, resulting in proceeds of approximately $43,000.



As of December 31, 2004, the Company had reserved an aggregate of 3,679 shares for issuance upon conversion of the Series B Preferred Stock;
10,399,972 shares for issuance upon exercise of warrants; 6,436,543 shares for issuance upon exercise of outstanding stock options; and 399,489 shares for issuance upon exercise of stock options available for future grant.



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Warrant transactions by the Company for each of the three years in the period ended June 30, 2004 and the six-month
period ended December 31, 2004 are summarized below:



|                                    |  |                  |   |  |                                          |     
|----------------------------------- |  | ---------------- | - |  | ---------------------------------------- | ----
|                                    |  | Number of shares |   |  | Weighted averageexercise price per share
|Outstanding as of June 30, 2001     |  | 275,000          |   |  | $                                        | 1.50
|Issued                              |  |                 |   |  |                                          |    
|Exercised                           |  |                 |   |  |                                          |    
|Expired                             |  |                 |   |  |                                          |    
|                                    |  |                  |   |  |                                          |     
|Outstanding as of June 30, 2002     |  | 275,000          |   |  | $                                        | 1.50
|Issued                              |  | 316,000          |   |  |                                          | 0.75
|Exercised                           |  |                 |   |  |                                          |    
|Expired                             |  | (75,000          | ) |  |                                          | 1.55
|                                    |  |                  |   |  |                                          |     
|Outstanding as of June 30, 2003     |  | 516,000          |   |  | $                                        | 1.03
|Issued                              |  | 8,313,014        |   |  |                                          | 2.96
|Exercised                           |  | (733,997         | ) |  |                                          | 1.64
|Expired                             |  |                 |   |  |                                          |    
|                                    |  |                  |   |  |                                          |     
|Outstanding as of June 30, 2004     |  | 8,095,017        |   |  | $                                        | 2.96
|Issued                              |  | 2,304,955        |   |  |                                          | 3.02
|Exercised                           |  |                 |   |  |                                          |    
|Expired                             |  |                 |   |  |                                          |    
|                                    |  |                  |   |  |                                          |     
|Outstanding as of December 31, 2004 |  | 10,399,972       |   |  | $                                        | 2.97
|                                    |  |                  |   |  |                                          |     



Information regarding warrants
outstanding and exercisable at December 31, 2004 is as follows:



|                         |  |                                                     |  |                                          |  |                               |     
|------------------------ |  | --------------------------------------------------- |  | ---------------------------------------- |  | ----------------------------- | ----
|Range of exercise prices |  | Numberoutstanding andexercisable atDecember 31,2004 |  | Weightedaverageremainingcontractual life |  | Weightedaverageexercise price
|$ 0.67 - 0.80            |  | 91,000                                              |  | 3.1 years                                |  | $                             | 0.74
|1.50 - 2.19              |  | 27,000                                              |  | 3.9 years                                |  |                               | 1.93
|2.39 - 3.25              |  | 9,828,724                                           |  | 4.1 years                                |  |                               | 2.97
|3.43 - 4.29              |  | 453,248                                             |  | 1.8 years                                |  |                               | 3.47
|                         |  |                                                     |  |                                          |  |                               |     
|                         |  | 10,399,972                                          |  |                                          |  |                               |     
|                         |  |                                                     |  |                                          |  |                               |     



Stock Option and Stock Purchase
Plan



1996 Stock Incentive Plan  The 1996 Plan
provides for the granting of options and rights to purchase up to an aggregate of 8,094,647 shares of the Companys authorized but unissued common stock (subject to adjustment under certain circumstances, such as stock splits, recapitalizations
and reorganizations) to qualified employees, officers, directors, consultants and other service providers. The shares authorized under the 1996 Plan have been adjusted since June 30, 2004 to reflect the reclassification of 1,280,834 shares
previously reserved for issuance under the 1996 Plan to general and unissued shares of the Companys common stock, as approved by the Board of Directors in order to ensure sufficient authorized shares of common stock were available for the
Companys December 14, 2004 private placement of common stock and warrants to purchase shares of common stock.



The exercise price of nonqualified stock options and the purchase price of stock offered under the 1996 Plan, which terminates October 25, 2006, must be at least 85% of
the fair market value of the common stock on the date of grant. The exercise price of incentive stock options must be at least equal to the fair market value of the common stock on the date of grant.



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Subject to any restrictions under federal or state securities laws, for the periods presented through December 15, 2004,
each non executive-officer employee was eligible to receive incentive stock options, beginning three months following the date of hire. An option to purchase that number of shares equal to 2.5% of the then current annual salary of the non
executive-officer employee was awarded three months from the date of hire. A subsequent option to purchase that number of shares equal to 2.5% of then-current annual salary of the non executive-officer employee was awarded on the date six months
from the date of hire. Additionally, all non executive-officer employees were eligible to receive a stock option for that number of shares equal to 100% of any salary increase, as of the date of approval of the increase. These options have a maximum
ten-year term and vest annually over a three-year period from the dates of grant.



Effective December 16, 2004, the Company amended its stock option grant policy for non executive-officer employees. As amended, subject to any restrictions under federal or securities laws, the Chief Executive Officer may award stock
options to new 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 35,000 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 35,000 shares per person per year. Any option grant
exceeding 35,000 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 1996 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 additional options to purchase 25,000 shares of common stock on the date of each Annual Meeting of Stockholders. Stock option issuances to non-employee directors who serve
on the Board of Directors to oversee an investment in the Company are determined separately. 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, 2004, options to purchase an aggregate of 3,753,951 shares of common stock were exercisable under the Companys stock option plan. During the six-month period ended December 31, 2004 and the
years ended June 30, 2004 and 2003 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 each of the three years in the period ended June
30, 2004 and the six-month period ended December 31, 2004 are summarized below:



|                                    |  |                 |   |  |                                          |     
|----------------------------------- |  | --------------- | - |  | ---------------------------------------- | ----
|                                    |  | Numberof shares |   |  | Weighted averageexercise price per share
|Outstanding as of June 30, 2001     |  | 2,430,606       |   |  | $                                        | 1.32
|Granted                             |  | 455,157         |   |  |                                          | 2.48
|Exercised                           |  | (217,500        | ) |  |                                          | 0.42
|Forfeited                           |  | (39,848         | ) |  |                                          | 2.78
|                                    |  |                 |   |  |                                          |     
|Outstanding as of June 30, 2002     |  | 2,628,415       |   |  | $                                        | 1.58
|Granted                             |  | 1,563,195       |   |  |                                          | 0.78
|Exercised                           |  | (304,276        | ) |  |                                          | 0.42
|Expired                             |  | (3,000          | ) |  |                                          | 0.38
|Forfeited                           |  | (226,610        | ) |  |                                          | 2.20
|                                    |  |                 |   |  |                                          |     
|Outstanding as of June 30, 2003     |  | 3,657,724       |   |  | $                                        | 1.29
|Granted                             |  | 1,536,527       |   |  |                                          | 2.76
|Exercised                           |  | (280,678        | ) |  |                                          | 0.90
|Expired                             |  | (4,000          | ) |  |                                          | 0.38
|Forfeited                           |  | (120,491        | ) |  |                                          | 1.96
|                                    |  |                 |   |  |                                          |     
|Outstanding as of June 30, 2004     |  | 4,789,082       |   |  | $                                        | 1.77
|Granted                             |  | 1,754,275       |   |  |                                          | 2.58
|Exercised                           |  | (100,313        | ) |  |                                          | 2.12
|Forfeited                           |  | (6,501          | ) |  |                                          | 2.00
|                                    |  |                 |   |  |                                          |     
|Outstanding as of December 31, 2004 |  | 6,436,543       |   |  | $                                        | 1.97
|                                    |  |                 |   |  |                                          |     
|Available for future grant          |  | 399,489         |   |  |                                          |     
|                                    |  |                 |   |  |                                          |     



Information regarding stock options
outstanding at December 31, 2004 is as follows:



|                         |  |                                      |  |                                          |  |                               |      |                                      |           |                               |   |     
|------------------------ |  | ------------------------------------ |  | ---------------------------------------- |  | ----------------------------- | ---- | ------------------------------------ | --------- | ----------------------------- | - | ----
|                         |  | Options Outstanding                  |  | Options Exercisable                     
|Range of exercise prices |  | Numberoutstanding atDecember 31,2004 |  | Weightedaverageremainingcontractual life |  | Weightedaverageexercise price |      | Numberexercisable atDecember 31,2004 |           | Weightedaverageexercise price
|$0.38 - $0.50            |  | 495,917                              |  | 3.6 years                                |  | $                             | 0.44 |                                      | 495,917   |                               | $ | 0.44
|0.65 -   0.80            |  | 1,601,499                            |  | 7.3 years                                |  |                               | 0.77 |                                      | 1,300,173 |                               |   | 0.77
|0.81 -   1.56            |  | 152,187                              |  | 5.4 years                                |  |                               | 1.03 |                                      | 148,455   |                               |   | 1.03
|1.63 -   2.42            |  | 807,719                              |  | 8.6 years                                |  |                               | 2.12 |                                      | 249,436   |                               |   | 2.07
|2.50 -   3.38            |  | 3,333,084                            |  | 8.7 years                                |  |                               | 2.75 |                                      | 1,513,833 |                               |   | 2.78
|3.77 -   4.44            |  | 46,137                               |  | 6.6 years                                |  |                               | 4.38 |                                      | 46,137    |                               |   | 4.38
|                         |  |                                      |  |                                          |  |                               |      |                                      |           |                               |   |     
|                         |  | 6,436,543                            |  |                                          |  |                               |      |                                      | 3,753,951 |                               |   |     
|                         |  |                                      |  |                                          |  |                               |      |                                      |           |                               |   |     



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, 2004. 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 and exclusive license agreement with Les Laboratoires Servier. The agreement will enable Servier to develop and commercialize Cortexs
proprietary AMPAKINE technology for the treatment of declines in cognitive performance associated with aging and neurodegenerative diseases. The indications covered include, but are not limited to, Alzheimers disease, mild
cognitive impairment, sexual dysfunction, multiple sclerosis and Amyotrophic Lateral Sclerosis. The territory covered by the exclusive license excludes North America, allowing Cortex to retain commercialization rights in its domestic market. The
territory covered by the agreement also excludes South America (except Argentina, Brazil and Venezuela), Australia and New Zealand.



In connection with the agreement, Servier paid Cortex a nonrefundable, up-front payment of $5,000,000. The upfront payment is being amortized as revenue over the research
support period, as extended by the amendments entered into in October 2002 and December 2003. The October 2000 agreement includes research support of approximately $2,000,000 per year through early December 2005, subject to Cortex providing
agreed-upon levels of research. The amount of support is subject to annual adjustment based upon the increase in the U.S. Department of Labors Consumer Price Index. Under the October 2000 agreement, Cortex currently receives annual support of
approximately $2,220,000. The agreement also includes 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.



Note 5  Research and License Agreement with NV
Organon



In January 1999, the Company entered into a research
collaboration and exclusive worldwide license agreement with NV Organon, a pharmaceutical business unit of Akzo Nobel of the Netherlands. 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.



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##### Table of Contents

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.



As the funding from the Institute must be used solely for the planned clinical trials in MCI patients, Cortex recorded the amounts received as restricted cash in the
Companys balance sheet. 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 principle and interest of $277,978, $275,112 and $270,140 at December 31, 2004, June 30, 2004 and June 30, 2003, respectively.



Note 7  Commitments



The Company leases its offices and research laboratories under an operating lease that
expires May 31, 2009. Rent expense under this lease for the six months ended December 31, 2004 and 2003 and years ended June 30, 2004, 2003 and 2002 was approximately $243,000, $167,000, $329,000, $295,000 and $279,000, respectively. Commitments
under the lease for the years ending December 31, 2005, 2006, 2007, 2008 and 2009 are approximately $443,000, $462,000, $482,000, $501,000 and $212,000, respectively.



As of December 31, 2004, the Company has employment agreements with two of its executive officers, which agreements expire in May 2005 and
August 2005. The agreements involve annual salary payments approximating $535,000 and provide for bonuses under certain circumstances.



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 to 18 months of the executive officers then current salary.



Additionally, in the event that the Company commercializes a compound developed by or under the supervision of one of its senior scientific
employees, the Company may be obligated to pay the employee a royalty based on net sales, as defined and subject to adjustment, of products containing the compound.



Commitments for preclinical toxicology procedures and the Phase I clinical studies of CX717 amount to approximately $3,063,000. Separately,
commitments under sponsored research agreements for services to be rendered for the years ending December 31, 2005 and 2006 approximated $865,000 and $281,000, respectively. Commitments under scientific consulting agreements for services to be
rendered for the year



F-23



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##### Table of Contents

ending December 31, 2005 and 2006 approximated $201,000 and $129,000, respectively. Thereafter, such commitments for consulting agreements approximate
$93,000 annually.



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 ending December 31, 2004 and for each year thereafter for the remaining life of the patents covering the subject technologies, with December 2018 the date of the last to expire related patent. The agreements commit
the Company to spend a minimum of $750,000 per year to advance the AMPAKINE compounds during the three years ending in May 2006. Thereafter, the Companys spending requirements will decrease to $250,000 per year and will continue
at that level 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 six months ended December 31, 2004 and 2003 and years ended June 30, 2004, 2003 and 2002, the Company paid scientific and other consulting fees to directors and/or stockholders aggregating approximately $101,000, $26,500,
$58,800, $53,000 and $70,500, respectively. Under certain circumstances, the Company is obligated to make royalty payments to certain of its scientific consultants, some of whom are stockholders, and to one employee, upon successful
commercialization of certain of its products by the Company or its licensees.



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, 2004, the Company had federal and California tax net operating loss carryforwards of approximately $43,000,000 and $27,000,000,
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 net operating loss
carryforward will begin to expire in 2005 and the California net operating loss carryforward will begin to expire in 2010. The Company also has federal and California research and development tax credit carryforwards totaling approximately
$1,000,000 and $500,000, respectively. The federal research and development tax credit carryforwards will begin to expire in 2005. 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 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. Utilization of the net operating loss and tax credit carryforwards from the tax years ended on or before June 30, 1992 is subject to an annual limitation of
approximately $1,500,000, due to ownership change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. If there should be future changes of ownership, these annual limitations for utilization of net operating loss
and tax carryforwards may become more restrictive.



Significant components of
the Companys deferred tax assets as of December 31, 2004, June 30, 2004 and June 30, 2003 are shown below. A valuation allowance of $19,545,000 as of December 31, 2004 has been established against the Companys deferred tax assets as
realization of such assets is uncertain. The increase in the valuation allowance of $840,000 from June 30, 2004 to December 31, 2004 relates primarily to continuing net operating losses.



F-24



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##### Table of Contents

Deferred tax assets consist of the following:



|                                            |  |                  |             |   |          |      |             |   |  |   |             |  
|------------------------------------------- |  | ---------------- | ----------- | - | -------- | ---- | ----------- | - |  | - | ----------- | -
|                                            |  | December 31,2004 |             |   | June 30, |     
|                                            |  |                  | 2004        |   |          | 2003 |            
|Net operating loss carryforwards            |  | $                | 16,715,000  |   |          | $    | 15,881,000  |   |  | $ | 14,272,000  |  
|Research and development credits            |  |                  | 1,367,000   |   |          |      | 1,331,000   |   |  |   | 1,505,000   |  
|Capitalized research and development costs  |  |                  | 459,000     |   |          |      | 341,000     |   |  |   | 690,000     |  
|Unearned revenue                            |  |                  | 147,000     |   |          |      | 238,000     |   |  |   | 923,000     |  
|Depreciation                                |  |                  | 87,000      |   |          |      | 126,000     |   |  |   | 105,000     |  
|Other, net                                  |  |                  | 770,000     |   |          |      | 788,000     |   |  |   | 239,000     |  
|                                            |  |                  |             |   |          |      |             |   |  |   |             |  
|Net deferred tax assets                     |  |                  | 19,545,000  |   |          |      | 18,705,000  |   |  |   | 17,734,000  |  
|Valuation allowance for deferred tax assets |  |                  | (19,545,000 | ) |          |      | (18,705,000 | ) |  |   | (17,734,000 | )
|                                            |  |                  |             |   |          |      |             |   |  |   |             |  
|Total deferred tax assets                   |  | $                |            |   |          | $    |            |   |  | $ |            |  
|                                            |  |                  |             |   |          |      |             |   |  |   |             |  



Note 10  Quarterly Financial
Information (Unaudited)



Summarized quarterly financial data for the six
months ended December 31, 2004 is as follows:



|                                              |  |                                      |            |   |                                     |   |            |  
|--------------------------------------------- |  | ------------------------------------ | ---------- | - | ----------------------------------- | - | ---------- | -
|                                              |  | Three Months EndedSeptember 30, 2004 |            |   | Three Months EndedDecember 31, 2004 |  
|Total revenues                                |  | $                                    | 1,175,166  |   |                                     | $ | 720,521    |  
|Total costs and expenses                      |  |                                      | 2,756,058  |   |                                     |   | 3,851,673  |  
|Loss from operations                          |  |                                      | (1,580,892 | ) |                                     |   | (3,131,152 | )
|Change in fair value of common stock warrants |  |                                      |           |   |                                     |   | 498,456    |  
|Net loss                                      |  | $                                    | (1,511,101 | ) |                                     | $ | (2,535,141 | )
|Basic and diluted loss per share              |  | $                                    | (0.05      | ) |                                     | $ | (0.09      | )



F-25



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##### Table of Contents

Summarized quarterly financial data for the years ended June 30, 2004 and 2003, respectively is as
follows:



|                                              |  |                                       |            |   |                                      |   |           |                                   |  |   |                                  |   |  |   |            |  
|--------------------------------------------- |  | ------------------------------------- | ---------- | - | ------------------------------------ | - | --------- | --------------------------------- |  | - | -------------------------------- | - |  | - | ---------- | -
|                                              |  | Three Months Ended September 30, 2003 |            |   | Three Months Ended December 31, 2003 |   |           | Three Months Ended March 31, 2004 |  |   | Three Months Ended June 30, 2004 |  
|2004 Quarters                                 |  |                                       |            |   |                                      |   |           |                                   |  |   |                                  |   |  |   |            |  
|                                              |  |                                       |            |  
|Total revenues                                |  | $                                     | 1,337,247  |   |                                      | $ | 3,256,128 |                                   |  | $ | 1,166,009                        |   |  | $ | 1,213,497  |  
|Total costs and expenses                      |  |                                       | 1,815,891  |   |                                      |   | 3,097,775 |                                   |  |   | 1,967,581                        |   |  |   | 2,631,656  |  
|Income (loss) from operations                 |  |                                       | (478,644   | ) |                                      |   | 158,353   |                                   |  |   | (801,572                         | ) |  |   | (1,418,159 | )
|Change in fair value of common stock warrants |  |                                       | (3,844,082 | ) |                                      |   | 345,173   |                                   |  |   | (103,930                         | ) |  |   |           |  
|Net income (loss)                             |  | $                                     | (4,318,662 | ) |                                      | $ | 512,468   |                                   |  | $ | (873,504                         | ) |  | $ | (1,314,192 | )
|Basic and diluted loss per share              |  | $                                     | (0.24      | ) |                                      | $ | 0.02      |                                   |  | $ | (0.03                            | ) |  | $ | (0.05      | )
|                                              |  |                                       |            |  
|                                              |  | Three MonthsEnded September 30, 2002  |            |   | Three MonthsEnded December 31, 2002  |   |           | Three MonthsEnded March 31, 2003  |  |   | Three MonthsEnded June 30, 2003  |  
|2003 Quarters                                 |  |                                       |            |   |                                      |   |           |                                   |  |   |                                  |   |  |   |            |  
|                                              |  |                                       |            |  
|Total revenues                                |  | $                                     | 1,122,443  |   |                                      | $ | 1,381,099 |                                   |  | $ | 1,378,984                        |   |  | $ | 1,349,424  |  
|Total costs and expenses                      |  |                                       | 1,804,484  |   |                                      |   | 1,660,664 |                                   |  |   | 1,520,846                        |   |  |   | 1,435,340  |  
|Loss from operations                          |  |                                       | (682,041   | ) |                                      |   | (279,565  | )                                 |  |   | (141,862                         | ) |  |   | (85,916    | )
|Net loss                                      |  | $                                     | (674,405   | ) |                                      | $ | (275,727  | )                                 |  | $ | (139,598                         | ) |  | $ | (85,143    | )
|Basic and diluted loss per share              |  | $                                     | (0.04      | ) |                                      | $ | (0.02     | )                                 |  | $ | (0.01                            | ) |  | $ | (0.01      | )



F-26



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##### Table of Contents

Cortex Pharmaceuticals, Inc.

Transition Report on Form 10-K

Six Months ended December 31, 2004

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, by Certificate of Designation filed February 11, 2002, incorporated by reference to Exhibit 3.1 of the 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 Exhibit 3.2 to the Companys Annual Report on Form 10-KSB filed October 15,
1996.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                          
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.2          |  | Consulting Agreement, dated October 30, 1987, between the Company and Carl W. Cotman, Ph.D. *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.3          |  | Consulting Agreement, dated as October 30, 1987, between the Company and Gary S. Lynch, Ph.D. *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.19         |  | License Agreement dated March 27, 1991 between the Company and the Regents of the University of California, incorporated by reference to Exhibit 10.19 of the Companys Amendment on Form
8 filed November 27, 1991 to the Companys Annual Report on Form 10-K filed September 30, 1991. (Portions of this Exhibit are omitted and were filed separately with the Secretary of the Commission pursuant to the Companys application
requesting confidential treatment under Rule 24b-2 under the Securities Exchange Act of 1934).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.31         |  | License Agreement dated June 25, 1993, 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 Exhibit 10.44 of the Companys Quarterly Report on Form
10-QSB filed May 16, 1994.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.49         |  | Settlement Agreement between the Company and Alkermes, Inc., dated October 5, 1995, incorporated by reference to the same numbered Exhibit to the Companys Annual Report on Form 10-KSB
filed October 13, 1995. (Portions of this Exhibit are omitted and were filed separately with the Secretary of the Commission pursuant to the Companys Application requesting confidential treatment under Rule 406 of the Securities Act of
1933).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                         



EXH-1



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##### Table of Contents

|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                          
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | SequentiallyNumbered Page
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|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 Exhibit 10.64 of the Companys quarterly
report on Form 10-QSB as filed on February 16, 1999. (Portions of this Exhibit were omitted and filed separately with the Secretary of the Commission pursuant to the Companys application requesting confidential treatment under Rule 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 Ruled 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.                                                                                                                                                                                                                                                                              |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.71         |  | Employment agreement dated June 5, 1995 between the Company and Gary A. Rogers, Ph.D., incorporated by reference to the same numbered Exhibit to the Companys Annual Report on Form 10-K
filed October 15, 2002.                                                                                                                                                                                                                                                                                     |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|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         |  | 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.                                                                                                                                                                                                                                             |  |                         



EXH-2



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##### Table of Contents

|              |  |                                                                                                                                                                                                                                                                                                                                                                                                            |  |                          
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                                                                |  | SequentiallyNumbered Page
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|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.                                                                                                                                                   |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|10.83         |  | Amendment dated January 1, 2004 to the employment agreement dated June 5, 1995 between the Company and Gary A. Rogers, Ph.D., 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.                                                                                                                                                                        |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|10.85         |  | Employment letter of agreement dated July 26, 2004 between the Company and Harry H. Mansbach, M.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         |  | 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.                                                                                                                                                                                                                                                                    |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|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.                                                                                                                                                                                                                                                             |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|21            |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                                                            |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|23.1          |  | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                                                               |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|23.2          |  | Consent of Haskell & White LLP, Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                                                             |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|24            |  | Power of Attorney (included as part of the signature page of this Transition 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.                                                                                                                                                                                                                                                                                    |  |                         

---

|* | Incorporated by reference to the same numbered exhibit of the Companys Registration Statement on Form S-1, No. 33-28284, effective on July 18, 1989.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------



EXH-3